G.R. No. 168325 December 8, 2010
Silva, notified Roberto to
ROBERTO D. TUAZON, Petitioner,
vs.
LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON,
WILFREDO DE LEON, MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON,
and GUILLERMA L. SANDICO-SILVA, as attorney-in-fact of the defendants,
except Lourdes Q. Del Rosario-Suarez, Respondents.
DECISION
DEL CASTILLO, J.:
In a situation where the lessor makes an offer to sell to the lessee a certain property
at a fixed price within a certain period, and the lessee fails to accept the offer or to
purchase on time, then the lessee loses his right to buy the property and the owner
can validly offer it to another.
This Petition for Review on Certiorari1 assails the Decision2 dated May 30, 2005 of
the Court of Appeals (CA) in CA-G.R. CV No. 78870, which affirmed the
Decision3 dated November 18, 2002 of the Regional Trial Court (RTC), Branch 101,
Quezon City in Civil Case No. Q-00-42338.
Factual Antecedents
Respondent Lourdes Q. Del Rosario-Suarez (Lourdes) was the owner of a parcel of
land, containing more or less an area of 1,211 square meters located along Tandang
Sora Street, Barangay Old Balara, Quezon City and previously covered by Transfer
Certificate of Title (TCT) No. RT-561184 issued by the Registry of Deeds of Quezon
City.
On June 24, 1994, petitioner Roberto D. Tuazon (Roberto) and Lourdes executed a
Contract of Lease5 over the abovementioned parcel of land for a period of three
years. The lease commenced in March 1994 and ended in February 1997. During the
effectivity of the lease, Lourdes sent a letter6 dated January 2, 1995 to Roberto where
she offered to sell to the latter subject parcel of land. She pegged the price at
₱37,541,000.00 and gave him two years from January 2, 1995 to decide on the said
offer.
On June 19, 1997, or more than four months after the expiration of the Contract of
Lease, Lourdes sold subject parcel of land to her only child, Catalina Suarez-De
Leon, her son-in-law Wilfredo De Leon, and her two grandsons, Miguel Luis S. De
Leon and Rommel S. De Leon (the De Leons), for a total consideration of only
₱2,750,000.00 as evidenced by a Deed of Absolute Sale 7 executed by the parties.
TCT No. 1779868 was then issued by the Registry of Deeds of Quezon City in the
name of the De Leons.
1
The new owners through their attorney-in-fact, Guillerma S.
vacate the premises. Roberto refused hence, the De Leons filed a complaint for
Unlawful Detainer before the Metropolitan Trial Court (MeTC) of Quezon City against
him. On August 30, 2000, the MeTC rendered a Decision9 ordering Roberto to vacate
the property for non-payment of rentals and expiration of the contract.
Ruling of the Regional Trial Court
On November 8, 2000, while the ejectment case was on appeal, Roberto filed with the
RTC of Quezon City a Complaint10 for Annulment of Deed of Absolute Sale,
Reconveyance, Damages and Application for Preliminary Injunction against Lourdes
and the De Leons. On November 13, 2000, Roberto filed a Notice of Lis
Pendens11 with the Registry of Deeds of Quezon City.
On January 8, 2001, respondents filed An Answer with Counterclaim 12 praying that
the Complaint be dismissed for lack of cause of action. They claimed that the filing of
such case was a mere leverage of Roberto against them because of the favorable
Decision issued by the MeTC in the ejectment case.
On September 17, 2001, the RTC issued an Order13 declaring Lourdes and the De
Leons in default for their failure to appear before the court for the second time despite
notice. Upon a Motion for Reconsideration,14 the trial court in an Order15 dated
October 19, 2001 set aside its Order of default.
After trial, the court a quo rendered a Decision declaring the Deed of Absolute Sale
made by Lourdes in favor of the De Leons as valid and binding. The offer made by
Lourdes to Roberto did not ripen into a contract to sell because the price offered by
the former was not acceptable to the latter. The offer made by Lourdes is no longer
binding and effective at the time she decided to sell the subject lot to the De Leons
because the same was not accepted by Roberto. Thus, in a Decision dated
November 18, 2002, the trial court dismissed the complaint. Its dispositive portion
reads:
WHEREFORE, premises considered, judgment is hereby rendered dismissing the
above-entitled Complaint for lack of merit, and ordering the Plaintiff to pay the
Defendants, the following:
1. the amount of ₱30,000.00 as moral damages;
2. the amount of ₱30,000.00 as exemplary damages;
3. the amount of ₱30,000.00 as attorney’s fees; and
4. cost of the litigation.
SO ORDERED.16
Ruling of the Court of Appeals
On May 30, 2005, the CA issued its Decision dismissing Roberto’s appeal and
affirming the Decision of the RTC.
Hence, this Petition for Review on Certiorari filed by Roberto advancing the following
arguments:
I.
The Trial Court and the Court of Appeals had decided that the "Right of First Refusal"
exists only within the parameters of an "Option to Buy", and did not exist when the
property was sold later to a third person, under favorable terms and conditions which
the former buyer can meet.
II.
What is the status or sanctions of an appellee in the Court of Appeals who has not
filed or failed to file an appellee’s brief?17
Petitioner’s Arguments
Roberto claims that Lourdes violated his right to buy subject property under
the principle of "right of first refusal" by not giving him "notice" and the opportunity to
buy the property under the same terms and conditions or specifically based on the
much lower price paid by the De Leons.
Roberto further contends that he is enforcing his "right of first refusal" based
on Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.18 which is the leading
case on the "right of first refusal."
Respondents’ Arguments
On the other hand, respondents posit that this case is not covered by the principle of
"right of first refusal" but an unaccepted unilateral promise to sell or, at best, a
contract of option which was not perfected. The letter of Lourdes to Roberto clearly
embodies an option contract as it grants the latter only two years to exercise the
option to buy the subject property at a price certain of ₱37,541,000.00. As an option
contract, the said letter would have been binding upon Lourdes without need of any
consideration, had Roberto accepted the offer. But in this case there was no
acceptance made neither was there a distinct consideration for the option contract.
2
Our Ruling
The petition is without merit. This case involves an option contract and not a contract
of a right of first refusal
In Beaumont v. Prieto,19 the nature of an option contract is explained thus:
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:
‘A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to, B certain securities or properties
within a limited time at a specified price. (Story vs. Salamon, 71 N. Y., 420.)’
From Vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs.
Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has
been taken:
‘An agreement in writing to give a person the ‘option’ to purchase lands within a given
time at a named price is neither a sale nor an agreement to sell. It is simply a
contract by which the owner of property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time. He
does not sell his land; he does not then agree to sell it; but he does sell something;
that is, the right or privilege to buy at the election or option of the other party. The
second party gets in praesenti, not lands, nor an agreement that he shall have lands,
but he does get something of value; that is, the right to call for and receive lands if he
elects. The owner parts with his right to sell his lands, except to the second party, for
a limited period. The second party receives this right, or rather, from his point of view,
he receives the right to elect to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to
the same thing, to the case where there was cause or consideration for the obligation
x x x. (Emphasis supplied.)
On the other hand, in Ang Yu Asuncion v. Court of Appeals,20 an elucidation on the
"right of first refusal" was made thus:
In the law on sales, the so-called ‘right of first refusal’ is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale under
Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its
normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 of
the same Code. An option or an offer would require, among other things, a clear
certainty on both the object and the cause or consideration of the envisioned
contract. In a right of first refusal, while the object might be made determinate,
the exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely belonging to a class
of preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive) but
by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. It is not to say,
however, that the right of first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for instance, the
circumstances expressed in Article 19 of the Civil Code, can warrant a recovery for
damages. (Emphasis supplied.)
From the foregoing, it is thus clear that an option contract is entirely different and
distinct from a right of first refusal in that in the former, the option granted to the
offeree is for a fixed period and at a determined price. Lacking these two essential
requisites, what is involved is only a right of first refusal.
In this case, the controversy is whether the letter of Lourdes to Roberto dated January
2, 1995 involved an option contract or a contract of a right of first refusal. In its
entirety, the said letter-offer reads:
206 Valdes Street
Josefa Subd. Balibago
Angeles City 2009
January 2, 1995
Tuazon Const. Co.
986 Tandang Sora Quezon City
Dear Mr. Tuazon,
I received with great joy and happiness the big box of sweet grapes and ham, fit for a
king’s party. Thanks very much.
I am getting very old (79 going 80 yrs. old) and wish to live in the U.S.A. with my only
family. I need money to buy a house and lot and a farm with a little cash to start.
I am offering you to buy my 1211 square meter at ₱37,541,000.00 you can pay me in
dollars in the name of my daughter. I never offered it to anyone. Please shoulder the
3
expenses for the transfer. I wish the Lord God will help you buy my lot easily and you
will be very lucky forever in this place. You have all the time to decide when you
can, but not for 2 years or more.
I wish you long life, happiness, health, wealth and great fortune always!
I hope the Lord God will help you be the recipient of multi-billion projects aid from
other countries.
Thank you,
Lourdes Q. del Rosario vda de Suarez
It is clear that the above letter embodies an option contract as it grants Roberto a
fixed period of only two years to buy the subject property at a price certain of
₱37,541,000.00. It being an option contract, the rules applicable are found in Articles
1324 and 1479 of the Civil Code which provide:
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as something
paid or promised.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price.
It is clear from the provision of Article 1324 that there is a great difference between
the effect of an option which is without a consideration from one which is founded
upon a consideration. If the option is without any consideration, the offeror may
withdraw his offer by communicating such withdrawal to the offeree at anytime before
acceptance; if it is founded upon a consideration, the offeror cannot withdraw his offer
before the lapse of the period agreed upon.
The second paragraph of Article 1479 declares that "an accepted unilateral promise
to buy or to sell a determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price." Sanchez v.
Rigos21 provided an interpretation of the said second paragraph of Article 1479 in
relation to Article 1324. Thus:
There is no question that under Article 1479 of the new Civil Code "an option to sell,"
or "a promise to buy or to sell," as used in said article, to be valid must be "supported
by a consideration distinct from the price." This is clearly inferred from the context of
said article that a unilateral promise to buy or to sell, even if accepted, is only binding
if supported by consideration. In other words, "an accepted unilateral promise can
only have a binding effect if supported by a consideration, which means that the
option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. Hence, it is not disputed that the option is without consideration. It can
therefore be withdrawn notwithstanding the acceptance made of it by appellee.
It is true that under Article 1324 of the new Civil Code, the general rule regarding offer
and acceptance is that, when the offerer gives to the offeree a certain period to
accept, "the offer may be withdrawn at any time before acceptance" except when the
option is founded upon consideration, but this general rule must be interpreted
as modified by the provision of Article 1479 above referred to, which applies to "a
promise to buy and sell" specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a consideration distinct from the
price.
In Diamante v. Court of Appeals,22 this Court further declared that:
A unilateral promise to buy or sell is a mere offer, which is not converted into a
contract except at the moment it is accepted. Acceptance is the act that gives life
to a juridical obligation, because, before the promise is accepted, the promissor
may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell
and to buy is created, and the offeree ipso facto assumes the obligations of a
purchaser; the offeror, on the other hand, would be liable for damages if he fails to
deliver the thing he had offered for sale.
Even if the promise was accepted, private respondent was not bound thereby in
the absence of a distinct consideration. (Emphasis ours.)
In this case, it is undisputed that Roberto did not accept the terms stated in the letter
of Lourdes as he negotiated for a much lower price. Roberto’s act of negotiating for a
much lower price was a counter-offer and is therefore not an acceptance of the offer
of Lourdes. Article 1319 of the Civil Code provides:
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and
the acceptance absolute. A qualified acceptanceconstitutes a counter-offer.
(Emphasis supplied.)
The counter-offer of Roberto for a much lower price was not accepted by Lourdes.
There is therefore no contract that was perfected between them with regard to the
sale of subject property. Roberto, thus, does not have any right to demand that the
property be sold to him at the price for which it was sold to the De Leons neither does
he have the right to demand that said sale to the De Leons be annulled.
4
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. is not applicable here
It is the position of Roberto that the facts of this case and that of Equatorial are similar
in nearly all aspects. Roberto is a lessee of the property like Mayfair Theater
in Equatorial. There was an offer made to Roberto by Lourdes during the effectivity of
the contract of lease which was also the case in Equatorial. There were negotiations
as to the price which did not bear fruit because Lourdes sold the property to the De
Leons which was also the case in Equatorial wherein Carmelo and Bauermann sold
the property to Equatorial. The existence of the lease of the property is known to the
De Leons as they are related to Lourdes while in Equatorial, the lawyers of Equatorial
studied the lease contract of Mayfair over the property. The property in this case was
sold by Lourdes to the De Leons at a much lower price which is also the case
in Equatorial where Carmelo and Bauerman sold to Equatorial at a lesser price. It is
Roberto’s conclusion that as in the case of Equatorial, there was a violation of his
right of first refusal and hence annulment or rescission of the Deed of Absolute Sale is
the proper remedy.
Roberto’s reliance in Equatorial is misplaced. Despite his claims, the facts
in Equatorial radically differ from the facts of this case. Roberto overlooked the fact
that in Equatorial, there was an express provision in the Contract of Lease that –
(i)f the LESSOR should desire to sell the leased properties, the LESSEE shall be
given 30-days exclusive option to purchase the same.
There is no such similar provision in the Contract of Lease between Roberto and
Lourdes. What is involved here is a separate and distinct offer made by Lourdes
through a letter dated January 2, 1995 wherein she is selling the leased property to
Roberto for a definite price and which gave the latter a definite period for acceptance.
Roberto was not given a right of first refusal. The letter-offer of Lourdes did not form
part of the Lease Contract because it was made more than six months after the
commencement of the lease.
It is also very clear that in Equatorial, the property was sold within the lease period. In
this case, the subject property was sold not only after the expiration of the period
provided in the letter-offer of Lourdes but also after the effectivity of the Contract of
Lease.
Moreover, even if the offer of Lourdes was accepted by Roberto, still the former is not
bound thereby because of the absence of a consideration distinct and separate from
the price. The argument of Roberto that the separate consideration was the liberality
on the part of Lourdes cannot stand. A perusal of the letter-offer of Lourdes would
show that what drove her to offer the property to Roberto was her immediate need for
funds as she was already very old. Offering the property to Roberto was not an act of
liberality on the part of Lourdes but was a simple matter of convenience and
practicality as he was the one most likely to buy the property at that time as he was
then leasing the same.
All told, the facts of the case, as found by the RTC and the CA, do not support
Roberto’s claims that the letter of Lourdes gave him a right of first refusal which is
similar to the one given to Mayfair Theater in the case of Equatorial.Therefore, there
is no justification to annul the deed of sale validly entered into by Lourdes with the De
Leons.
Decision dated November 18, 2002 of the Regional Trial Court, Branch 101, Quezon
City in Civil Case No. Q-00-42338 is AFFIRMED.
SO ORDERED.

What is the effect of the failure of Lourdes to file her appellee’s brief at the CA?

Lastly, Roberto argues that Lourdes should be sanctioned for her failure to file her
appellee’s brief before the CA.

Certainly, the appellee’s failure to file her brief would not mean that the case would be
automatically decided against her. Under the circumstances, the prudent action on
the part of the CA would be to deem Lourdes to have waived her right to file her
appellee’s brief. De Leon v. Court of Appeals,23 is instructive when this Court
decreed:

On the second issue, we hold that the Court of Appeals did not commit grave abuse
of discretion in considering the appeal submitted for decision. The proper remedy in
case of denial of the motion to dismiss is to file the appellee’s brief and proceed with
the appeal. Instead, petitioner opted to file a motion for reconsideration which,
unfortunately, was pro forma. All the grounds raised therein have been discussed in
the first resolution of the respondent Court of Appeals. There is no new ground raised
that might warrant reversal of the resolution. A cursory perusal of the motion would
readily show that it was a near verbatim repetition of the grounds stated in the motion
to dismiss; hence, the filing of the motion for reconsideration did not suspend the
period for filing the appellee’s brief. Petitioner was therefore properly deemed to
have waived his right to file appellee’s brief. (Emphasis supplied.)lawphi1

In the above cited case, De Leon was the plaintiff in a Complaint for a sum of money
in the RTC. He obtained a favorable judgment and so defendant went to the CA. The
appeal of defendant-appellant was taken cognizance of by the CA but De Leon filed a
Motion to Dismiss the Appeal with Motion to Suspend Period to file Appellee’s Brief.
The CA denied the Motion to Dismiss. De Leon filed a Motion for Reconsideration
which actually did not suspend the period to file the appellee’s brief. De Leon
therefore failed to file his brief within the period specified by the rules and hence he
was deemed by the CA to have waived his right to file appellee’s brief.

The failure of the appellee to file his brief would not result to the rendition of a
decision favorable to the appellant. The former is considered only to have waived his
right to file the Appellee’s Brief. The CA has the jurisdiction to resolve the case based
on the Appellant’s Brief and the records of the case forwarded by the RTC. The
appeal is therefore considered submitted for decision and the CA properly acted on it.

WHEREFORE, the instant petition for review on certiorari is DENIED. The assailed
Decision of the Court of Appeals in CA-G.R. CV No. 78870, which affirmed the

5
G.R. No. 202050
PHILIPPINE NATIONAL OIL COMPANY and PNOC DOCKYARD & ENGINEERING
CORPORATION, Petitioners
vs.
KEPPEL PHILIPPINES HOLDINGS, INC., Respondent
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules
of Court, appealing the decision dated 19 De.cember 2011 1 and resolution dated 14
May 20122 of the Court of Appeals (CA) in CA-G.R. CV No. 86830. These assailed
CA rulings affirmed in toto the decision dated 12 January 20063 of the Regional Trial
Court (RTC) of Batangas City, Branch 84, in Civil Case No. 7364.
THE FACTS
The 1976 Lease Agreement and Option to Purchase
Almost 40 years ago or on 6 August 1976, the respondent Keppel Philippines
Holdings, Inc.4 (Keppel) entered into a lease agreement5 (the agreement) with Luzon
Stevedoring Corporation (Lusteveco) covering 11 hectares of land located in Bauan,
Batangas. The lease was for a period of 25 years for a consideration of P2.1
million.6 At the option of Lusteveco, the rental fee could be totally or partially
converted into equity shares in Keppel.7
At the end of the 25-year lease period, Keppel was given the "firm and absolute
option to purchase"8 the land for ₱4.09 million, provided that it had acquired the
necessary qualification to own land under Philippine laws at the time the option
is exercised.9 Apparently, when the lease agreement was executed, less than 60%
of Keppel’s shareholding was Filipino-owned, hence, it was not constitutionally
qualified to acquire private lands in the country.10
If, at the end of the 25-year lease period (or in 2001), Keppel remained unqualified to
own private lands, the agreement provided that the lease would be automatically
renewed for another 25 years.11 Keppel was further allowed to exercise the option to
purchase the land up to the 30th year of the lease (or in 2006), also on the condition
that, by then, it would have acquired the requisite qualification to own land in the
Philippines.12
Together with Keppel’s lease rights and option to purchase, Lusteveco warranted not
to sell the land or assign its rights to the land for the duration of the lease unless with
the prior written consent of Keppel.13 Accordingly, when the petitioner Philippine
National Oil Corporation14 (PNOC) acquired the land from Lusteveco and took over
6
the rights and obligations under the agreement, Keppel did not object to the
assignment so long as the agreement was annotated on PNOC’s title. 15 With PNOC’s
consent and cooperation, the agreement was recorded as Entry No. 65340 on
PNOC’s Transfer of Certificate of Title No. T-50724.16
The Case and the Lower Court Rulings
On 8 December 2000, Keppel wrote PNOC informing the latter that at least 60% of its
shares were now owned by Filipinos.17 Consequently, Keppel expressed its readiness
to exercise its option to purchase the land. Keppel reiterated its demand to purchase
the land several times, but on every occasion, PNOC did not favourably respond.18
To compel PNOC to comply with the Agreement, Keppel instituted a complaint for
specific performance with the RTC on 26 September 2003 against PNOC.19 PNOC
countered Keppel’s claims by contending that the agreement was illegal for
circumventing the constitutional prohibition against aliens holding lands in the
Philippines.20 It further asserted that the option contract was void, as it was
unsupported by a separate valuable consideration. 21 It also claimed that it was not
privy to the agreement.22
After due proceedings, the RTC rendered a decision23 in favour of Keppel and
ordered PNOC to execute a deed of absolute sale upon payment by Keppel of the
purchase price of ₱4.09 million.24
PNOC elevated the case to the CA to appeal the RTC decision. 25 Affirming the RTC
decision in toto, the CA upheld Keppel’s right to acquire the land.26 It found that
since the option contract was embodied in the agreement – a reciprocal contract – the
consideration was the obligation that each of the contracting party assumed.27 Since
Keppel was already a Filipino-owned corporation, it satisfied the condition that entitled
it to purchase the land.28
Failing to secure a reconsideration of the CA decision, 29 PNOC filed the present Rule
45 petition before this Court to assail the CA rulings.
THE PARTIES’ ARGUMENTS and THE ISSUES
PNOC argues that the CA failed to resolve the constitutionality of the agreement. It
contends that the terms of the agreement amounted to a virtual sale of the land to
Keppel who, at the time of the agreement’s enactment, was a foreign corporation and,
thus, violated the 1973 Constitution.
Specifically, PNOC refers to (a) the 25-year duration of the lease that was
automatically renewable for another 25 years 30; (b) the option to purchase the land for
a nominal consideration of ₱100.00 if the option is exercised anytime between the
25th and the 30th year of the lease31; and (c) the prohibition imposed on Lusteveco to
sell the land or assign its rights therein during the lifetime of the lease. 32 Taken
together, PNOC submits that these provisions amounted to a virtual transfer of
ownership of the land to an alien which act the 1973 Constitution prohibited.
PNOC claims that the agreement is no different from the lease contract in Philippine
Banking Corporation v. Lui She,33 which the Court struck down as unconstitutional.
In Lui She, the lease contract allowed the gradual divestment of ownership rights by
the Filipino owner-lessor in favour of the foreigner-lessee.34 The arrangement in Lui
She was declared as a scheme designed to enable the parties to circumvent the
constitutional prohibition.35PNOC posits that a similar intent is apparent from the
terms of the agreement with Keppel and accordingly should also be nullified. 36
PNOC additionally contends the illegality of the option contract for lack of a separate
consideration, as required by Article 1479 of the Civil Code. 37 It claims that the option
contract is distinct from the main contract of lease and must be supported by a
consideration other than the rental fees provided in the agreement.38
On the other hand, Keppel maintains the validity of both the agreement and the option
contract it contains. It opposes the claim that there was "virtual sale" of the land,
noting that the option is subject to the condition that Keppel becomes qualified to own
private lands in the Philippines.39 This condition ripened in 2000, when at least 60% of
Keppel’s equity became Filipino-owned.
Keppel contends that the agreement is not a scheme designed to circumvent the
constitutional prohibition. Lusteveco was not proscribed from alienating its ownership
rights over the land but was simply required to secure Keppel’s prior written
consent.40 Indeed, Lusteveco was able to transfer its interest to PNOC without any
objection from Keppel.41
Keppel also posits that the requirement of a separate consideration for an option to
purchase applies only when the option is granted in a separate contract. 42 In the
present case, the option is embodied in a reciprocal contract and, following the
Court’s ruling in Vda. De Quirino v. Palarca,43 the option is supported by the same
consideration supporting the main contract.
From the parties’ arguments, the following ISSUES emerge:
First, the constitutionality of the Agreement, i.e., whether the terms of the Agreement
amounted to a virtual sale of the land to Keppel that was designed to circumvent the
constitutional prohibition on aliens owning lands in the Philippines.
Second, the validity of the option contract, i.e., whether the option to purchase the
land given to Keppel is supported by a separate valuable consideration.
If these issues are resolved in favour of Keppel, a third issue emerges – one that was
not considered by the lower courts, but is critical in terms of determining Keppel’s
right to own and acquire full title to the land, i.e., whether Keppel’s equity ownership
7
meets the 60% Filipino-owned capital requirement of the Constitution, in accordance
with the Court’s ruling in Gamboa v. Teves.44
THE COURT’S RULING
I. The constitutionality of the Agreement
The Court affirms the constitutionality of the Agreement.
Preserving the ownership of land, whether public or private, in Filipino hands is the
policy consistently adopted in all three of our constitutions.45 Under the
1935,46 1973,47 and 198748 Constitutions, no private land shall be transferred,
assigned, or conveyed except to individuals, corporations, or associations qualified to
acquire or hold lands of the public domain. Consequently, only Filipino citizens, or
corporations or associations whose capital is 60% owned by Filipinos citizens, are
constitutionally qualified to own private lands.
Upholding this nationalization policy, the Court has voided not only outright
conveyances of land to foreigners,49 but also arrangements where the rights of
ownership were gradually transferred to foreigners. 50 In Lui Shui,51 we considered a
99-year lease agreement, which gave the foreigner-lessee the option to buy the land
and prohibited the Filipino owner-lessor from selling or otherwise disposing the land,
amounted to –
a virtual transfer of ownership whereby the owner divests himself in stages not only
of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi, and jus abutendi)
but also of the right to dispose of it (jus disponendi) — rights the sum total of which
make up ownership.52 [emphasis supplied]
In the present case, PNOC submits that a similar scheme is apparent from the
agreement’s terms, but a review of the overall circumstances leads us to reject
PNOC’s claim.
The agreement was executed to enable Keppel to use the land for its shipbuilding
and ship repair business.53The industrial/commercial purpose behind the
agreement differentiates the present case from Lui She where the leased property
was primarily devoted to residential use.54 Undoubtedly, the establishment and
operation of a shipyard business involve significant investments. Keppel’s
uncontested testimony showed that it incurred P60 million costs solely for preliminary
activities to make the land suitable as a shipyard, and subsequently introduced
improvements worth P177 million.55 Taking these investments into account and the
nature of the business that Keppel conducts on the land, we find it reasonable that the
agreement’s terms provided for an extended duration of the lease and a restriction on
the rights of Lusteveco.
We observe that, unlike in Lui She,56 Lusteveco was not completely denied its
ownership rights during the course of the lease. It could dispose of the lands or assign
its rights thereto, provided it secured Keppel’s prior written consent. 57 That Lusteveco
was able to convey the land in favour of PNOC during the pendency of the lease58
should negate a finding that the agreement’s terms amounted to a virtual transfer of
ownership of the land to Keppel.
II. The validity of the option contract
II.A An option contract must be supported by a separate consideration that is
either clearly specified as such in the contract or duly proven by the
offeree/promisee.
An option contract is defined in the second paragraph of Article 1479 of the Civil
Code:
Article 1479. x x x An accepted promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
An option contract is a contract where one person (the offeror/promissor) grants to
another person (the offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed price, if he or she chooses to do so within an agreed
period.59
As a contract, it must necessarily have the essential elements of subject matter,
consent, and consideration.60Although an option contract is deemed a preparatory
contract to the principal contract of sale,61 it is separate and distinct therefrom,62 thus,
its essential elements should be distinguished from those of a sale. 63
In an option contract, the subject matter is the right or privilege to buy (or to sell) a
determinate thing for a price certain,64 while in a sales contract, the subject matter is
the determinate thing itself.65 The consent in an option contract is the acceptance by
the offeree of the offeror’s promise to sell (or to buy) the determinate thing, i.e., the
offeree agrees to hold the right or privilege to buy (or to sell) within a specified period.
This acceptance is different from the acceptance of the offer itself whereby the offeree
asserts his or her right or privilege to buy (or to sell), which constitutes as his or her
consent to the sales contract. The consideration in an option contract may be
anything of value, unlike in a sale where the purchase price must be in money or its
equivalent.66 There is sufficient consideration for a promise if there is any benefit to
the offeree or any detriment to the offeror.67
In the present case, PNOC claims the option contract is void for want of consideration
distinct from the purchase price for the land.68 The option is incorporated as
paragraph 5 of the Agreement and reads as
8
5. If within the period of the first [25] years [Keppel] becomes qualified to own land
under the laws of the Philippines, it has the firm and absolute option to purchase the
above property for a total price of [₱4,090,000.00] at the end of the 25th year,
discounted at 16% annual for every year before the end of the 25th year, which
amount may be converted into equity of [Keppel] at book value prevailing at the time
of sale, or paid in cash at Lusteveco’s option.
However, if after the first [25] years, [Keppel] is still not qualified to own land under the
laws of the Republic of the Philippines, [Keppel’s] lease of the above stated property
shall be automatically renewed for another [25] years, under the same terms and
conditions save for the rental price which shall be for the sum of ₱4,090,000.00... and
which sum may be totally converted into equity of [Keppel] at book value prevailing at
the time of conversion, or paid in cash at Lusteveco’s option.
If anytime within the second [25] years up to the [30th] year from the date of this
agreement, [Keppel] becomes qualified to own land under the laws of the Republic of
the Philippines, [Keppel] has the firm and absolute option to buy and Lusteveco
hereby undertakes to sell the above stated property for the nominal consideration of
[₱100.00.00]...69
Keppel counters that a separate consideration is not necessary to support its option to
buy because the option is one of the stipulations of the lease contract. It claims that a
separate consideration is required only when an option to buy is embodied in an
independent contract.70 It relies on Vda. de Quirino v. Palarca,71 where the Court
declared that the option to buy the leased property is supported by the same
consideration as that of the lease itself: "in reciprocal contracts [such as lease], the
obligation or promise of each party is the consideration for that of the other."72
In considering Keppel’s submission, we note that the Court’s ruling in 1969 in Vda. de
Quirino v. Palarca has been taken out of context and erroneously applied in
subsequent cases. In 2004, through Bible Baptist Church v. CA,73we revisited Vda. de
Quirino v. Palarca and observed that the option to buy given to the lessee Palarca by
the lessor Quirino was in fact supported by a separate consideration: Palarca paid a
higher amount of rent and, in the event that he does not exercise the option to buy the
leased property, gave Quirino the option to buy the improvements he introduced
thereon. These additional concessions were separate from the purchase price and
deemed by the Court as sufficient consideration to support the option contract.
Vda. de Quirino v. Palarca, therefore, should not be regarded as authority that the
mere inclusion of an option contract in a reciprocal lease contract provides it with the
requisite separate consideration for its validity. The reciprocal contract should be
closely scrutinized and assessed whether it contains additional concessions
that the parties intended to constitute as a consideration for the option
contract, separate from that of the purchase price.
In the present case, paragraph 5 of the agreement provided that should Keppel
exercise its option to buy, Lusteveco could opt to convert the purchase price into
equity in Keppel. May Lusteveco’s option to convert the price for shares be deemed
as a sufficient separate consideration for Keppel’s option to buy?
As earlier mentioned, the consideration for an option contract does not need to be
monetary and may be anything of value.74 However, when the consideration is not
monetary, the consideration must be clearly specified as such in the option
contract or clause.75
In Villamor v. CA,76 the parties executed a deed expressly acknowledging that the
purchase price of ₱70.00 per square meter "was greatly higher than the actual
reasonable prevailing value of lands in that place at that time." 77The difference
between the purchase price and the prevailing value constituted as the consideration
for the option contract. Although the actual amount of the consideration was not
stated, it was ascertainable from the contract whose terms evinced the parties’ intent
to constitute this amount as consideration for the option contract. 78 Thus, the Court
upheld the validity of the option contract.79 In the light of the offeree’s acceptance of
the option, the Court further declared that a bilateral contract to sell and buy was
created and that the parties’ respective obligations became reciprocally
demandable.80
When the written agreement itself does not state the consideration for the
option contract, the offeree or promisee bears the burden of proving the
existence of a separate consideration for the option.81 The offeree cannot rely on
Article 1354 of the Civil Code,82 which presumes the existence of consideration, since
Article 1479 of the Civil Code is a specific provision on option contracts that explicitly
requires the existence of a consideration distinct from the purchase price. 83
In the present case, none of the above rules were observed. We find nothing in
paragraph 5 of the Agreement indicating that the grant to Lusteveco of the option to
convert the purchase price for Keppel shares was intended by the parties as the
consideration for Keppel’s option to buy the land; Keppel itself as the offeree
presented no evidence to support this finding. On the contrary, the option to convert
the purchase price for shares should be deemed part of the consideration for the
contract of sale itself, since the shares are merely an alternative to the actual cash
price.1âwphi1
There are, however cases where, despite the absence of an express intent in the
parties’ agreements, the Court considered the additional concessions stipulated in an
agreement to constitute a sufficient separate consideration for the option contract.
In Teodoro v. CA,84 the sub-lessee (Teodoro) who was given the option to buy the
land assumed the obligation to pay not only her rent as sub-lessee, but also the rent
of the sub-lessor (Ariola) to the primary lessor (Manila Railroad Company).85 In other
words, Teodoro paid an amount over and above the amount due for her own
occupation of the property, and this amount was found by the Court as sufficient
consideration for the option contract.86
9
In Dijamco v. CA,87 the spouses Dijamco failed to pay their loan with the bank,
allowing the latter to foreclose the mortgage.88 Since the spouses Dijamco did not
exercise their right to redeem, the bank consolidated its ownership over the
mortgaged property.89 The spouses Dijamco later proposed to purchase the same
property by paying a purchase price of ₱622,095.00 (equivalent to their principal loan)
and a monthly amount of ₱13,478.00 payable for 12 months (equivalent to the
interest on their principal loan). They further stated that should they fail to make a
monthly payment, the proposal should be automatically revoked and all payments be
treated as rentals for their continued use of the property. 90 The Court treated the
spouses Dijamco’s proposal to purchase the property as an option contract, and the
consideration for which was the monthly interest payments. 91 Interestingly, this ruling
was made despite the categorical stipulation that the monthly interest payments
should be treated as rent for the spouses Dijamco’s continued possession and use of
the foreclosed property.
At the other end of the jurisprudential spectrum are cases where the Court refused to
consider the additional concessions stipulated in agreements as separate
consideration for the option contract.
In Bible Baptist Church v. CA,92 the lessee (Bible Baptist Church) paid in advance
₱84,000.00 to the lessor in order to free the property from an encumbrance. The
lessee claimed that the advance payment constituted as the separate consideration
for its option to buy the property.93 The Court, however, disagreed noting that the
₱84,000.00 paid in advance was eventually offset against the rent due for the first
year of the lease, "such that for the entire year from 1985 to 1986 the [Bible Baptist
Church] did not pay monthly rent."94 Hence, the Court refused to recognize the
existence of a valid option contract.95
What Teodoro, Dijamco, and Bible Baptist Church show is that the determination of
whether the additional concessions in agreements are sufficient to support an option
contract, is fraught with danger; in ascertaining the parties’ intent on this matter, a
court may read too much or too little from the facts before it.
For uniformity and consistency in contract interpretation, the better rule to follow is
that the consideration for the option contract should be clearly specified as
such in the option contract or clause. Otherwise, the offeree must bear the
burden of proving that a separate consideration for the option contract exists.
Given our finding that the Agreement did not categorically refer to any consideration
to support Keppel’s option to buy and for Keppel’s failure to present evidence in this
regard, we cannot uphold the existence of an option contract in this case.
II.B. An option, though unsupported by a separate consideration, remains an
offer that, if duly accepted, generates into a contract to sell where the parties’
respective obligations become reciprocally demandable
The absence of a consideration supporting the option contract, however, does not
invalidate an offer to buy (or to sell). An option unsupported by a separate
consideration stands as an unaccepted offer to buy (or to sell) which, when
properly accepted, ripens into a contract to sell. This is the rule established by the
Court en banc as early as 1958 in Atkins v. Cua Hian Tek,96 and upheld in 1972
in Sanchez v. Rigos.97
Sanchez v. Rigos reconciled the apparent conflict between Articles 1324 and 1479 of
the Civil Code, which are quoted below:
Article 1324. When the offerer has allowed the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as
something paid or promised.
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. [emphases supplied]
The Court en banc declared that there is no distinction between these two provisions
because the scenario contemplated in the second paragraph of Article 1479 is the
same as that in the last clause of Article 1324.98 Instead of finding a conflict, Sanchez
v. Rigos harmonised the two provisions, consistent with the established rules of
statutory construction.99
Thus, when an offer is supported by a separate consideration, a valid
option contract exists, i.e., there is a contracted offer100 which the offeror cannot
withdraw from without incurring liability in damages.
On the other hand, when the offer is not supported by a separate consideration, the
offer stands but, in the absence of a binding contract, the offeror may withdraw it any
time.101 In either case, once the acceptance of the offer is duly
communicated before the withdrawal of the offer, a bilateral contract to buy and sell is
generated which, in accordance with the first paragraph of Article 1479 of the Civil
Code, becomes reciprocally demandable.102
Sanchez v. Rigos expressly overturned the 1955 case of Southwestern Sugar v.
AGPC,103 which declared that
a unilateral promise to buy or to sell, even if accepted, is only binding if supported by
a consideration... In other words, an accepted unilateral promise can only have a
binding effect if supported by a consideration, which means that the option can
10
still be withdrawn, even if accepted, if the same is not supported by any
consideration.104 [emphasis supplied]
The Southwestern Sugar doctrine was based on the reasoning that Article 1479 of the
Civil Code is distinct from Article 1324 of the Civil Code and is a provision that
specifically governs options to buy (or to sell).105 As mentioned, Sanchez v.
Rigos found no conflict between these two provisions and accordingly abandoned
the Southwestern Sugar doctrine.
Unfortunately, without expressly overturning or abandoning the Sanchez ruling,
subsequent cases reverted back to the Southwestern Sugar doctrine.106 In
2009, Eulogio v. Apeles107 referred to Southwestern Sugar v. AGPC as the controlling
doctrine108 and, due to the lack of a separate consideration, refused to recognize the
option to buy as an offer that would have resulted in a sale given its timely
acceptance by the offeree. In 2010, Tuazon v. Del Rosario-Suarez109 referred
to Sanchez v. Rigos but erroneously cited as part of its ratio decidendi that portion of
the Southwestern Sugar doctrine that Sanchez had expressly abandoned.110
Given that the issue raised in the present case involves the application of Article 1324
and 1479 of the Civil Code, it becomes imperative for the Court [en banc] to clarify
and declare here which between Sanchez and Southwestern Sugar is the controlling
doctrine.
The Constitution itself declares that "no doctrine or principle of law laid down by the
court in a decision rendered en banc or in division may be modified or reversed
except by the court sitting en banc."111 Sanchez v. Rigos was an en banc decision
which was affirmed in 1994 in Asuncion v. CA,112 also an en banc decision, while the
decisions citing the Southwestern Sugar doctrine are all division cases.113 Based on
the constitutional rule (as well as the inherent logic in reconciling Civil Code
provisions), there should be no doubt that Sanchez v. Rigos remains as the
controlling doctrine.
Accordingly, when an option to buy or to sell is not supported by a consideration
separate from the purchase price, the option constitutes as an offer to buy or to sell,
which may be withdrawn by the offeror at any time prior to the communication of the
offeree’s acceptance. When the offer is duly accepted, a mutual promise to buy and
to sell under the first paragraph of Article 1479 of the Civil Code ensues and the
parties’ respective obligations become reciprocally demandable.
Applied to the present case, we find that the offer to buy the land was timely
accepted by Keppel.
As early as 1994, Keppel expressed its desire to exercise its option to buy the land.
Instead of rejecting outright Keppel’s acceptance, PNOC referred the matter to the
Office of the Government Corporate Counsel (OGCC). In its Opinion No. 160, series
of 1994, the OGCC opined that Keppel "did not yet have the right to purchase the
Bauan lands."114 On account of the OGCC opinion, the PNOC did not agree with
Keppel’s attempt to buy the land;115nonetheless, the PNOC made no categorical
withdrawal of the offer to sell provided under the Agreement.
By 2000, Keppel had met the required Filipino equity proportion and duly
communicated its acceptance of the offer to buy to PNOC.116 Keppel met with the
board of directors and officials of PNOC who interposed no objection to the sale. 117 It
was only when the amount of purchase price was raised that the conflict between the
parties arose,118 with PNOC backtracking in its position and questioning the validity of
the option.119
Thus, when Keppel communicated its acceptance, the offer to purchase the Bauan
land stood, not having been withdrawn by PNOC. The offer having been duly
accepted, a contract to sell the land ensued which Keppel can rightfully
demand PNOC to comply with.
III. Keppel’s constitutional right to acquire full title to the land
Filipinization is the spirit that pervades the constitutional provisions on national
patrimony and economy. The Constitution has reserved the ownership of public and
private lands,120 the ownership and operation of public utilities,121 and certain areas of
investment122 to Filipino citizens, associations, and corporations. To qualify, sixty per
cent (60%) of the association or corporation’s capital must be owned by Filipino
citizens. Although the 60% Filipino equity proportion has been adopted in our
Constitution since 1935, it was only in 2011 that the Court interpreted what the
term capital constituted.
In Gamboa v. Teves,123 the Court declared that the "legal and beneficial
ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals."124 Clarifying the ruling, the Court decreed that the 60% Filipino
ownership requirement applies separately to each class of shares, whether with or
without voting rights,125 thus:
by Filipinos - understandably because when Keppel exercised its option to buy the
land in 2000, the Gamboa ruling had not yet been promulgated. The Court cannot
deny Keppel its option to buy the land by retroactively applying the Gamboa ruling
without violating Keppel's vested right. Thus, Keppel's failure to prove the nature and
composition of its shareholdings in 2000 could not prevent it from validly exercising its
option to buy the land.
Nonetheless, the Court cannot completely disregard the effect of the Gamboa ruling;
the 60% Filipino equity proportion is a continuing requirement to hold land in the
Philippines. Even in Gamboa, the Court prospectively applied its ruling, thus enabling
the public utilities to meet the nationality requirement before the Securities and
Exchange Commission commences administrative investigation and cases, and
imposes sanctions for noncompliance on erring corporations.128 In this case, Keppel
must be allowed to prove whether it meets the required Filipino equity ownership and
proportion in accordance with the Gamboa ruling before it can acquire full title to the
land.
In view of the foregoing, the Court AFFIRMS the decision dated 19 December 2011
and the resolution dated 14 May 2012 of the CA in CA-G.R. CV No. 86830 insofar as
these rulings uphold the respondent Keppel Philippines Holdings, Inc.' s option to buy
the land, and REMANDS the case to the Regional Trial Court of Batangas City,
Branch 84, for the determination of whether the respondent Keppel Philippines
Holdings, Inc. meets the required Filipino equity ownership and proportion in
accordance with the Court's ruling in Gamboa v. Teves, to allow it to acquire full title
to the land.
SO ORDERED.

Applying uniformly the 60-40 ownership requirement in favour of Filipino citizens to

each class of shares, regardless of differences in voting rights, privileges and
restrictions, guarantees effective Filipino control of public utilities, as mandated by the
Constitution.126

Although the ruling was made in the context of ownership and operation of public
utilities, the same should be applied to the ownership of public and private lands,
since the same proportion of Filipino ownership is required and the same nationalist
policy pervades.

The uncontested fact is that, as of November 2000, Keppel's capital is 60% Filipino-
owned.127 However, there is nothing in the records showing the nature and
composition of Keppel' s shareholdings, i.e., whether its shareholdings are divided
into different classes, and 60% of each share class is legally and beneficially owned

11
G.R. No. 200402 June 13, 2013
PRIVATIZATION and MANAGEMENT OFFICE, Petitioner,
vs.
STRATEGIC DEVELOPMENT and/or PHILIPPINE ESTATE
CORPORATION, Respondent.
DECISION
SERENO, CJ.:
Before this Court is a Rule 45 Petition, seeking a review of the Court of Appeals (CA)
Decision1 dated 27 January 2012 in CA-G.R. CV No. 96368, which affirmed the
Decision2 dated I July 20 I 0 of the Regional Trial Court (RTC) in Civil Case No. 05-
882. The RTC directed petitioner Privatization and Management Office (PMO) to
award the auctioned Philippine National Construction Corporation (PNCC) shares,
receivables, and securities owned by the Philippine government to respondent
Strategic Alliance Development Corporation (STRADEC).
The facts are as follows:
As established by Administrative Order No. 397,3 the indebtedness or PNCC to
various government financial institutions was transferred to the National Government
(NG) through the Committee on Privatization (COP)/Asset Privatization Trust (APT)
and the Bureau of Treasury pursuant to Proclamation No. 50 4 and Administrative
Order No. 64.5
Consequently, APT slated the privatization of PNCC in order to generate maximum
cash recovery for the government. Thus, sometime in July of 2000, it announced the
holding of a public bidding on 30 October 2000 involving the "as is, where is basis"
package sale of stocks, receivables, and securities owned by the National
Government in the PNCC.
Dong-A Consortium, which was formed by respondent STRADEC and Dong-A
Pharmaceuticals, signified its intention to bid. As a prospective bidder, it received the
accompanying bid documents given by APT. It also acknowledged 6 and signed the
Asset Specific Bidding Rules (ASBR),7 which reads:
2. Due Diligence
2.2 The conduct of due diligence is at the option of the prospective bidders. Failure of
the bidder to conduct due diligence shall be at his sole risk and no relief for error or
omission will be given.
3. Bid Price
12
3.1 The Indicative Price for the Shares, Receivables and the Securities shall be
announced on the day of the bidding.
4. Evaluation of Bid
4.1 The winning bidder shall be the bidder who submits the highest total bid offer for
both the shares and receivables, who complies with all terms and conditions
contained in this ASBR,
4.3. APT reserves the right to reject any or all bids, including the highest bid, or to
waive any defect or required formality therein.
4.4. The evaluation of the bids and award of the sale shall be subject to applicable
laws, rules and regulations as well as all existing governmental approval
requirements.
5. Bidder’s Responsibility
5.2 x x x. The consequences of failure to examine and carefully interpret the bid
documents shall be borne by the bidder and such bidder shall not be entitled to relief
for its error or omission. The delivery or release by APT, NG, or PNCC to the bidders
of any financial or operating data or any information regarding the shares and
receivables shall not give rise to warranty with respect to such data or information.
6. Preparation of Bids
6.4. By submitting its Bid Offer and Bid Deposit on the date of the bidding, the Bidder
shall be deemed to have signified its acceptance of the terms and conditions of the
bidding, including the terms and conditions of this ASBR and Sale Purchase
Agreement.
10. Award of Sale
10.1. APT Marketing Department shall determine the highest bidder in accordance
with Section 4 hereof and submit a report and the appropriate recommendation to the
APT Board of Trustees for consideration. Thereafter, the APT Board of Trustees shall
endorse its recommendation to the Committee on Privatization (COP) for approval.
10.2. After the necessary approvals and clearances are obtained from the APT Board
and the COP, APT shall issue a Notice of Award of Sale to the winning
bidder.8 (Emphases supplied)
On 30 October 2000, APT conducted the bid. It first declared that Dong-A
Consortium, Pacific Infrastructure Development International, 9 and Philippine
Exporters Confederation10 qualified as bidders. Thereafter, it announced that the
indicative price of the PNCC properties was seven billion pesos (₱7,000,000,000).
The bidders were shocked with the valuation. Relying on their own due diligence
examinations, they protested that the indicative price was too high, considering the
financial statements and bid documents given by APT. Notwithstanding their protests,
APT continued with the bidding and opened the bid envelopes. As illustrated below,
none of the bid offers met the indicative price:
Bidder Bid Price
₱1,228,888,80
Dong-A Consortium
0
Pacific Infrastructure Development International ₱536,888,888
Philippine Exporters Confederation ₱420,000,000 11
The next day, APT faxed a letter to Dong-A Consortium informing the latter that its
offer had been rejected. The letter reads in part:
We regret to inform you that the APT Board of Trustees, in a special meeting held
after the bidding, resolved to reject your bid as it was way below the Indicative Price
of Seven Billion Pesos (₱7,000,000,000.00) set by the Committee on Privatization. 12
Dong-A Consortium responded and stressed to APT that the former’s offer was not
only the highest, but was also competitive and most advantageous to the
government.13 Dong-A Consortium then asked for reconsideration and requested the
award of the PNCC properties.14
On 31 December 2000, the term of APT expired. By virtue of Executive Order No.
323,15 petitioner PMO was organized to implement the disposition of the government-
acquired assets, including the PNCC shares. PMO thus took over the
correspondences involving the bid. It communicated to Dong-A Consortium that the
decision of the Board of Trustees of the APT had already been confirmed by the
COP; hence, the decision to reject the bid stood.16
On 3 October 2005, STRADEC filed a Complaint for Declaration of Right to a Notice
of Award and/or Damages on behalf of Dong-A Consortium against PMO and
PNCC.17 It contested the high indicative price that caused it to lose the bid.
STRADEC also pushed for the reduction of the indicative price and demanded that a
Notice of Award of the PNCC properties be issued in its favor.
PMO answered by asserting the provisions of the ASBR.18 According to PMO, the
rules give the government the right to reject bid offers, including the highest bid.
Hence, PMO argued that STRADEC had no legal right to demand the issuance of a
13
Notice of Award even after having submitted the highest bid. PNCC claimed that
STRADEC was merely "sour graping" over its loss. Furthermore, STRADEC had
allegedly failed to establish any act of PNCC with respect to the manner of the bidding
that would create a cause of action against the latter.19
During pretrial, the parties entered into several stipulations.20 Significantly, they
agreed that to be issued the Notice of Award, the winning bidder must satisfy and
comply with all of the ASBR’s terms and conditions, including the indicative price.
They also stipulated that Dong-A Consortium had extensively conducted due
diligence prior to the bid. Subsequently, its auditor informed the court that PNCC had
been operating at a loss and that it puzzled them why APT never gave the basis of
the indicative price, especially in the light of the finances of PNCC.
Siding with the bidder, the RTC ruled that PMO had committed grave abuse of
discretion in refusing to explain the basis of the indicative price. The trial court
explained that since competitive public bidding is vested with public interest, it then
follows that the government has an affirmative duty to disclose its reasons for
rejecting a bid. The court concluded that the refusal to explain the indicative price
constituted a violation of the public’s right to information and the State’s policy of full
transparency in transactions involving public interest.
Pushing its directives further, the trial court directed the issuance of the Notice of
Award in favor of Dong-A Consortium. In so adjudging, it had appreciated the fact that
(1) the latter submitted the highest bid; (2) the offer was threefold higher than the next
bid, and hence appeared most advantageous to the government; and (3) Dong-A
Consortium conducted an extensive due diligence examination based on the bid
documents furnished by APT.
Hence, the dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1) Defendant PMO is directed to issue a Notice of Award of Sale to the
Dong-A Consortium, herein represented by plaintiff STRADEC, the National
Government’s shares of stock in the Philippine National Construction
Corporation (PNCC), and the receivables of the National Government in the
form of advances to PNCC, all future receivables of the National
Government from PNCC and the securities related thereto, under the
procedure stated in the Asset Specific Bidding Rules (ASBR) for the public
auction held on October 30, 2000;
2) Defendants PMO and PNCC are directed to pay plaintiff, jointly and
severally, the sum of PHP 500,000.00 as and by way of exemplary
damages; and the further sum of PHP 500,000.00 as and by way of
attorney’s fees and costs of suit.
SO ORDERED.21 (Emphases in the original)
Aggrieved, PMO and PNCC appealed before the CA. PNCC argued that the factors
mentioned by the RTC were immaterial and that none of them could justify the latter’s
directive to issue a Notice of Award in favor of Dong-A Consortium. PNCC also
denied having any legal obligation to disclose the basis of the indicative price. For its
part, PMO contended that the bidding held on 30 October 2000 was transparent,
regular, and conducted in accordance with the ASBR; and that the RTC therefore had
no reason to alter the outcome of the bid.
In its assailed Decision, the CA emphasized that competitive public bidding must be
fair, legitimate and honest. From this standard, it went on to state that PMO must not
only reveal the basis of the indicative price, but must also award the sale of the PNCC
assets to Dong-A Consortium.
Heavily quoting the RTC, the CA states:22
x x x. A reading of the decisional rules on reservation of the right to reject cautions,
however, against injustice, unfairness, arbitrariness, fraudulent acts or grave abuse of
discretion. A contrary conclusion would be anathema to the purposes for which public
biddings are founded to give the public the best possible advantages through open
competition – as it would give the unscrupulous a plain escape to rig the bidding
process.
Applying now the foregoing precedents, this Court is persuaded to rule that then APT
(now PMO) had the duty to disclose the basis for its rejection of the highest bid
submitted by the Dong-A Consortium. For as the evidence shows, the plaintiff's bid
was threefold than the next highest bid, and appeared, at that point, to be the most
advantageous to the government. As to how the gargantuan amount of PH₱7.0 Billion
pesos as the Indicative Price was arrived at, and which was invoked as the sole basis
for the rejection of the plaintiff's bid, should have been at least clarified or explained in
conformity with the expected degree of transparency in any public bidding. The
sending out of demand letters to then APT demanding disclosure of the basis for the
stated Indicative Price is not disputed by the defendants as they opted not to present
any countervailing evidence. Verily, the evaluation and calibration of evidence
necessarily involves consideration of factual issues. Plaintiff's evidence shows that it
carefully weighed its bases in coming up with the bid that it offered. It did not
participate in the bidding exercise blindly or unarmed with the relevant informations.
Defendants provided plaintiff herein varied documents prior to the bidding or
specifically during the due diligence examination. Needless to state, these documents
were pivotal in the plaintiff's estimate of the proper bid to submit. As has been
disclosed by the evidence, plaintiff conducted a due diligence examination with the
guidance of its own financial expert. x x x (Emphasis in the original)
PNCC moved for reconsideration, but the motion is still pending in the CA. On the
other hand, PMO proceeded directly to this Court via a Rule 45 Petition.
14
In its pleading, PMO raises several issues, including the locus standi of STRADEC
and the prescription of action. But principally, PMO contests the directives of the
courts a quo to issue the Notice of Award to Dong-A Consortium.
RULING OF THE COURT
At the heart of this case is whether PMO can be compelled to award Dong-A
Consortium the PNCC assets that it values at seven billion pesos (₱7,000,000,000)
for only ₱1,228,888,800. For a fraction of the valuation, respondent claims entitlement
on the grounds that (1) the people’s right to information has been violated; (2) it
submitted the highest bid; and (3) it conducted due diligence.
The people’s right to information
does not warrant the award of the bid
to Dong-A Consortium.
The courts a quo held that because of the people’s constitutional right to information
on matters of public concern,23petitioner has a duty to disclose the derivation of the
indicative price to respondent. The failure to disclose the information allegedly entitles
respondent to the issuance of the Notice of Award.
We rule that whether or not the people’s right to information has been violated by
APT’s failure to disclose the basis of the indicative price, that right cannot be used as
a ground to direct the issuance of the Notice of Award to Dong-A Consortium. Under
the ASBR, respondent must at least match the indicative price in order to win.
Under the circumstances, the right to information, at most, affords to the claimant
access to records, documents, and papers – which only means the opportunity to
inspect and copy them at his expense.24 This interpretation resonates in the
deliberations of the 1987 Constitutional Commission:25
FR. BERNAS. Just one observation, Mr. Presiding Officer. I want to comment that
Section 6 (referring to Section 7, Article III on the right to information) talks about the
right of the people to information, and corresponding to every right is a duty. In this
particular case, corresponding to this right of the people is precisely the duty of the
State to make available whatever information there may be needed that is of public
concern. Section 6 is very broadly stated so that it covers anything that is of public
concern. It would seem also that the advantage of Section 6 is that it challenges
citizens to be active in seeking information rather than being dependent on whatever
the State may release to them. (Emphasis supplied)
The right to information allows the public to hold public officials accountable to the
people and aids them in engaging in public discussions leading to the formulation of
government policies and their effective implementation.26 By itself, it does not extend
to causing the award of the sale of government assets in failed public biddings. Thus,
assuming that Dong-A Consortium may access the records for the purpose of
validating the indicative price under the right to information, it does not follow that
respondent is entitled to the award.
This Court cannot condone the incongruous interpretation of the courts a quo that the
public’s right to information merits both an explanation of the indicative price and an
automatic award of the bid to Dong-A Consortium.
This interpretation is illogical considering that, in order to win a bid, bidders could
simply demand explanations ad infinitum. Government agencies would then be
required to discuss each and every method of computation used in arriving at a
valuation. As a result, the bidders would unduly exhaust the time, efforts, and
resources of all participants in the process. Worse, this stance could open the courts
to a multitude of suits assailing the iterations of the bidding evaluations. We cannot
allow such distorted interpretation of the transparency requirement of public bidding,
as an interpretation that causes inconvenience and absurdity is not favored.27
Notably, even if the computations for arriving at the ₱7,000,000,000 valuation were
explained, none of the participants would have won, since all of their offers were way
below the indicative price.
Likewise, the submission of the
highest bid and the conduct of due
diligence do not justify an award to
Dong-A Consortium.
The courts a quo also directed the issuance of the Notice of Award in favor of Dong-A
Consortium, because it submitted the highest bid, which appeared to be the most
advantageous to the government, and because it conducted due diligence. Like the
previous ground alleged as discussed above, these matters are irrelevant.
Obligations arising from agreements have the force of law between the contracting
parties and should be complied with in good faith.28 Here, the ASBR sets forth the
terms and conditions under which an award will be given. During the pretrial, both
parties agreed that a bidder wins only after satisfying and complying with all the terms
and conditions of the ASBR, including matching the indicative price. Since Dong-A
Consortium failed to match the indicative price, it could not have been considered a
winner, and, is not entitled to a Notice of Award.
Article 1326 of the Civil Code, which specifically tackles offer and acceptance of bids,
provides that advertisements for bidders are simply invitations to make proposals, and
that an advertiser is not bound to accept the highest bidder unless the contrary
appears. In the present case, Section
4.3 of the ASBR explicitly states that APT reserves the right to reject any or all bids,
including the highest bid. Undoubtedly, APT has a legal right to reject the offer of
Dong-A Consortium, notwithstanding that it submitted the highest bid.
15
In Leoquinco v. The Postal Savings Bank29 and C & C Commercial Corporation v.
Menor,30 we explained that this right to reject bids signifies that the participants of the
bidding process cannot compel the party who called for bids to accept the bid or
execute a deed of sale in the former’s favor. Thus, we similarly rule that PMO cannot
be forced to award the sale of the PNCC shares in favor of Dong-A Consortium.
Both the RTC and the CA unfortunately ignored the failure of Dong-A Consortium to
match the indicative price. They highlighted instead that the bidder conducted an
extensive due diligence examination based on the documents that the APT had given
to it.
Whether or not the bidder conducts due diligence is its business decision.1âwphi1 It
does not bind the government to give Dong-A Consortium the award. Furthermore,
the ASBR insulates the government from suits based on inaccurate data in the
bidder’s due diligence examinations. Section 5.2 reads:
5.2 x x x. The consequences of failure to examine and carefully interpret the bid
documents shall be borne by the bidder and such bidder shall not be entitled to relief
for its error or omission. The delivery or release by APT, NG, or PNCC to the bidders
of any financial or operating data or any information regarding the shares and
receivables shall not give rise to warranty with respect to such data or information.
(Emphasis supplied)
Worse, by putting emphasis on Dong-A Consortium’s own due diligence examination,
respondent and the courts a quo gave a premium to the bidder’s valuation over that of
APT.
Even in the spirit of open market competition in public biddings, 31 there is no
imposition on the government to sell at prices that are equal, higher, or lower
compared with those commanded by the market. We cannot fault APT for deciding to
sell the PNCC assets for ₱7,000,000,000, even if we put into the equation the fact
that the acquired corporation has been operating at a loss as testified to by the
financial auditor of Dong-A Consortium.
To substitute the valuation of Dong-A Consortium for that of APT is to unduly interfere
with the judgment of a government agency tasked to liquidate nonperforming assets
of the government. APT and PMO are mandated to determine the most advantageous
prices that will improve the financial situation of the government. Given that discretion,
they cannot be directed by the courts to do a particular act or be enjoined from doing
an act within their prerogatives.32
Therefore, we rule against the instant issuance of the Notice of Award to a bidder who
claims that its valuation is more correct. As in Republic v. Nolasco, 33 we remind the
public:
More importantly, the Court, the parties, and the public at large are bound to respect
the fact that official acts of the Government, including those performed by
governmental agencies such as the DPWH, are clothed with the presumption of
regularity in the performance of official duty and cannot be summarily, prematurely
and capriciously set aside. x x x There is perhaps a more cynical attitude fostered
within the popular culture, or even through anecdotal traditions. Yet, such default
pessimism is not embodied in our system of laws, which presumes that the State and
its elements act correctly unless otherwise proven. To infuse within our legal
philosophy a contrary, gloomy pessimism would assure that the State would bog
down, wither and die. (Emphasis supplied)
A Writ of Mandamus will not issue to
compel the issuance of the Notice of
Award to Dong-A Consortium.
As accurately depicted by the OSG, to compel the issuance of a Notice of Award is
tantamount to a prayer for the issuance of a writ of mandamus. Mandamus, however,
will not issue to control or review the exercise of discretion by a public officer on
whom the law imposes the right or duty to exercise judgment in reference to any
matter in which the officer is required to act.34 Respondent has no cause of action to
compel APT to award the bid to Dong-A Consortium.
Neither can mandamus be issued unless a clear right of the bidder is
shown.1âwphi1 Mandamus does not lie if the right is doubtful.35 Here, as discussed,
Dong-A Consortium has no right to receive the award, since it failed to match the
indicative price.
the bidders' offer prices matched the indicative price. In fact, Dong-A Consortium's
offer of ₱1,228,888,800 drastically fell 82.44% short of ₱7,000,000,000.
By straightforwardly applying the criteria for denying bids under the ASBR, APT was
fair to the bidders consistent with the standards extricated from Agan, Jr. v.
PIATCO,42 PEA v. Bolinao Security and Investigation Service, Inc.,43and J.G. Summit
Holdings, Inc. v. Court of Appeals.44 In these cases, we held that, ultimately, the
essence of competitive public bidding is the placement of bidders on equal footing.
In line, this Court maintains that it is unjust to force the government to award the
PNCC shares to a bidder at a drastically lower value. Corollary to this finding, this
Court deletes the grant of exemplary damages and attorney's fees grounded on the
supposed arbitrariness and bad faith of petitioner. With these definitive conclusions
addressing the main issue, there is no longer any need for us to discuss the other
matters involved.45
IN VIEW THEREOF, the 16 March 2012 Petition for Review on Certiorari tiled by
petitioner is GRANTED. Consequently, the 27 January 2012 Decision of the Court of
Appeals in CA-G.R. CV No. 96368 is REVERSED.
SO ORDERED.

Petitioner cannot be compelled to accept the bid of Dong-A Consortium since this
forced consent treads on the government’s freedom to contract. The freedom of
persons to enter into contracts is a policy of the law,36 and courts should move with all
necessary caution and prudence when interfering with it. 37

It must be remembered that in the field of competitive public bidding, the owner of the
property to be auctioned – the government – enjoys a wide latitude of discretion and
autonomy in choosing the terms of the agreement.38 This principle is especially true in
this case, since the policy decision then 39 was for APT to liquidate nonperforming
assets of the government in order to recover losses. Therefore, absent any abuse of
discretion, injustice, unfairness or fraudulent acts,40 this Court refrains41 from
discrediting the judgment call of APT to prefatorily refuse any offer that fell below the
indicative price.

The APT was fair to all the bidders

when it informed all of them of the
indicative price.

This Court concludes by emphasizing that indeed, APT informed the bidders of its
reason for declining the bids. It rejected the bids on the simple ground that none of
16
G.R. No. 158314 June 3, 2004
SAMAHAN NG MAGSASAKA SA SAN JOSEP, represented by DOMINADOR
MAGLALANG, petitioner,
vs.
MARIETTA VALISNO, ADELA, AQUILES, LEANDRO, HONORIO, LUMEN,
NICOLAS, all surnamed VALISNO; RANDY V. WAGNER, MARIA MARTA B.
VALISNO, NOELITO VALISNO, MARY ANN L. VALISNO, PHILIP V. BRANZUELA
and BRENDON V. YUJUICO; MA. CRISTINA VALISNO, BENEDICTO V. YUJUICO,
GREGORIO V. YUJUICO and LEONORA V. YUJUICO, respondents.
DECISION
YNARES-SANTIAGO, J.:
The sole issue in this petition for review on certiorari is whether or not the
grandchildren of the late Dr. Nicolas Valisno Sr. are entitled to retention rights as
landowners under Republic Act No. 6657, or the Comprehensive Agrarian Reform
Law (hereafter, "CARL").
The original 57-hectare property, situated in La Fuente, Sta. Rosa, Nueva Ecija, was
formerly registered in the name of Dr. Nicolas Valisno, Sr. under Transfer Certificate
of Title No. NT-38406. Before the effectivity of Presidential Decree No. 27,1 the land
was the subject of a judicial ejectment suit, whereby in 1971, the Valisnos’ tenants
were ejected from the property.2 Among these tenants was Dominador Maglalang,
who represents the SMSJ in the instant proceedings.
Meanwhile, on October 20 and 21, 1972, Dr. Valisno mortgaged 12 hectares of his
property to Renato and Angelito Banting.3 Thereafter, the property was subdivided
into ten lots and on November 8, 1972, individual titles were issued in the name of the
eight children of Nicolas, Angelito Banting, and Renato Banting. 4
After the mortgage on the 12 hectare portion was foreclosed and the property sold at
public auction, four grandchildren of Dr. Nicolas Valisno, namely: Maria Cristina F.
Valisno, daughter of Romulo D. Valisno; and Leonora Valisno Yujuico, Benedicto
Valisno Yujuico and Gregorio Valisno Yujuico, children of Marietta Valisno redeemed
the same from the mortgagees.5 At the time of the redemption, Maria Cristina,
Leonora and Gregorio were all minors; only Benedicto was of legal age, being then 26
years old.6 The redemption was made on October 25, 1973, but the titles to the land
were not transferred to the redemptioners until November 26, 1998.7
Subsequently, the entire 57-hectare property became the subject of expropriation
proceedings before the Department of Agrarian Reform ("DAR"). In 1994, Dominador
Maglalang, in behalf of the SMSP, filed a petition for coverage of the subject
landholding under the CARL, which petition was dismissed for want of
jurisdiction.8 On June 14, 1995, Rogelio Chaves, DAR Provincial Agrarian Reform
17
Officer ("PARO"), issued a Memorandum stating that the property had been
subdivided among the heirs of Dr. Nicolas Valisno Sr. before the issuance of PD 27
into tracts of approximately six hectares each.9 Nevertheless, PARO Chaves added
that the excess over the five-hectare retention limit could still be covered under RA
6657.10
On appeal, the Office of the Regional Director issued an Order dated January 2,
1996, declaring the Valisno property exempt from the coverage of PD 27 and RA
6657.11 This was reversed by then Secretary Garilao, who held that the property is
covered by the Comprehensive Agrarian Reform Program, subject to the retention
rights of the heirs of Nicolas, Sr. The Valisno heirs filed a motion for reconsideration
of the said order, but the same was denied.
On September 25, 1997, the Valisno heirs filed a Consolidated Application for
Retention and Award under RA 6657. Specifically, the petition was filed by (1) Adela,
Aquiles, Leandro, Honorio, Lumen, Nicolas and Marietta Valisno, seven children of
Nicolas Valisno, Sr., who applied for retention rights as landowners; (2) Randy V.
Wagner, Maria Marta B. Valisno, Noelito Valisno, Mary Ann L. Valisno, Philip V.
Branzuela and Brendon V. Yujuico, grandchildren of Nicolas Sr. (hereafter collectively
the "Grandchildren-Awardees"), who applied to be considered qualified child-
awardees; and (3) Ma. Cristina Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico
and Leonora V. Yujuico, likewise grandchildren of Nicolas Sr. (hereafter collectively
the "Redemptioner-Grandchildren"), who applied for retention rights as landowners
over the 12-hectare portion of the property alleged to have been mortgaged by
Nicolas Sr. in 1972 to Angelito and Renato Banting.
The SMSJ, through Dominador Maglalang, opposed the Consolidated Application for
Retention, specifically objecting to the award in favor of the Grandchildren-Awardees
because they are not actually tilling nor directly managing the land in question as
required by law.
On November 4, 1998, Regional Director Renato F. Herrera issued an Order which
pertinently reads: WHEREFORE, premises considered, an ORDER is hereby issued
as follows:
1. GRANTING the application for retention of the heirs of Dr. Nicolas Valisno, Sr.,
namely: Marietta Valisno; Honorio Valisno; Leandro Valisno; Adela Valisno; Nicolas
Valisno, Jr.; Aquiles Valisno; and Lumen Valisno of not more than five (5) hectares
each or a total of 35 hectares covered by Title Nos. 118446, 118443, 118442,
118440, 118445, 118441 and 118444, respectively, all located at La Fuente, Sta.
Rosa, Nueva Ecija;
2. PLACING the excess of 19.0 hectares, more or less, under RA 6657 and acquiring
the same thru Compulsory Acquisition for distribution to qualified farmer-beneficiaries
taking into consideration the basic qualifications set forth by law;
3. DENYING the request for the award to children of the applicants for utter lack of
merit; and
4. DIRECTING the applicants-heirs to cause the segregation and survey of the
retained area at their own expense and to submit within thirty (30) days the final
approved survey plan to this Office. SO ORDERED.12
On appeal, the DAR Secretary affirmed the Order of the Regional Director with the
following relevant ratiocination:
In the second assignment of error, appellants faulted the Regional Director
for not giving due consideration to the two (2) mortgages constituted by the
original owner over a portion of his landholding in 1972 and redeemed by the
latter’s grandchildren in 1973, when the 12-hectare land subject of the
mortgages were ordered to be distributed to CARP beneficiaries.
The alleged redemption of the mortgaged property by the four (4)
grandchildren of Nicolas Valisno, Sr., namely Ma. Cristina, Leonora,
Gregorio and Benedicto, is not likewise worthy of any credence. The
mortgaged property was allegedly redeemed on October 25, 1973. From the
evidence on record, three (3) of the alleged redemptioners represented to be
of legal age in the Discharge of Mortgage were still minors, hence, without
any legal capacity at the time the redemption was made. 13
On June 23, 2000, the motion for reconsideration filed by the heirs of Dr. Valisno was
denied.14
Respondent heirs filed a petition for review with the Court of Appeals, arguing that the
Secretary of Agrarian Reform erred (1) in disallowing the award of one hectare to
each of the seven Grandchildren-Awardees of Dr. Nicolas Valisno, as qualified
children-awardees under the CARL; and (2) in not recognizing the redemption made
by the four grandchildren of Dr. Nicolas Valisno over the 12-hectare riceland
mortgaged to Renato and Angelito Banting.15
On March 26, 2002, the Court of Appeals reversed the Orders of the DAR Secretary,
granted the award of one hectare each for the seven Grandchildren-Awardees, and
affirmed the retention rights of the Redemptioner-Grandchildren over three hectares
each, or a total of 12 hectares.16
Petitioners filed a partial motion for reconsideration, assailing the right of retention of
the four Redemptioner-Grandchildren over the 12-hectare property, and praying that
an amended decision be rendered placing the 12 hectares under the coverage of the
CARP.17 This motion was denied on March 25, 2003.18
Hence, this appeal, on the sole assignment of error:
18
THE HONORABLE COURT OF APPEALS ERRED WHEN, IN EFFECT, IT
RULED THAT THE REDEMPTIONERS (GRANDCHILDREN OF THE
DECEASED NICOLAS VALISNO, SR.) WERE ENTITLED TO RETENTION
RIGHTS AS LANDOWNERS UNDER THE AGRARIAN REFORM LAW
DESPITE THE FACT THAT THE REDEMPTION WAS DONE BY THEIR
PARENTS (CHILDREN OF THE DECEASED) ONLY IN THEIR NAME AND
FOR THEIR BENEFIT.19
The appeal lacks merit.
The Court of Appeals found the following facts relevant: First, that the mortgages
were constituted over a 12-hectare portion of Dr. Valisno’s estate in 1972. Second,
that the titles to the property were transferred to the names of the mortgagees in
1972, viz., TCT No. NT-118447, covering a 6-hectare property in La Fuente, Sta.
Rosa, Nueva Ecija, issued in the name of Angelito Banting; and TCT No. NT-118448,
likewise covering a 6-hectare property in La Fuente, Sta. Rosa, Nueva Ecija, issued in
the name of Renato Banting. Third, these properties were redeemed by the
Redemptioner-Grandchildren on October 25, 1973, at the time of which redemption
three of the four Redemptioner-Grandchildren were minors.
It is a well-settled rule that only questions of law may be reviewed by the Supreme
Court in an appeal by certiorari.20 Findings of fact by the Court of Appeals are final
and conclusive and cannot be reviewed on appeal to the Supreme Court. 21 The only
time this Court will disregard the factual findings of the Court of Appeals (which are
ordinarily accorded great respect) is when these are based on speculation, surmises
or conjectures or when these are not based on substantial evidence. 22
In the case at bar, no reason exists for us to disregard the findings of fact of the Court
of Appeals. The factual findings are borne out by the record and are supported by
substantial evidence.
Given these settled facts, the resolution of the sole issue in this case hinges on (1)
the validity of the redemption in 1973, made when three of the Redemptioner-
Grandchildren were minors; and (2) if the redemption was valid, the determination of
the retention rights of the Redemptioner-Grandchildren, if any, under RA 6557.
The relevant laws governing the minors’ redemption in 1973 are the general Civil
Code provisions on legal capacity to enter into contractual relations. Article 1327 of
the Civil Code provides that minors are incapable of giving consent to a contract.
Article 1390 provides that a contract where one of the parties is incapable of giving
consent is voidable or annullable. Thus, the redemption made by the minors in 1973
was merely voidable or annullable, and was notvoid ab initio, as petitioners argue.
Any action for the annulment of the contracts thus entered into by the minors would
require that: (1) the plaintiff must have an interest in the contract; and (2) the action
must be brought by the victim and not the party responsible for the defect. 23 Thus,
Article 1397 of the Civil Code provides in part that "[t]he action for the annulment of
contracts may be instituted by all who are thereby obliged principally or subsidiarily.
However, persons who are capable cannot allege the incapacity of those with whom
they contracted." The action to annul the minors’ redemption in 1973, therefore, was
one that could only have been initiated by the minors themselves, as the victims or
the aggrieved parties in whom the law itself vests the right to file suit. This action was
never initiated by the minors. We thus quote with approval the ratiocination of the
Court of Appeals:
Respondents contend that the redemption made by the petitioners was
simulated, calculated to avoid the effects of agrarian reform considering that
at the time of redemption the latter were still minors and could not have
resources, in their own right, to pay the price thereof.
We are not persuaded. While it is true that a transaction entered into by a
party who is incapable of consent is voidable, however such transaction is
valid until annulled. The redemption made by the four petitioners has never
been annulled, thus, it is valid.24
The transfer of the titles to the two 6-hectare properties in 1972 removed the parcels
of land from the entire Valisno estate. The evidence clearly demonstrates that Renato
Banting and Angelito Banting became the registered owners of the property in 1972.
These two separate properties were then transferred to the Redemptioner-
Grandchildren in 1973. Regardless of the source of their funds, and regardless of
their minority, they became the legal owners of the property in 1973.
Moreover, although Maria Cristina, Leonora and Gregorio were all minors in 1973,
they were undoubtedly of legal age in 1994, when SMSP initiated the petition for
coverage of the subject landholding under the CARL, and of course were likewise of
legal age in 1997, when all the Valisno heirs filed their Consolidated Application for
Retention and Award under RA 6657.
As owners in their own right of the questioned properties, Redemptioner-
Grandchildren enjoyed the right of retention granted to all landowners. This right of
retention is a constitutionally guaranteed right, which is subject to qualification by the
legislature.25 It serves to mitigate the effects of compulsory land acquisition by
balancing the rights of the landowner and the tenant and by implementing the doctrine
that social justice was not meant to perpetrate an injustice against the landowner.26 A
retained area, as its name denotes, is land which is not supposed to leave the
landowner’s dominion, thus sparing the government from the inconvenience of taking
land only to return it to the landowner afterwards, which would be a pointless process.
In the landmark case of Association of Small Landowners in the Philippines, Inc. v.
Secretary of Agrarian Reform,27we held that landowners who have not yet exercised
their retention rights under PD 27 are entitled to the new retention rights under RA
6657.28 The retention rights of landowners are provided in Sec. 6 of RA 6657, which
reads in relevant part:
19
SECTION 6. Retention Limits. – Except as otherwise provided in this Act, no
person may own or retain, directly or indirectly, any public or private
agricultural land, the size of which shall vary according to factors governing a
viable family-size, such as commodity produced, terrain, infrastructure, and
soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the landowner
exceed five (5) hectares. Three (3) hectares may be awarded to each child
of the landowner, subject to the following qualifications: (1) that he is at least
fifteen (15) years of age; and (2) that he is actually tilling the land or directly
managing the farm; Provided, That landowners whose land have been
covered by Presidential Decree No. 27 shall be allowed to keep the area
originally retained by them thereunder, Provided further, That original
homestead grantees or direct compulsory heirs who still own the original
homestead at the time of the approval of this Act shall retain the same areas
as long as they continue to cultivate said homestead.
The right to choose the area to be retained, which shall be compact or contiguous,
shall pertain to the landowner. Provided, however, That in case the area selected for
retention by the landowner is tenanted, the tenant shall have the option to choose
whether to remain therein or be a beneficiary in the same or another agricultural land
with similar or comparable features. In case the tenant chooses to remain in the
retained area, he shall be considered a leaseholder and shall lose his right to be a
beneficiary under this Act. In case the tenant chooses to be a beneficiary in another
agricultural land, he loses his right as a lease-holder to the land retained by the
landowner. The tenant must exercise this option within a period of one (1) year from
the time the landowner manifests his choice of the area for retention.
This section defines the nature and incidents of a landowner’s right of retention. For
as long as the area to be retained is compact or contiguous and it does not exceed
the retention ceiling of five hectares, a landowner’s choice of the area to be retained
must prevail.
Each of the four Redemptioner-Grandchildren is thus entitled to retain a parcel of land
with a ceiling of five hectares, for a total of 20 hectares. The parcels of land in
question total only 12 hectares, or only three hectares each, which is well within the
statutory retention limits.
WHEREFORE, premises considered, the Decision of the Court of Appeals in CA-G.R.
SP No. 59752 dated March 26, 2002, and Resolution of the Court of Appeals dated
March 25, 2003, which upheld the retention rights of respondents Ma. Cristina
Valisno, Benedicto V. Yujuico, Gregorio V. Yujuico and Leonora V. Yujuico,
are AFFIRMED.
SO ORDERED.
G.R. No. 154670 January 30, 2012
FONTANA RESORT AND COUNTRY CLUB, INC. AND RN DEVELOPMENT
CORP., Petitioners,
vs.
SPOUSES ROY S. TAN AND SUSAN C. TAN, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
For review under Rule 45 of the Rules of Court is the Decision 1 dated May 30, 2002
and Resolution2 dated August 12, 2002 of the Court Appeals in CA-G.R. SP No.
67816. The appellate court affirmed with modification the Decision3 dated July 6, 2001
of the Securities and Exchange Commission (SEC) En Banc in SEC AC Case No.
788 which, in turn, affirmed the Decision4 dated April 28, 2000 of Hearing Officer
Marciano S. Bacalla, Jr. (Bacalla) of the SEC Securities Investigation and Clearing
Department (SICD) in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan
bought from petitioner RN Development Corporation (RNDC) two class "D" shares of
stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI), worth
₱387,300.00, enticed by the promises of petitioners’ sales agents that petitioner
FRCCI would construct a park with first-class leisure facilities in Clark Field,
Pampanga, to be called Fontana Leisure Park (FLP); that FLP would be fully
developed and operational by the first quarter of 1998; and that FRCCI class "D"
shareholders would be admitted to one membership in the country club, which entitled
them to use park facilities and stay at a two-bedroom villa for "five (5) ordinary
weekdays and two (2) weekends every year for free." 5
Two years later, in March 1999, respondents filed before the SEC a Complaint 6 for
refund of the ₱387,300.00 they spent to purchase FRCCI shares of stock from
petitioners. Respondents alleged that they had been deceived into buying FRCCI
shares because of petitioners’ fraudulent misrepresentations. Construction of FLP
turned out to be still unfinished and the policies, rules, and regulations of the country
club were obscure.
Respondents narrated that they were able to book and avail themselves of free
accommodations at an FLP villa on September 5, 1998, a Saturday. They requested
that an FLP villa again be reserved for their free use on October 17, 1998, another
Saturday, for the celebration of their daughter’s 18th birthday, but were refused by
petitioners. Petitioners clarified that respondents were only entitled to free
accommodations at FLP for "one week annually consisting of five (5) ordinary days,
one (1) Saturday and one (1) Sunday[,]" and that respondents had already exhausted
their free Saturday pass for the year. According to respondents, they were not
informed of said rule regarding their free accommodations at FLP, and had they
known about it, they would not have availed themselves of the free accommodations
20
on September 5, 1998. In January 1999, respondents attempted once more to book
and reserve an FLP villa for their free use on April 1, 1999, a Thursday. Their
reservation was confirmed by a certain Murphy Magtoto. However, on March 3, 1999,
another country club employee named Shaye called respondents to say that their
reservation for April 1, 1999 was cancelled because the FLP was already fully
booked.
Petitioners filed their Answer7 in which they asserted that respondents had been duly
informed of the privileges given to them as shareholders of FRCCI class "D" shares of
stock since these were all explicitly provided in the promotional materials for the
country club, the Articles of Incorporation, and the By-Laws of FRCCI. Petitioners
called attention to the following paragraph in their ads:
GUEST ROOMS
As a member of the Fontana Resort and Country Club, you are entitled to 7 days stay
consisting of 5 weekdays, one Saturday and one Sunday. A total of 544 elegantly
furnished villas available in two and three bedroom units. 8
Petitioners also cited provisions of the FRCCI Articles of Incorporation and the By-
Laws on class "D" shares of stock, to wit:
Class D shares may be sold to any person, irrespective of nationality or Citizenship.
Every registered owner of a class D share may be admitted to one (1) Membership in
the Club and subject to the Club’s rules and regulations, shall be entitled to use a Two
(2) Bedroom Multiplex Model Unit in the residential villas provided by the Club for one
week annually consisting of five (5) ordinary days, one (1) Saturday and one (1)
Sunday. (Article Seventh, Articles of Incorporation)
Class D shares – which may be sold to any person, irrespective of nationality or
Citizenship. Every registered owner of a class D share may be admitted to one (1)
Membership in the Club and subject to the Club’s rules and regulations, shall be
entitled to use a Two (2) Bedroom Multiplex Model Unit in the residential villas
provided by the Club for one week annually consisting of five (5) ordinary days, one
(1) Saturday and one (1) Sunday. [Section 2(a), Article II of the By-Laws.]9
Petitioners further denied that they unjustly cancelled respondents’ reservation for an
FLP villa on April 1, 1999, explaining that:
6. There is also no truth to the claim of [herein respondents] that they were given and
had confirmed reservations for April 1, 1998. There was no reservation to cancel
since there was no confirmed reservations to speak of for the reason that April 1,
1999, being Holy Thursday, all reservations for the Holy Week were fully booked as
early as the start of the current year. The Holy Week being a peak season for
accommodations, all reservations had to be made on a priority basis; and as admitted
by [respondents], they tried to make their reservation only on January 4, 1999, a time
when all reservations have been fully booked. The fact of [respondents’] non-
reservation can be attested by the fact that no confirmation number was issued in
their favor.
If at all, [respondents] were "wait-listed" as of January 4, 1999, meaning, they would
be given preference in the reservation in the event that any of the confirmed
members/guests were to cancel. The diligence on the part of the [herein petitioners]
to inform [respondents] of the status of their reservation can be manifested by the act
of the Club’s personnel when it advised [respondents] on March 3, 1999 that there
were still no available villas for their use because of full bookings. 10
Lastly, petitioners averred that when respondents were first accommodated at FLP,
only minor or finishing construction works were left to be done and that facilities of the
country club were already operational.
SEC-SICD Hearing Officer Bacalla conducted preliminary hearings and trial proper in
the case. Respondents filed separate sworn Question and Answer
depositions.11 Esther U. Lacuna, a witness for respondents, also filed a sworn
Question and Answer deposition.12 When petitioners twice defaulted, without any valid
excuse, to present evidence on the scheduled hearing dates, Hearing Officer Bacalla
deemed petitioners to have waived their right to present evidence and considered the
case submitted for resolution.13
Based on the evidence presented by respondents, Hearing Officer Bacalla made the
following findings in his Decision dated April 28, 2000:
To prove the merits of their case, both [herein respondents] testified. Ms. Esther U.
Lacuna likewise testified in favor of [respondents].
As established by the testimonies of [respondents’] witnesses, Ms. Esther U. Lacuna,
a duly accredited sales agent of [herein petitioners] who went to see [respondents] for
the purpose of inducing them to buy membership shares of Fontana Resort and
Country Club, Inc. with promises that the park will provide its shareholders with first
class leisure facilities, showing them brochures (Exhibits "V", "V-1" and "V-2") of the
future development of the park.
Indeed [respondents] bought two (2) class "D" shares in Fontana Resort and Country
Club, Inc. paying ₱387,000.00 to [petitioners] as evidenced by provisional and official
receipts (Exhibits "A" to "S"), and signing two (2) documents designated as
Agreement to Sell and Purchase Shares of Stock (Exhibits "T" to "U-2").
It is undisputed that many of the facilities promised were not completed within the
specified date. Ms. Lacuna even testified that less than 50% of what was promised
were actually delivered.
21
What was really frustrating on the part of [respondents] was when they made
reservations for the use of the Club’s facilities on the occasion of their daughter’s 18th
birthday on October 17, 1998 where they were deprived of the club’s premises
alleging that the two (2) weekend stay which class "D" shareholders are entitled
should be on a Saturday and on a Sunday. Since [respondents] have already availed
of one (1) weekend stay which was a Saturday, they could no longer have the second
weekend stay also on a Saturday.
Another occasion was when [respondents] were again denied the use of the club’s
facilities because they did not have a confirmation number although their reservation
was confirmed.
All these rules were never communicated to [respondents] when they bought their
membership shares.
It would seem that [petitioners], through their officers, would make up rules as they go
along. A clever ploy for [petitioners] to hide the lack of club facilities to accommodate
the needs of their members.
[Petitioners’] failure to finish the development works at the Fontana Leisure Park
within the period they promised and their failure or refusal to accommodate
[respondents] for a reservation on October 17, 1998 and April 1, 1999, constitute
gross misrepresentation detrimental not only to the [respondents] but to the general
public as well.
All these empty promises of [petitioners] may well be part of a scheme to attract, and
induce [respondents] to buy shares because surely if [petitioners] had told the truth
about these matters, [respondents] would never have bought shares in their project in
the first place.14
Consequently, Hearing Officer Bacalla adjudged:
WHEREFORE, premises considered, judgment is hereby rendered directing [herein
petitioners] to jointly and severally pay [herein respondents]:
1) The amount of ₱387,000.00 plus interest at the rate of 21% per annum computed
from August 28, 1998 when demand was first made, until such time as payment is
actually made.15
Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla before the
SEC en banc. In its Decision dated July 6, 2001, the SEC en banc held:
WHEREFORE, the instant appeal is hereby DENIED and the Decision of Hearing
Officer Marciano S. Bacalla, Jr. dated April 28, 2000 is hereby AFFIRMED. 16
In an Order17 dated September 19, 2001, the SEC en banc denied petitioners’ Motion
for Reconsideration for being a prohibited pleading under the SEC Rules of
Procedure.
Petitioners filed before the Court of Appeals a Petition for Review under Rule 43 of
the Rules of Court. Petitioners contend that even on the sole basis of respondents’
evidence, the appealed decisions of Hearing Officer Bacalla and the SEC en banc are
contrary to law and jurisprudence.
The Court of Appeals rendered a Decision on March 30, 2002, finding petitioners’
appeal to be partly meritorious.
The Court of Appeals brushed aside the finding of the SEC that petitioners were guilty
of fraudulent misrepresentation in inducing respondents to buy FRCCI shares of
stock. Instead, the appellate court declared that:
What seems clear rather is that in "inducing" the respondents to buy the Fontana
shares, RN Development Corporation merely repeated to the spouses the benefits
promised to all holders of Fontana Class "D" shares. These inducements were in fact
contained in Fontana’s promotion brochures to prospective subscribers which the
spouses must obviously have read.18
Nonetheless, the Court of Appeals agreed with the SEC that the sale of the two
FRCCI class "D" shares of stock by petitioners to respondents should be rescinded.
Petitioners defaulted on their promises to respondents that FLP would be fully
developed and operational by the first quarter of 1998 and that as shareholders of
said shares, respondents were entitled to the free use of first-class leisure facilities at
FLP and free accommodations at a two-bedroom villa for "five (5) ordinary weekdays
and two (2) weekends every year."
The Court of Appeals modified the appealed SEC judgment by ordering respondents
to return their certificates of shares of stock to petitioners upon the latter’s refund of
the price of said shares since "[t]he essence of the questioned [SEC] judgment was
really to declare as rescinded or annulled the sale or transfer of the shares to the
respondents."19 The appellate court additionally clarified that the sale of the FRCCI
shares of stock by petitioners to respondents partakes the nature of a forbearance of
money, since the amount paid by respondents for the shares was used by petitioners
to defray the construction of FLP; hence, the interest rate of 12% per annum should
be imposed on said amount from the date of extrajudicial demand until its return to
respondents. The dispositive portion of the Court of Appeals judgment reads:
WHEREFORE, premises considered, the appealed judgment is MODIFIED: a)
petitioner Fontana Resort and Country Club is hereby ordered to refund and pay to
the respondents Spouses Roy S. Tan and Susana C. Tan the amount of
₱387,000.00, Philippine Currency, representing the price of two of its Class "D"
shares of stock, plus simple interest at the rate of 12% per annum computed from
August 28, 1998 when demand was first made, until payment is completed; b) the
22
respondent spouses are ordered to surrender to petitioner Fontana Resort and
Country Club their two (2) Class "D" shares issued by said petitioner upon receipt of
the full refund with interest as herein ordered.20
Petitioners filed a Motion for Reconsideration, but it was denied by the Court of
Appeals in its Resolution dated August 12, 2002.
Hence, the instant Petition for Review.
Petitioners, in their Memorandum,21 submit for our consideration the following issues:
a. Was the essence of the judgment of the SEC – which ordered the return
of the purchase price but not of the thing sold – a declaration of rescission or
annulment of the contract of sale between RNDC and respondents?
b. Was the order of the Court of Appeals to FRCCI – which was not the
seller of the thing sold (the seller was RNDC) – to return the purchase price
to the buyers (the respondents) in accordance with law?
c. Was the imposition of 12% interest per annum from the date of extra-
judicial demand on an obligation which is not a loan or forbearance of money
in accordance with law?22
Petitioners averred that the ruling of the Court of Appeals that the essence of the SEC
judgment is the rescission or annulment of the contract of sale of the FRCCI shares of
stock between petitioners and respondents is inconsistent with Articles 1385 and
1398 of the Civil Code. The said SEC judgment did not contain an express
declaration that it involved the rescission or annulment of contract or an explicit order
for respondents to return the thing sold. Petitioners also assert that respondents’
claim for refund based on fraud or misrepresentation should have been directed only
against petitioner RNDC, the registered owner and seller of the FRCCI class "D"
shares of stock. Petitioner FRCCI was merely the issuer of the shares sold to
respondents. Petitioners lastly question the order of the Court of Appeals for
petitioners to pay 12% interest per annum, the same being devoid of legal basis since
their obligation does not constitute a loan or forbearance of money.
In their Memorandum,23 respondents chiefly argue that petitioners have posited mere
questions of fact and none of law, precluding this Court to take cognizance of the
instant Petition under Rule 45 of the Rules of Court. Even so, respondents maintain
that the Court of Appeals did not err in ordering them to return the certificates of
shares of stock to petitioners upon the latter’s refund of the price thereof as the
essence of respondents’ claim for refund is to rescind the sale of said shares.
Furthermore, both petitioners should be held liable since they are the owners and
developers of FLP. Petitioner FRCCI is primarily liable for respondents’ claim for
refund, and petitioner RNDC, at most, is only subsidiarily liable considering that
petitioner RNDC is a mere agent of petitioner FRCCI. Respondents finally insist that
the imposition of the interest rate at 12% per annum, computed from the date of the
extrajudicial demand, is correct since the obligation of petitioners is in the nature of a
forbearance of money.
We find merit in the Petition.
We address the preliminary matter of the nature of respondents’ Complaint against
petitioners. Well-settled is the rule that the allegations in the complaint determine the
nature of the action instituted.24
Respondents alleged in their Complaint that:
16. [Herein petitioners’] failure to finish the development works at the
Fontana Leisure Park within the time frame that they promised, and
[petitioners’] failure/refusal to accom[m]odate [herein respondents’] request
for reservations on 17 October 1998 and 1 April 1999, constitute gross
misrepresentation and a form of deception, not only to the [respondents], but
the general public as well.
17. [Petitioners’] deliberately and maliciously misrepresented that
development works will be completed when they knew fully well that it was
impossible to complete the development works by the deadline. [Petitioners]
also deliberately and maliciously deceived [respondents] into believing that
they have the privilege to utilize Club facilities, only for [respondents] to be
later on denied such use of Club facilities. All these acts are part of
[petitioners’] scheme to attract, induce and convince [respondents] to buy
shares, knowing that had they told the truth about these matters,
[respondents] would never have bought shares in their project.
18. On 28 August 1998, [respondents] requested their lawyer to write
[petitioner] Fontana Resort and Country Club, Inc. a letter demanding for the
return of their payment. x x x.
19. [Petitioner] Fontana Resort and Country Club, Inc. responded to this
letter, with a letter of its own dated 10 September 1998, denying
[respondents’] request for a refund. x x x.
20. [Respondents] replied to [petitioner] Fontana Resort and Country Club’s
letter with a letter dated 13 October 1998, x x x. But despite receipt of this
letter, [petitioners] failed/refused and continue to fail /refuse to refund/return
[respondents’] payments.
22. [Petitioners] acted in bad faith when it sold membership shares to
[respondents], promising development work will be completed by the first
quarter of 1998 when [petitioners] knew fully well that they were in no
position and had no intention to complete development work within the time
23
they promised. [Petitioners] also were maliciously motivated when they
promised [respondents] use of Club facilities only to deny [respondents] such
use later on.
23. It is detrimental to the interest of [respondents] and quite unfair that they
will be made to suffer from the delay in the completion of the development
work, while [petitioners] are already enjoying the purchase price paid by
[respondents].
26. Apart from the refund of the amount of ₱387,300.00, [respondents] are
also entitled to be paid reasonable interest from their money. Afterall,
[petitioners] have already benefitted from this money, having been able to
use it, if not for the Fontana Leisure Park project, for their other projects as
well. And had [respondents] been able to deposit the money in the bank, or
invested it in some worthwhile undertaking, they would have earned interest
on the money at the rate of at least 21% per annum.25
The aforequoted allegations in respondents’ Complaint sufficiently state a cause of
action for the annulment of a voidable contract of sale based on fraud under Article
1390, in relation to Article 1398, of the Civil Code, and/or rescission of a reciprocal
obligation under Article 1191, in relation to Article 1385, of the same Code. Said
provisions of the Civil Code are reproduced below:
Article 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
1. Those where one of the parties is incapable of giving consent to a
contract;
2. Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.
Article 1398. An obligation having been annulled, the contracting parties shall restore
to each other the things which have been the subject matter of the contract, with their
fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Article 1385. Rescission creates the obligation to return the things which were the
object of the contract, together with their fruits, and the price with its interest;
consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to return.
Neither shall rescission take place when the things which are the object of the
contract are legally in the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the
loss.
It does not matter that respondents, in their Complaint, simply prayed for refund of the
purchase price they had paid for their FRCCI shares,26 without specifically mentioning
the annulment or rescission of the sale of said shares. The Court of Appeals treated
respondents’ Complaint as one for annulment/rescission of contract and, accordingly,
it did not simply order petitioners to refund to respondents the purchase price of the
FRCCI shares, but also directed respondents to comply with their correlative
obligation of surrendering their certificates of shares of stock to petitioners.
Now the only issue left for us to determine – whether or not petitioners committed
fraud or defaulted on their promises as would justify the annulment or rescission of
their contract of sale with respondents – requires us to reexamine evidence submitted
by the parties and review the factual findings by the SEC and the Court of Appeals.
As a general rule, "the remedy of appeal by certiorari under Rule 45 of the Rules of
Court contemplates only questions of law and not issues of fact. This rule, however, is
inapplicable in cases x x x where the factual findings complained of are absolutely
devoid of support in the records or the assailed judgment of the appellate court is
based on a misapprehension of facts."27 Another well-recognized exception to the
general rule is when the factual findings of the administrative agency and the Court of
Appeals are contradictory.28 The said exceptions are applicable to the case at bar.
There are contradictory findings below as to the existence of fraud: while Hearing
Officer Bacalla and the SEC en banc found that there is fraud on the part of
petitioners in selling the FRCCI shares to respondents, the Court of Appeals found
none.
24
There is fraud when one party is induced by the other to enter into a contract, through
and solely because of the latter’s insidious words or machinations. But not all forms of
fraud can vitiate consent. "Under Article 1330, fraud refers to dolo causante or causal
fraud, in which, prior to or simultaneous with the execution of a contract, one party
secures the consent of the other by using deception, without which such consent
would not have been given."29"Simply stated, the fraud must be the determining
cause of the contract, or must have caused the consent to be given."30
"[T]he general rule is that he who alleges fraud or mistake in a transaction must
substantiate his allegation as the presumption is that a person takes ordinary care for
his concerns and that private dealings have been entered into fairly and
regularly."31 One who alleges defect or lack of valid consent to a contract by reason of
fraud or undue influence must establish by full, clear and convincing evidence such
specific acts that vitiated a party’s consent, otherwise, the latter’s presumed consent
to the contract prevails.32
In this case, respondents have miserably failed to prove how petitioners employed
fraud to induce respondents to buy FRCCI shares. It can only be expected that
petitioners presented the FLP and the country club in the most positive light in order
to attract investor-members. There is no showing that in their sales talk to
respondents, petitioners actually used insidious words or machinations, without
which, respondents would not have bought the FRCCI shares. Respondents appear
to be literate and of above-average means, who may not be so easily deceived into
parting with a substantial amount of money. What is apparent to us is that
respondents knowingly and willingly consented to buying FRCCI shares, but were
later on disappointed with the actual FLP facilities and club membership benefits.
Similarly, we find no evidence on record that petitioners defaulted on any of their
obligations that would have called for the rescission of the sale of the FRCCI shares
to respondents.
"The right to rescind a contract arises once the other party defaults in the
performance of his obligation."33"Rescission of a contract will not be permitted for a
slight or casual breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement." 34 In the same case as
fraud, the burden of establishing the default of petitioners lies upon respondents, but
respondents once more failed to discharge the same.
Respondents decry the alleged arbitrary and unreasonable denial of their request for
reservation at FLP and the obscure and ever-changing rules of the country club as
regards free accommodations for FRCCI class "D" shareholders.
Yet, petitioners were able to satisfactorily explain, based on clear policies, rules, and
regulations governing FLP club memberships, why they rejected respondents’ request
for reservation on October 17, 1998. Respondents do not dispute that the Articles of
Incorporation and the By-Laws of FRCCI, as well as the promotional materials
distributed by petitioners to the public (copies of which respondents admitted
receiving), expressly stated that the subscribers of FRCCI class "D" shares of stock Conversely, so long as there is a showing of a violation of the right of the plaintiff, an
are entitled free accommodation at an FLP two-bedroom villa only for "one week award of nominal damages is proper.37
annually consisting of five (5) ordinary days, one (1) Saturday and one (1) Sunday."
Thus, respondents cannot claim that they were totally ignorant of such rule or that It is also settled that "the amount of such damages is addressed to the sound
petitioners have been changing the rules as they go along. Respondents had already discretion of the court, taking into account the relevant circumstances." 38 1âwphi1
availed themselves of free accommodations at an FLP villa on September 5, 1998, a
Saturday, so that there was basis for petitioners to deny respondents’ subsequent
request for reservation of an FLP villa for their free use on October 17, 1998, another In this case, we deem that the respondents are entitled to an award of ₱5,000.00 as
Saturday. nominal damages in recognition of their confirmed reservation for the free use of an
FLP villa on April 1, 1999 which was inexcusably cancelled by petitioner on March 3,
1999.
Neither can we rescind the contract because construction of FLP facilities were still
unfinished by 1998. Indeed, respondents’ allegation of unfinished FLP facilities was
not disputed by petitioners, but respondents themselves were not able to present In sum, the respondents’ Complaint sufficiently alleged a cause of action for the
competent proof of the extent of such incompleteness. Without any idea of how much annulment or rescission of the contract of sale of FRCCI class "D" shares by
of FLP and which particular FLP facilities remain unfinished, there is no way for us to petitioners to respondents; however, respondents were unable to establish by
determine whether petitioners were actually unable to deliver on their promise of a preponderance of evidence that they are entitled to said annulment or rescission.
first class leisure park and whether there is sufficient reason for us to grant rescission
or annulment of the sale of FRCCI shares. Apparently, respondents were still able to WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The
enjoy their stay at FLP despite the still ongoing construction works, enough for them Decision dated May 30, 2002 and Resolution dated August 12, 2002 of the Court
to wish to return and again reserve accommodations at the park. Appeals in CA-G.R. SP No. 67816 are REVERSED and SET ASIDE. Petitioners are
ORDERED to pay respondents the amount of ₱5,000.00 as nominal damages for
Respondents additionally alleged the unreasonable cancellation of their confirmed their negligence as regards respondents’ cancelled reservation for April 1, 1999, but
reservation for the free use of an FLP villa on April 1, 1999. According to respondents, respondents’ Complaint, in so far as the annulment or rescission of the contract of
their reservation was confirmed by a Mr. Murphy Magtoto, only to be cancelled later sale of the FRCCI class "D" shares of stock is concerned, is DISMISSED for lack of
on by a certain Shaye. Petitioners countered that April 1, 1999 was a Holy Thursday merit.
and FLP was already fully-booked. Petitioners, however, do not deny that Murphy
Magtoto and Shaye are FLP employees who dealt with respondents. The absence of SO ORDERED.
any confirmation number issued to respondents does not also discount the possibility
that the latter’s reservation was mistakenly confirmed by Murphy Magtoto despite FLP
being fully-booked. At most, we perceive a mix-up in the reservation process of
petitioners. This demonstrates a mere negligence on the part of petitioners, but not
willful intention to deprive respondents of their membership benefits. It does not
constitute default that would call for rescission of the sale of FRCCI shares by
petitioners to respondents. For the negligence of petitioners as regards respondents’
reservation for April 1, 1999, respondents are at least entitled to nominal damages in
accordance with Articles 2221 and 2222 of the Civil Code.35

In Almeda v. Cariño,36 we have expounded on the propriety of granting nominal

damages as follows:

[N]ominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that right, and
not for indemnifying the plaintiff for any loss suffered by him. Its award is thus not for
the purpose of indemnification for a loss but for the recognition and vindication of a
right. Indeed, nominal damages are damages in name only and not in fact. When
granted by the courts, they are not treated as an equivalent of a wrong inflicted but
simply a recognition of the existence of a technical injury. A violation of the plaintiff's
right, even if only technical, is sufficient to support an award of nominal damages.
25
G.R. No. 174118 April 11, 2012
THE ROMAN CATHOLIC CHURCH, represented by the Archbishop of
Caceres, Petitioner,
vs.
REGINO PANTE, Respondent.
DECISION
BRION, J.:
Through a petition for review on certiorari,1 the petitioner Roman Catholic Church
(Church) seeks to set aside the May 18, 2006 decision 2 and the August 11, 2006
resolution3 of the Court of Appeals (CA) in CA-G.R.-CV No. 65069. The CA reversed
the July 30, 1999 decision4 of the Regional Trial Court (RTC) of Naga City, Branch 24,
in Civil Case No. 94-3286.
THE FACTUAL ANTECEDENTS
The Church, represented by the Archbishop of Caceres, owned a 32-square meter lot
that measured 2x16 meters located in Barangay Dinaga, Canaman, Camarines
Sur.5 On September 25, 1992, the Church contracted with respondent Regino Pante
for the sale of the lot (thru a Contract to Sell and to Buy6 ) on the belief that the latter
was an actual occupant of the lot. The contract between them fixed the purchase
price at ₱11,200.00, with the initial ₱1,120.00 payable as down payment, and the
remaining balance payable in three years or until September 25, 1995.
On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi
(spouses Rubi) a 215-square meter lot that included the lot previously sold to Pante.
The spouses Rubi asserted their ownership by erecting a concrete fence over the lot
sold to Pante, effectively blocking Pante and his family’s access from their family
home to the municipal road. As no settlement could be reached between the parties,
Pante instituted with the RTC an action to annul the sale between the Church and the
spouses Rubi, insofar as it included the lot previously sold to him. 7
The Church filed its answer with a counterclaim, seeking the annulment of its contract
with Pante. The Church alleged that its consent to the contract was obtained by fraud
when Pante, in bad faith, misrepresented that he had been an actual occupant of the
lot sold to him, when in truth, he was merely using the 32-square meter lot as a
passageway from his house to the town proper. It contended that it was its policy to
sell its lots only to actual occupants. Since the spouses Rubi and their predecessors-
in-interest have long been occupying the 215-square meter lot that included the 32-
square meter lot sold to Pante, the Church claimed that the spouses Rubi were the
rightful buyers.
During pre-trial, the following admissions and stipulations of facts were made:
26
1. The lot claimed by Pante is a strip of land measuring only 2x16 meters;
2. The lot had been sold by the Church to Pante on September 25, 1992;
3. The lot was included in the sale to the spouses Rubi by the Church; and
4. Pante expressly manifested and represented to the Church that he had
been actually occupying the lot he offered to buy. 8
In a decision dated July 30, 1999,9 the RTC ruled in favor of the Church, finding that
the Church’s consent to the sale was secured through Pante’s misrepresentation that
he was an occupant of the 32-square meter lot. Contrary to his claim, Pante was only
using the lot as a passageway; the Church’s policy, however, was to sell its lots only
to those who actually occupy and reside thereon. As the Church’s consent was
secured through its mistaken belief that Pante was a qualified "occupant," the RTC
annulled the contract between the Church and Pante, pursuant to Article 1390 of the
Civil Code.10
The RTC further noted that full payment of the purchase price was made only on
September 23, 1995, when Pante consigned the balance of ₱10,905.00 with the RTC,
after the Church refused to accept the tendered amount. It considered the three-year
delay in completing the payment fatal to Pante’s claim over the subject lot; it ruled that
if Pante had been prompt in paying the price, then the Church would have been
estopped from selling the lot to the spouses Rubi. In light of Pante’s delay and his
admission that the subject lot had been actually occupied by the spouses Rubi’s
predecessors, the RTC upheld the sale in favor of the spouses Rubi.
Pante appealed the RTC’s decision with the CA. In a decision dated May 18,
2006,11 the CA granted Pante’s appeal and reversed the RTC’s ruling. The CA
characterized the contract between Pante and the Church as a contract of sale, since
the Church made no express reservation of ownership until full payment of the price is
made. In fact, the contract gave the Church the right to repurchase in case Pante fails
to pay the installments within the grace period provided; the CA ruled that the right to
repurchase is unnecessary if ownership has not already been transferred to the
buyer.
Even assuming that the contract had been a contract to sell, the CA declared that
Pante fulfilled the condition precedent when he consigned the balance within the
three-year period allowed under the parties’ agreement; upon full payment, Pante fully
complied with the terms of his contract with the Church.
After recognizing the validity of the sale to Pante and noting the subsequent sale to
the spouses Rubi, the CA proceeded to apply the rules on double sales in Article
1544 of the Civil Code:
Article 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith. [Emphasis ours.]
Since neither of the two sales was registered, the CA upheld the full effectiveness of
the sale in favor of Pante who first possessed the lot by using it as a passageway
since 1963.
The Church filed the present petition for review on certiorari under Rule 45 of the
Rules of Court to contest the CA’s ruling.
THE PETITION
The Church contends that the sale of the lot to Pante is voidable under Article 1390 of
the Civil Code, which states:
Article 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a
contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. [Emphasis ours.]
It points out that, during trial, Pante already admitted knowing that the spouses Rubi
have been residing on the lot. Despite this knowledge, Pante misrepresented himself
as an occupant because he knew of the Church’s policy to sell lands only to
occupants or residents thereof. It thus claims that Pante’s misrepresentation
effectively vitiated its consent to the sale; hence, the contract should be nullified.
For the Church, the presence of fraud and misrepresentation that would suffice to
annul the sale is the primary issue that the tribunals below should have resolved.
Instead, the CA opted to characterize the contract between the Church and Pante,
considered it as a contract of sale, and, after such characterization, proceeded to
27
resolve the case in Pante’s favor. The Church objects to this approach, on the
principal argument that there could not have been a contract at all considering that its
consent had been vitiated.
THE COURT’S RULING
The Court resolves to deny the petition.
No misrepresentation existed vitiating the
seller’s consent and invalidating the contract
Consent is an essential requisite of contracts 12 as it pertains to the meeting of the
offer and the acceptance upon the thing and the cause which constitute the
contract.13 To create a valid contract, the meeting of the minds must be free,
voluntary, willful and with a reasonable understanding of the various obligations the
parties assumed for themselves.14 Where consent, however, is given through mistake,
violence, intimidation, undue influence, or fraud, the contract is deemed
voidable.15 However, not every mistake renders a contract voidable. The Civil Code
clarifies the nature of mistake that vitiates consent:
Article 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions which
have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only
when such identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. [Emphasis ours.]
For mistake as to the qualification of one of the parties to vitiate consent, two
requisites must concur:
1. the mistake must be either with regard to the identity or with regard to the
qualification of one of the contracting parties; and
2. the identity or qualification must have been the principal consideration for
the celebration of the contract.16
In the present case, the Church contends that its consent to sell the lot was given on
the mistaken impression arising from Pante’s fraudulent misrepresentation that he
had been the actual occupant of the lot. Willful misrepresentation existed because of
its policy to sell its lands only to their actual occupants or residents. Thus, it considers
the buyer’s actual occupancy or residence over the subject lot a qualification
necessary to induce it to sell the lot.
Whether the facts, established during trial, support this contention shall determine if
the contract between the Church and Pante should be annulled. In the process of
weighing the evidentiary value of these established facts, the courts should consider
both the parties’ objectives and the subjective aspects of the transaction, specifically,
the parties’ circumstances – their condition, relationship, and other attributes – and
their conduct at the time of and subsequent to the contract. These considerations will
show what influence the alleged error exerted on the parties and their intelligent, free,
and voluntary consent to the contract.17
Contrary to the Church’s contention, the actual occupancy or residency of a buyer
over the land does not appear to be a necessary qualification that the Church requires
before it could sell its land. Had this been indeed its policy, then neither Pante nor the
spouses Rubi would qualify as buyers of the 32-square meter lot, as none of them
actually occupied or resided on the lot. We note in this regard that the lot was only a
2x16-meter strip of rural land used as a passageway from Pante’s house to the
municipal road.
We find well-taken Pante’s argument that, given the size of the lot, it could serve no
other purpose than as a mere passageway; it is unthinkable to consider that a 2x16-
meter strip of land could be mistaken as anyone’s residence. In fact, the spouses
Rubi were in possession of the adjacent lot, but they never asserted possession over
the 2x16-meter lot when the 1994 sale was made in their favor; it was only then that
they constructed the concrete fence blocking the passageway.
We find it unlikely that Pante could successfully misrepresent himself as the actual
occupant of the lot; this was a fact that the Church (which has a parish chapel in the
same barangay where the lot was located) could easily verify had it conducted an
ocular inspection of its own property. The surrounding circumstances actually indicate
that the Church was aware that Pante was using the lot merely as a passageway.
The above view is supported by the sketch plan,18 attached to the contract executed
by the Church and Pante, which clearly labeled the 2x16-meter lot as a "RIGHT OF
WAY"; below these words was written the name of "Mr. Regino Pante." Asked during
cross-examination where the sketch plan came from, Pante answered that it was from
the Archbishop’s Palace; neither the Church nor the spouses Rubi contradicted this
statement.19
The records further reveal that the sales of the Church’s lots were made after a series
of conferences with the occupants of the lots.20 The then parish priest of Canaman,
Fr. Marcaida, was apparently aware that Pante was not an actual occupant, but
nonetheless, he allowed the sale of the lot to Pante, subject to the approval of the
Archdiocese’s Oeconomous. Relying on Fr. Marcaida’s recommendation and finding
nothing objectionable, Fr. Ragay (the Archdiocese’s Oeconomous) approved the sale
to Pante.
The above facts, in our view, establish that there could not have been a deliberate,
willful, or fraudulent act committed by Pante that misled the Church into giving its
28
consent to the sale of the subject lot in his favor. That Pante was not an actual
occupant of the lot he purchased was a fact that the Church either ignored or waived
as a requirement. In any case, the Church was by no means led to believe or do so
by Pante’s act; there had been no vitiation of the Church’s consent to the sale of the
lot to Pante.
From another perspective, any finding of bad faith, if one is to be made, should be
imputed to the Church. Without securing a court ruling on the validity of its contract
with Pante, the Church sold the subject property to the spouses Rubi. Article 1390 of
the Civil Code declares that voidable contracts are binding, unless annulled by a
proper court action. From the time the sale to Pante was made and up until it sold the
subject property to the spouses Rubi, the Church made no move to reject the contract
with Pante; it did not even return the down payment he paid. The Church’s bad faith in
selling the lot to Rubi without annulling its contract with Pante negates its claim for
damages.
In the absence of any vitiation of consent, the contract between the Church and Pante
stands valid and existing. Any delay by Pante in paying the full price could not nullify
the contract, since (as correctly observed by the CA) it was a contract of sale. By its
terms, the contract did not provide a stipulation that the Church retained ownership
until full payment of the price.21 The right to repurchase given to the Church in case
Pante fails to pay within the grace period provided22 would have been unnecessary
had ownership not already passed to Pante.
The rule on double sales
The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale
that called for the application of the rules in Article 1544 of the Civil Code:
Article 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith. [Emphasis ours.]
As neither Pante nor the spouses Rubi registered the sale in their favor, the question
now is who, between the two, was first in possession of the property in good
faith.1âwphi1
Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean SO ORDERED.
both actual physical delivery and constructive delivery.23 Under either mode of
delivery, the facts show that Pante was the first to acquire possession of the lot.

Actual delivery of a thing sold occurs when it is placed under the control and
possession of the vendee.24 Pante claimed that he had been using the lot as a
passageway, with the Church’s permission, since 1963.1âwphi1 After purchasing the
lot in 1992, he continued using it as a passageway until he was prevented by the
spouses Rubi’s concrete fence over the lot in 1994. Pante’s use of the lot as a
passageway after the 1992 sale in his favor was a clear assertion of his right of
ownership that preceded the spouses Rubi’s claim of ownership.

Pante also stated that he had placed electric connections and water pipes on the lot,
even before he purchased it in 1992, and the existence of these connections and
pipes was known to the spouses Rubi.25 Thus, any assertion of possession over the
lot by the spouses Rubi (e.g., the construction of a concrete fence) would be
considered as made in bad faith because works had already existed on the lot
indicating possession by another. "[A] buyer of real property in the possession of
persons other than the seller must be wary and should investigate the rights of those
in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in
good faith and cannot have any right over the property."26

Delivery of a thing sold may also be made constructively. Article 1498 of the Civil
Code states that:

Article 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be inferred.

Under this provision, the sale in favor of Pante would have to be upheld since the
contract executed between the Church and Pante was duly notarized, converting the
deed into a public instrument.27 In Navera v. Court of Appeals,28 the Court ruled that:

[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it
to another, does not transmit anything to the second vendee, and if the latter, by
virtue of this second sale, takes material possession of the thing, he does it as mere
detainer, and it would be unjust to protect this detention against the rights of the thing
lawfully acquired by the first vendee.

Thus, under either mode of delivery, Pante acquired prior possession of the lot.

WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the
decision of the Court of Appeals dated May 18, 2006, and its resolution dated August
11, 2006, issued in CA-G.R.-CV No. 65069. Costs against the Roman Catholic
Church.

29
G.R. No. 157330 November 23, 2011
LINA CALILAP-ASMERON, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, PABLO CRUZ,* TRINIDAD
CABANTOG,** ENI S.P. ATIENZA and EMERENCIANA
CABANTOG, Respondents.
DECISION
BERSAMIN, J.:
The petitioner challenges the decision promulgated on June 21, 2002, 1 whereby the
Court of Appeals (CA) affirmed the adverse decision rendered by the Regional Trial
Court, Branch 11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87 entitled Lina
Calilap-Asmeron v. Development Bank of the Philippines, Pablo Cruz, Trinidad
Cabantog, Eni S.P. Atienza, and Emerenciana Cabantog,2 an action initiated to set
aside the defendant bank’s rescission of a deed of conditional sale involving
foreclosed property, and to annul the subsequent sales of the property to other
persons.
Antecedents
On March 17, 1975, the petitioner and her brother Celedonio Calilap constituted a real
estate mortgage over two parcels of land covered by Transfer Certificate of Title
(TCT) No. T-164117 and TCT No.T-160929, both of the Registry of Deeds of
Bulacan, to secure the performance of their loan obligation with respondent
Development Bank of the Philippines (DBP).3 With the principal obligation being
ultimately unpaid, DBP foreclosed the mortgage. The mortgaged parcels of land were
then sold to DBP as the highest bidder. The one-year redemption period expired on
September 1, 1981.4
As to what thereafter transpired, the petitioner and DBP tendered conflicting versions.
I Assistant Manager
Version of Petitioner
The thrust of the petitioner’s suit is that DBP accorded to her a preferential right to
repurchase the property covered by TCT No. 164117.5 Her version follows.
In August 1982, the petitioner negotiated with DBP to buy back the property covered
by TCT No. 164117 by offering ₱15,000.00 as downpayment. Her offer was rejected
by an executive officer of DBP’s Acquired Assets Department, who required her to
pay the full purchase price of ₱55,500.00 for the property within ten days. 6 She
30
returned to DBP with the amount, only to be told that DBP would not sell back only
one lot. Being made to believe that the lot covered by TCT No. 164117 would be
released after paying two amortizations for the other lot (TCT No. 160929), however,
she signed the deed of conditional sale covering both lots for the total consideration of
₱157,000.00.7When she later on requested the release of the property under TCT No.
164117 after paying two quarterly amortizations, DBP did not approve the release.
She continued paying the amortizations until she had paid ₱40,000.00 in all, at which
point she sought again the release of the lot under TCT No. 164117. DBP still denied
her request, warning that it would rescind the contract should her remaining
amortizations be still not paid. On August 7, 1985, DBP rescinded the deed of
conditional sale over her objections.8
On November 25, 1987, DBP sold the lot covered by TCT No. 164117 to respondent
Pablo Cruz via a deed of absolute sale.9 The petitioner consequently filed a complaint
for the rescission of the sale to Cruz on January 30, 1987. 10 Notwithstanding their
knowledge of her pending suit against Cruz, respondents Emerenciana Cabantog and
Eni S.P. Atienza still bought the property from Cruz.11 Hence, Cabantog and Atienza
were impleaded as additional defendants by amendment.
II
Version of Respondents
DBP insisted that the petitioner’s real intention had been to repurchase the two lots on
installment basis. She manifested her real intention to that effect in writing through her
letter dated September 14, 1981, thus:
September 14, 1981
DEVELOPMENT BANK OF THE PHIL.
Acquired Assests [sic] Department
Makati, Metro Manila
ATTENTION: MR. J.A. SANCHEZ, JR.
------------------------------------------------------------
Dear Sir:
I wish to inform your good office that I am interested to reacquire the mortgage
properties consisting of two (2) parcels of land under TCT Nos. T-160929 and T-
164117 located at Sumapa, Malolos, Bulacan.
I would like to reacquire the above stated properties under installment basis but I am
requesting your goodselves [sic] to extend an extension of time up to the first week of
November, 1981 for my money is coming by that time.
Your kind consideration on the above request is most highly appreciated, I remain.
Very truly yours,
(sgd.)
LINA CALILAP-ASMERON
Co-maker12
The petitioner also sent a telegram on September 15, 1981,13 whereby she similarly
expressed to DBP her interest in reacquiring the properties. On November 16, 1981,
DBP received another telegram from her,14 requesting DBP to put the bidding of the
properties on hold. A year later, she sent a letter dated August 31, 1982 to reiterate
her intention to repurchase the two properties and to offer to deposit ₱55,500.00 as
initial payment, to wit:
August 31, 1982
The Manager
Acquired Assets Management Department
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This has reference to our former properties consisting of two parcels of land with an
aggregate area of 2,082.5 sq.m. covered by TCT Nos. T-160929 and T-164117
together with all the improvements erected thereon located at Bo. Sumpang Matanda,
Malolos, Bulacan.
I wish to inform you that in view of my intense desire to preserve said properties for
our family’s use, I am offering to buy back these properties for P157,000.00, payable
on terms, balance to be paid in five (5) years on the quarterly amortization plan.
This is my last appeal for your assistance in my wish to preserve these properties and
should I fail to consummate the sale, I bind myself to whatever rules and regulations
the Bank may impose with regards to my deposit.
If this offer is acceptable to you, I am willing to deposit the amount of P55,500.00 on
or before September 10, 1982.
May I be advised accordingly?
31
Thank you.
Very truly yours,
(Sgd.)
LINA CALILAP-ASMERON15
The petitioner subsequently made the downpayment on September 10, 1992,16 and
DBP formally accepted the offer through its letter dated September 14, 1982, stating
therein the terms and conditions.17 Said terms and conditions, which were later
embodied in the deed of conditional sale executed on January 21, 1983, included one
that bound her to pay the first amortization of ₱7,304.15 three months from the
execution of the deed, and the remaining amortizations to be due and payable every
three months thereafter.18
DBP presented the duplicate copies of the receipts indicating her timely payment for
the first quarterly amortization; however, she incurred delays in her subsequent
installments.19 She made her last payment amounting to ₱4,500.00 on March 12,
1985,20 leaving five quarterly amortizations unpaid.21
On January 20, 1986, the petitioner sent a handwritten letter requesting DBP to put
on hold any plans of selling the subject property, viz:
January 20, 1986
Mr. V.M. Macapagal
Executive Officer
Acquired Assets Mgmt. Division
Development Bank of the Philippines
Makati, Metro Manila
Dear Sir:
This is with reference regarding my Sale Acct. No. 617 under the name of my late
brother Celedonio R. Calilap which are located in Sumapa, Malolos, Bulacan.
In connection with these properties, I have already made an arrangement that I’m
going to pay my whole obligations through a private financier under your Incentive
Plan, which according to my last communication with them it was extended so I have
to make an advance notice of four (4) days before paying so I may know the exact
amount.
I wanted it to be formal, so I send [sic] a letter to your good office for the reason that
last January 17, 1986, your appraiser went to our place and made an assessment of
my properties. May I request again to please hold any sale of the said property for I’m
doing my best to settle my obligation at the soonest possible time, for sure after a
week or two after the snap election.
Thank you very much for your kind consideration and hoping for your help regarding
my request.
Respectfully yours,
(sgd.)
LINA CALILAP-ASMERON22
DBP replied by its letter dated February 5, 1986,23 demanding payment of the
petitioner’s remaining obligation of ₱121,013.75 in cash, otherwise, it would be
constrained to sell the property. She responded via telegram, 24informing DBP that
she would be arriving on March 4, 1986. The telegram was followed by a handwritten
letter dated March 5, 198625 stating her willingness to pay 10% of her outstanding
obligations.
On March 12, 1986, DBP demanded the immediate remittance of the promised
amount via telegram.26 When she did not pay the six quarterly amortizations, DBP
rescinded the deed of conditional sale and applied for a writ of possession on
November 17, 1986 in the RTC (Branch 17) in Malolos, Bulacan. Its application for
the writ of possession was granted on November 18, 1986. 27
Ruling of the RTC
Finding the petitioner’s complaint lacking in merit, the RTC (Branch 11) rendered its
decision on December 28, 1994 dismissing the case.28 It observed that the
stipulations in the deed of conditional sale and the tenor of the petitioner’s
communications to DBP clearly indicated that she had intended to repurchase both
foreclosed properties, not just the property covered by TCT No. T-164117, thusly:
Lettered as she is, the plaintiff cannot now seek refuge on the excuse that what she
intends to buy was only the property covered by TCT No. T-164117. The contents of
her letter to the Manager of the Acquired Assets Division of DBP dated August 31,
1982 (Exh. 1 and its submarkings) and to Asst. Manager J.A. Sanchez of the DBP
dated September 14, 1981 (Exh. 2) clearly demonstrate in unequivocal terms that she
intended to reacquire both of her foreclosed properties. Moreso, the telegrams sent
by her (Exhs. 3 & 4) to defendant bank clearly indicates the same intention.
The aforequoted terms and conditions in the conditional sale which defendant failed
to comply are clear and not susceptible whatsoever to any other interpretation as to
the intention of the contracting parties. It is settled and fundamental that if the terms of
the contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of the stipulations shall control (Art. 1370, Civil Code; Filoil
Marketing Corp. vs. IAC GR 67115; Mercantile Ins. Corp. vs.Ysmael GR 43862;
32
Baliuag Transit Corp. vs. CA GR 80447). In addition, her subsequent acts of writing
DBP and complying with the terms of the conditional sale bolster the fact of her
acquiescence in the said contract which she voluntarily entered into and she cannot
now take a contrary position.29
Ruling of the CA
The petitioner appealed, contending that:
I
THE LOWER COURT GROSSLY ERRED IN NOT ANNULLING THE RESCISSION
MADE BY THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) OF THE
CONDITIONAL SALE OF JANUARY 4, 1983, APPELLANT HAVING ALREADY PAID
A SUBSTANTIAL AMOUNT OF P100,000.00 OR ABOUT TWO-THIRDS OF THE
PRICE OR CONSIDERATION.
II
THE LOWER COURT ERRED IN NOT ANNULLING THE SALE MADE BY DBP TO
PABLO CRUZ AS WELL AS THE SALE MADE BY THE LATTER TO THE OTHER
DEFENDANTS.
Yet, on June 21, 2002, the CA affirmed the RTC,30 pointing out that the petitioner had
not presented testimonial or documentary evidence to support or corroborate her
claim that she had been misled into signing the deed of conditional sale. It ruled that
DBP could rescind the contract pursuant to the terms of the deed of conditional sale
itself, and that DBP exercised its right to rescind only after she had failed to pay her
quarterly amortizations.31
Issues
In her present appeal, the petitioner submits:
I
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT DISREGARDED THE TESTIMONIAL EVIDENCE
ADDUCED BY THE PETITIONER, WHICH CLEARLY DETAILED THE TRUTH
SURROUNDING THE EXECUTION OF THE DEED OF CONDITIONAL SALE OF
THE SUBJECT LOT TO RESPONDENT CRUZ, AND THE LATTER TO CO-
RESPONDENTS CABANTOG AND ATIENZA NULL AND VOID
II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE LOWER COURT UPHOLDING THE
RESPONDENT BANK’S RESCISSION OF THE DEED OF CONDITIONAL SALE
CONSIDERING THAT THE PETITIONER HAD ALREADY PAID A SUBSTANTIAL
AMOUNT OF PHP100,000.00 OR ABOUT TWO-THIRD OF THE FULL
CONSIDERATION OF PHP157,000.00.
The petitioner avers that her testimonial evidence sufficiently established the facts
behind the execution of the deed of conditional sale; that she thereby proved that she
had not fully understood the terms contained in the deed; that DBP could not resort to
rescission because her nonpayment of the amortizations was only a slight or casual
breach; and that the sale made by DBP to Cruz was tainted with bad faith, which was
also true with the sale from Cruz to Cabantog and Atienza.
DBP counters that the petitioner is raising questions of fact in her present appeal,
which is not allowed under Rule 45 of the Rules of Court; and that it had the right to
rescind the deed of conditional sale under Article 1191 of the Civil Code.
On her part, Remedios Lim-Cruz, who had substituted her deceased husband, argues
that the petitioner did not prove bad faith on the part of her husband in purchasing the
property from DBP; and that her husband had relied in good faith on the title of DBP
as the registered owner of the property at the time of the sale.
Ruling
The appeal lacks merit.
I misled into signing the deed of conditional sale was unfounded, for the findings of fact
Appeal under Rule 45 is
limited to questions of law only
The petitioner’s submissions, that her testimonial evidence sufficiently established the
facts behind the execution of the deed of conditional sale, and that she had not fully
understood the terms contained in the deed of conditional sale, involved questions of
fact, for the consideration and resolution of them would definitely require the
appreciation of evidence. As such, her petition for review is dismissible for raising
factual issues. Under Rule 45 of the Rules of Court, only questions of law may be the
proper subject of an appeal in this Court. The version of Section 1 of Rule 45 in force
at the time the petitioner commenced her present recourse on April 28, 2003
expressly so stated, to wit:
Section 1. Filing of petition with Supreme Court. — A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The petition
33
shall raise only questions of law which must be distinctly set forth. (1a, 2a) (emphasis
supplied)32
To be sure, we have not lacked in reminding that in exercising its power of review the
Court is not a trier of facts and does not normally undertake the re-examination of the
evidence presented by the contending parties during the trial of the case. For that
reason, the findings of facts of the CA are conclusive and binding on the Court.
It is true that the Court has recognized several exceptions, in which it has undertaken
the review and re-appreciation of the evidence. Among the exceptions have been: (a)
when the findings of the CA are grounded entirely on speculation, surmises or
conjectures; (b) when the inference made by the CA is manifestly mistaken, absurd or
impossible; (c) when there is grave abuse of discretion on the part of the CA; (d)
when the judgment of the CA is based on a misapprehension of facts; (e) when the
findings of facts of the CA are conflicting; (f) when the CA, in making its findings, went
beyond the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (g) when the findings of the CA are contrary to those
of the trial court; (h) when the findings of the CA are conclusions without citation of
specific evidence on which they are based; (i) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not disputed by the respondent;
(j) when the findings of fact of the CA are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (k) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.33
Although the petitioner submits that the CA made findings of fact not supported by the
evidence on record, this case does not fall under any of the recognized exceptions.
Her claim that she had established the circumstances to prove her having been
of the CA rested on the records, as the following excerpt from the assailed decision of
the CA indicates:
Appellant would like this Court to believe that she was misled by appellee DBP’s
representatives into signing the Deed of Conditional Sale even if her original intention
was to buy back only one of the properties, i.e., that which was covered by TCT No.
T-164117. However, a closer scrutiny of the evidence on record reveals that aside
from her bare allegations as to the circumstances leading to the signing of said Deed
of Conditional Sale, the appellant has not presented other evidence, testimonial or
documentary, to support or corroborate her claims. On the other hand, appellee DBP
has presented the letter dated August 31, 1982 signed by appellant herself and
addressed to the Manager of the Acquired Assets Management Department of the
appellee DBP, expressing her intentions to buy back her foreclosed properties. In
fact, she offered therein to pay a total of ₱157,000.00 for the two properties with
₱55,500.00 to be advanced by her as deposit and the balance to be paid in five (5)
years under a quarterly amortization plan. Said letter has not been categorically
denied by the appellant as during her testimony she merely feigned any recollections
of its content. Moreover, it is well-settled that bad faith cannot be presumed and must
be established by clear and convincing evidence. 34 (emphasis supplied)
The petitioner apparently relied solely on her bare testimony to establish her
allegation of having been misled, and did not present other evidence for the purpose.
She seemingly forgot that, firstly, her bare allegation of having been misled was not
tantamount to proof, and that, secondly, she, as the party alleging a disputed fact,
carried the burden of proving her allegation.35 In other words, her main duty was to
establish her allegation by preponderance of evidence, because her failure to do so
would result in her defeat.36 Alas, she did not discharge her burden.
On the other hand, the records contained clear indicia of her real intention vis-à-vis
her reacquisition of the two foreclosed properties. The letters and telegrams she had
dispatched to DBP expressed the singular intention to repurchase both lots, not just
the one covered by TCT No. 164711. That intention even became more evident and
more definite when she set down the payment terms for the repurchase of both lots in
her letter of August 31, 1982. Given all these, the CA rightly concluded that her
written communications to DBP had revealed her earnest desire to re-acquire both
foreclosed properties.
II
Article 1332 of the Civil Code
did not apply to the petitioner
The petitioner would have us consider that she had not given her full consent to the
deed of conditional sale on account of her lack of legal and technical knowledge. In
effect, she pleads for the application of Article 1332 of the Civil Code, which provides:
Article 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to
the former.
We cannot accede to the petitioner’s plea.
The pertinent terms of the deed of conditional sale read:
NOW THEREFORE for and in consideration of the foregoing premises and for the
total sum of ONE HUNDRED FIFTY SEVEN THOUSAND PESOS (₱157,000.00),
Philippine Currency, to be fully paid as hereinafter set forth, the VENDOR agrees to
convey by way of sale and the VENDEE agrees to buy the above stated properties
covered by TCT Nos. T-160929 and T-164117, more particularly described at the
back hereof under the following terms and conditions:
That the downpayment shall be ₱55,500 and the balance of ₱101,500 to be paid in
five (5) years on the quarterly amortization plan at 15% interest per annum the first
amortization of ₱7,304.15 shall be due and payable 3 mos. from the date of execution
34
of the Deed of Conditional Sale and all subsequent amortizations shall be due and
payable every three (3) months thereafter;
That if the vendee fails to sign the sale document within 15 days from date of receipt
of our notice of approval of the offer, the approval hereof shall be deemed
automatically revoked and the deposit forfeited in accordance with the rules and
regulations of the Bank.
The Vendee/s may pay the whole or part of the account under this contract at anytime
during the term hereof; provided, however, that if the vendee/s is in default in the
payment of at least six monthly amortizations, if payable monthly; two quarterly
amortizations, if payable quarterly; one semi-annual and annual amortization if
payable semi-annually and annually, the Vendor may, in its option, declare the whole
account due and payable.
The title to the real estate property and all improvements thereon shall remain in the
name of the vendor until after the purchase price, advances and interest shall have
been fully paid. The Vendee/s agrees that in the event of his failure to pay the
amortizations or installments as herein provided for, the contract shall, at the option of
the Vendor, be deemed and considered annulled, and he shall forfeit, and by these
presents, hereby waives whatever right he might have acquired to the said property.
The Vendor shall then be at liberty to dispose of same as if this contract has never
been made; and in the event of such annulment, all sums of money paid under the
contract shall be considered and treated as rentals for the use of the property, and the
Vendee/s waives all rights to ask or demand the return thereof and he further agrees
to vacate peacefully and quietly said property, hereby waiving in favor of the Vendor
whatever expenses he may have incurred in the property in the form of improvement
or under any concept, without any right to reimbursement whatsoever.
xxx
It is hereby agreed, covenanted and stipulated by and between the parties hereto that
should the Vendor decide to rescind this contract in view of the failure of the Vendee/s
to pay the amortization/installments, when due, or otherwise fail/s to comply with any
of the terms and conditions herein stipulated, and the Vendee/s refuse/s to peacefully
deliver the possession of the property hereinbove mentioned to the Vendor, thereby
obliging the Vendor to file suit in court with the view to taking possession thereof, the
Vendee/s hereby agree/s to pay all the expenses of the suit incident thereto, all the
damages that may be incurred thereby, as well as attorney’s fees which it is hereby
agreed, shall be 10% of the total amount due and outstanding, but in no case shall it
be less than ₱100.00.37
It is quite notable that the petitioner did not specify which of the stipulations of the
deed of conditional sale she had difficulty or deficiency in understanding. Her
generalized averment of having been misled should, therefore, be brushed aside as
nothing but a last attempt to salvage a hopeless position. Our impression is that the
stipulations of the deed of conditional sale were simply worded and plain enough for
even one with a slight knowledge of English to easily understand.
The petitioner was not illiterate. She had appeared to the trial court to be educated, its
cogent observation of her as "lettered" (supra, at p. 7 hereof) being based on how she
had composed her correspondences to DBP. Her testimony also revealed that she
had no difficulty understanding English, as the following excerpt shows:
ATTY. CUISON
Q : Mrs. Witness, last time you identified the document, captioned as Deed of
Conditional Sale which was executed last January 21, 1983, it was read in English
language, correct?
A : Yes, sir.
Q : And, could you testify in this Court without in need of interpreter?
A : Yes, sir.
Q : So, you are aware or comfortable with the English language?
A : Yes, sir.38
Nor was the petitioner’s ignorance of the true nature of the deed of conditional sale
probably true. By her own admission, she had asked the bank officer why she had
been made to sign a deed of conditional sale instead of an absolute sale, which in
itself reflected her full discernment of the matters subject of her dealings with DBP, to
wit:
COURT:
Q : Now, before you signed this Deed of Conditional Sale sometime on January 21,
1983, did you read this document?
A : Yes, your Honor, and I even told the officer of the Bank, that why it should be a
Deed of Probitional Sale when in fact it should be a Deed of Absolute Sale because I
paid already the full amount of P55,500.00 for the property covered by TCT No.
164117 and they told me that after a few amortizations on the other property, they are
going to release the property which was paid in full but did not push through, Your
Honor.39
Thereby revealed was her distinctive ability to understand written and spoken English,
the language in which the terms of the contract she signed had been written.
35
Clearly, Article 1332 of the Civil Code does not apply to the petitioner. According to
Lim v. Court of Appeals,40 the provision came into being because a sizeable
percentage of the country’s populace had comprised of illiterates, and the documents
at the time had been written either in English or Spanish, viz:
In calibrating the credibility of the witnesses on this issue, we take our mandate from
Article 1332 of the Civil Code which provides: "When one of the parties is unable to
read, or if the contract is in a language not understood by him, and mistake or fraud is
alleged, the person enforcing the contract must show that the terms thereof have
been fully explained to the former." This substantive law came into being due to the
finding of the Code Commission that there is still a fairly large number of illiterates in
this country, and documents are usually drawn up in English or Spanish. It is also in
accord with our state policy of promoting social justice. It also supplements Article 24
of the Civil Code which calls on court to be vigilant in the protection of the rights of
those who are disadvantaged in life.41 (Emphasis supplied)
III
DBP validly exercised its right to rescind the
deed of conditional sale upon the petitioner’s default
The petitioner argues that despite the right to rescind due to nonpayment being
stipulated in the deed of conditional sale, DBP could not exercise its right because her
nonpayment of an obligation constituted only a slight or casual breach that did not
warrant rescission. Moreover, she posits that Article 119142 of the Civil Code
empowers the court to fix the period within which the obligor may comply with the
obligation.
The petitioner’s argument lacks persuasion.
Firstly, a contract is the law between the parties. Absent any allegation and proof that
the contract is contrary to law, morals, good customs, public order or public policy, it
should be complied with in good faith.43 As such, the petitioner, being one of the
parties in the deed of conditional sale, could not be allowed to conveniently renounce
the stipulations that she had knowingly and freely agreed to.
Secondly, the issue of whether or not DBP validly exercised the right to rescind is a
factual one that the RTC and the CA already passed upon and determined. The
Court, which is not a trier of facts, adopts their findings, and sustains the exercise by
DBP of its right to rescind following the petitioner’s failure to pay her six monthly
amortizations, and after her being given due notice of the notarial rescission. 44 As a
consequence of the valid rescission, DBP had the legal right to thereafter sell the
property to a person other than the petitioner, like Cruz. In turn, Cruz could validly sell
the property to Cabantog and Trinidad, which he did.1âwphi1
And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering
into an agreement whereby a violation of the terms of the contract would result to its
cancellation. In Pangilinan v. Court of Appeals,45 the Court upheld the vendor’s right
in a contract to sell to extrajudicially cancel the contract upon failure of the vendee to
pay the installments and even to retain the sums already paid, holding:

[Article 1191 of the Civil Code] makes it available to the injured party alternative
remedies such as the power to rescind or enforce fulfillment of the contract, with
damages in either case if the obligor does not comply with what is incumbent upon
him. There is nothing in this law which prohibits the parties from entering into an
agreement that a violation of the terms of the contract would cause its cancellation
even without court intervention. The rationale for the foregoing is that in contracts
providing for automatic revocation, judicial intervention is necessary not for purposes
of obtaining a judicial declaration rescinding a contract already deemed rescinded by
virtue of an agreement providing for rescission even without judicial intervention, but
in order to determine whether or not the rescission was proper. Where such propriety
is sustained, the decision of the court will be merely declaratory of the revocation, but
it is not itself the revocatory act. Moreover, the vendor’s right in contracts to sell with
reserved title to extrajudicially cancel the sale upon failure of the vendee to pay the
stipulated installments and retain the sums and installments already received has
long been recognized by the well-established doctrine of 39 years standing. The
validity of the stipulation in the contract providing for automatic rescission upon non-
payment cannot be doubted. It is in the nature of an agreement granting a party the
right to rescind a contract unilaterally in case of breach without need of going to court.
Thus, rescission under Article 1191 was inevitable due to petitioner’s failure to pay the
stipulated price within the original period fixed in the agreement.

ACCORDINGLY, the petition for review is DENIED for lack of merit, and the decision
of the Court of Appeals promulgated on June 21, 2002 is AFFIRMED.

Costs of suit shall be paid by the petitioner.

SO ORDERED.

36
G.R. No. 213137
FLORDALIZA LLANES GRANDE, Petitioner
vs
PHILIPPINE NAUTICAL TRAINING COLLEGE, Respondent
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
which seeks to annul and set aside the Amended Decision2 dated November 7, 2013
and the Resolution dated June 25, 2014 of the Court of Appeals (CA) in CA-G.R. SP
No. 125444. The CA reversed on reconsideration its Decision3 dated March 27, 2013
affirming the Decision4 of the National Labor Relations Commission (NLRC), Sixth
Division, in NLRC Case No. LAC 08-002290-11 and the Decision5 of the Labor Arbiter
which held that petitioner did not voluntarily resign but was illegally dismissed by
respondent.
The factual antecedents are as follows:
Respondent Philippine Nautical Training College, or PNTC, is a private entity
engaged in the business of providing maritime training and education.6 In 1988,
respondent employed petitioner as Instructor for medical courses like Elementary
First Aid and Medical Emergency.7 In April 1998, she became the Course Director of
the Safety Department.8 Respondent was then principally engaged in providing
maritime training for seafarers.9
In 2002, petitioner was appointed Course Director for the Training Department of
respondent school. In November 2007, she resigned as she had to pursue graduate
studies and carry on her plan to immigrate to Canada.10
In May 2009, petitioner was invited by respondent to resume teaching since it
intended to offer BS Nursing and other courses for maritime training. In July 2009,
petitioner was, again, employed by respondent as Director for Research and Course
Department. As such, she was responsible for the development, revisions and
execution of training programs.11
In September 2010, petitioner was given the additional post of Assistant Vice-
President (VP) for Training Department. For the two positions she was holding,
petitioner was given a salary of Thirty Thousand Pesos (₱30,000.00) and an
allowance in the amount of Twenty Thousand Pesos (₱20,000.00). 12
In February 2011, several employees of respondent's Registration Department,
including the VP for Training Department were placed under preventive suspension in
view of the anomalies in the enlistment of students.13
37
On March 1, 2011, the VP for Corporate Affairs, Frederick Pios (Pios), called
petitioner for a meeting. Pios relayed to petitioner the message of PNTC's President,
Atty. Hernani Fabia, for her to tender her resignation from the school in view of the
discovery of anomalies in the Registration Department that reportedly involved her.
Pios assured petitioner of absolution from the alleged anomalies if she would resign.14
Petitioner then prepared a resignation letter, signed it and filed it with the Office of the
PNTC President. The respondent accomplished for her the necessary exit
clearance.15 The resignation letter16 of petitioner reads:
Atty. Hemani Fabia
President
Philippine Nautical Training Institute
Sir,
This is to officially file my resignation effective March 2, 2011 as Director for Research
and Course Development/ AVP.
Thank you.
(Sgd) Flordaliza L. Grande
In the evening of the same date, petitioner, accompanied by counsel, filed a police
blotter for a complaint for unjust vexation against Pios. 17 The police blotter reads in
full:
"One (1) Flordaliza Grande y Llanes, 36yo, M, (sic) Asst. Vice Pres. For Training and
Dir. For Research and Dev't came here in our office to lodge her [complaint] against
Frederick G. Pios Vice Pres. Corporate Affairs.
NOC: UNJUST VEXATION
Facts of the case:
On or about cited DTPO complainant was called by Ms. Luchi Banaag for meeting by
Mr. Frederick G. Pios (suspect) at the office. Mr. Pios was telling her that there were
some unfounded anomalies discovered and being attributed to her; complainant was
shocked upon hearing the same. With this, he forced the complainant to file
resignation from employment, and in return made her [assurance] to absolve from the
said unfounded anomalies, complainant considering that she was being accused of
unfounded anomalies, she was force (sic) to succumb to the order and execute her
resignation letter immediately, and Mr. Pios (suspect) uttered that he was following
orders from the President of PNTC Colleges, Hemani Fabia-President, as narrated by
complainant."18
The next day, March 2, 2011, petitioner accompanied by counsel, filed a complaint for
illegal dismissal19 with prayer for reinstatement with full backwages, money claims,
damages, and attorney's fees against respondent. 20
In her position paper, petitioner alleged that she was forced to resign from her
employment. On the other hand, respondent claimed that petitioner voluntarily
resigned to evade the pending administrative charge against her. 21
On July 29, 2011, Labor Arbiter (LA) Arthur L. Amansec rendered a Decision, the
dispositive portion of which states:
WHEREFORE, judgment is hereby made finding the complainant's claim of forced
resignation established by substantial evidence. Concomitantly, her resignation of
March 1, 2011 is hereby declared null and void, and by way of restoring the status
quo, the respondent school is ordered to reinstate her to her former or substantially
equivalent position without loss of seniority rights but without backwages. In case the
complainant does not want to be reinstated, she may, upon her option, accept, in lieu
of reinstatement, a separation pay amounting to ₱75,000.00 (her half month salary of
₱25,000.00 multiplied by three (3) years of service), plus ten percent (10%) thereof as
attorney's fees.
Other claims are dismissed for lack of merit.
SO ORDERED.22
Thereafter, respondent elevated the case before the NLRC, Sixth Division. On
February 29, 2012, the NLRC affirmed the Decision of the LA.
A motion for reconsideration was filed by respondent, but the same was denied by the
NLRC on May 31, 2012.23
Aggrieved, respondent filed a petition for certiorari before the CA. In a Decision dated
March 27, 2013, the CA affirmed the Decision of the NLRC. Thefallo states:
WHEREFORE, the petition is DISMISSED. In view of the foregoing premises, the
assailed Decision dated February 29, 2012 and Resolution dated May 31, 2012 of the
National Labor Relations Commission in NLRC LAC No. 08-002290-11, are
AFFIRMED with the
MODIFICATION that Flordaliza L. Grande is GRANTED payment of backwages,
computed from the time she was illegally dismissed on March 1, 2011 up to the time
she is actually reinstated to her former or substantially equivalent position, and
attorney's fees equivalent to 10% of the total monetary award. SO ORDERED.24
38
A motion for reconsideration was filed by the respondent which was granted by the
CA on November 7, 2013 and reversed its Decision dated March 27, 2013.
The decretal portion of the Amended Decision states:
WHEREFORE, the motion for reconsideration is GRANTED. The
Court Decision dated March 27, 2013 is RECONSIDERED AND SET ASIDE.
Accordingly, the complaint of respondent Flordaliza L. Grande is DISMISSED.
SO ORDERED.25
Hence, this petition, raising the following errors:
I
The Court of Appeals seriously erred in issuing CONFLICTING DECISIONS (Decision
dated 27 March 2013 and Amended Decision dated 7 November 2013) composed by
the same set of Division Members although the Motion for Reconsideration filed by
the private respondent did not present new arguments and/or facts (rather merely
reiterating the arguments in the Petition for Certiorari) warranting a re-examination
and re-evaluation of its earlier Decision.
II
x x x The Court of Appeals seriously erred in considering the Petition
for Certiorari filed by the private respondents despite the absence of any grave abuse
of discretion on the part of the Labor Arbiter a quo and NLRC, Sixth Division.26
In the petition, petitioner averred that respondent did not present any new argument in
its motion for reconsideration before the CA as to warrant the reversal of the Decision
of the CA dated March 27, 2013. She stressed that she had no real intention of
leaving her employment. She was really surprised and shocked when she was forced
to resign despite having "wholeheartedly" served the school for years. Her resignation
letter which she described as "simply worded" signified her involuntariness in the
execution of the document. It was the "undue influence and pressure" exerted upon
her by respondent that compelled her to submit the resignation letter. That was the
reason why she immediately filed the case for illegal dismissal the day after she
tendered her resignation letter. Also, petitioner attached in her petition the Special
Cash Audit Report dated March 11, 201127 which was the result of the audit
conducted on the PNTC upon its request. The report shows that it is the VP for
Training/Registrar who was made to account for the irregularity in the collection
reports.
In the Comment28 of respondent to the petition, it maintained that petitioner voluntarily
resigned from employment. As her resignation was voluntary, she was not dismissed
from her employment. According to respondent, the acts of petitioner - the
resignation, the blotter with the police, the continued processing of clearance the day
after the resignation and the filing of the illegal dismissal case - showed that she used
"calculated reasoning to protect herself from possible charges that PNTC may file
against her." Respondent added that, notwithstanding the absence of liability of
petitioner in the Special Cash Audit Report, it filed criminal complaints against
petitioner.
In the Comment29 of petitioner to Respondent's Motion to Admit Rejoinder with
Rejoinder, she countered that the two complaints filed against her before the
Prosecutor's Office by respondent were both dismissed. She reiterated that she had
been consistent in all her pleadings that her clearance was processed on the very day
that she tendered her resignation letter, and did not extend the day after, since she
was then with the NLRC for the filing of the instant complaint.
We grant the petition.
It is well settled that in labor cases, the factual findings of the NLRC are accorded
respect and even finality by this Court when they coincide with those of the LA and
are supported by substantial evidence.30
In the same vein, factual findings of the CA are generally not subject to this Court's
review under Rule 45. However, the general rule on the conclusiveness of the factual
findings of the CA is also subject to well-recognized exceptions such as where the
CA's findings of facts contradict those of the lower court, or the administrative bodies,
as in this case. All these considered, we are compelled to make a further calibration
of the evidence at hand.31
Respondent claimed that petitioner voluntarily resigned from employment. For the
resignation of an employee to be a viable defense in an action for illegal dismissal, an
employer must prove that the resignation was voluntary, and its evidence thereon
must be clear, positive and convincing. The employer cannot rely on the weakness of
the employee's evidence.32
Quite notable in the instant case is the fact that respondent was silent as to the
alleged meeting with petitioner on March 1, 2011. As in fact, as found by the LA and
the NLRC, "neither Pios nor Fabia came forth through an Affidavit to deny" the
meeting.33 All that respondent could say is that on March 1, 2011, petitioner "suddenly
and without reason tendered her resignation". And that, respondent then became
suspicious of the "abruptness" of the resignation, such that, it conducted an
investigation and discovered that petitioner was the one who signed the Enrollment
Report, submitted to the Maritime Training Council, which contained names of
students who were not officially enrolled with the school. 34
From the aforesaid statement of respondent, it can be deduced that on March 1,
2011, when petitioner "suddenly" resigned, there was no discovery yet as to the
alleged anomaly involving petitioner. This is quite contrary to the statements of
respondent in its Comment to the petition, thus:
39
12.7. The action of Grande was premeditated. There was no threat employed upon
her. Prior to her resignation, PNTC found out that there were discrepancies in the
enrollment reports signed by Grande and the system database of PNTC as to the list
of enrollees. Likewise, there were enrollment reports signed by GRANDE stating that
her husband, Nelson Grande, was the assigned professor to a particular course when
the latter was, actually, abroad. When confronted with these discrepancies, GRANDE
resigned from work and even filed a complaint for unjust vexation apparently to avoid
any legal suit to be filed by PNTC against her and to cover up for her misdeeds and
that of her husband. x x x.35
There was, therefore, an admission by respondent that a confrontation occurred
before petitioner "suddenly" tendered her resignation. And that, it was not true that
respondent became "suspicious" of the "abruptness" in the resignation which
prompted the respondent to conduct an investigation.
Also, quite interesting is the statement of respondent that it was in February 2011
when it discovered that there were questionable transactions involving registration of
enrollees, and that respondent found that aside from the employees in the
Registration Department, there were also high-ranking officers who were probably
involved in the anomalous transaction. And according to respondent, they then
discreetly started an investigation on the possible involvement of the officers. 36 If
these were true, why did respondent immediately granted clearance to petitioner in a
day, if there was then an ongoing investigation on the involvement of high-ranking
officers. We should not disregard the fact that petitioner is the Assistant Vice-
President for the Training Department.
We do not, therefore, believe the statement of respondent in its comment to the
petition that it had no reason to deny clearance to petitioner because the investigation
was still ongoing, thus:
12.4. The clearance obtained by GRANDE is of no moment. At the time GRANDE
resigned and obtained her clearance, the investigation as to those who are liable for
the anomalous activities was still ongoing. x x x37
As observed by the NLRC, if petitioner was being investigated for an administrative
charge, why was she cleared from liabilities. The more logical thing to do is to hold
her clearance until all the liabilities have been settled. The haste by which she was
cleared by all departments would reveal that respondent really wanted petitioner to
go. And it was even admitted by respondent that petitioner still had accountabilities in
terms of borrowed books.38 Why was then petitioner cleared? The logical answer is
respondent really wanted petitioner to go.
Hence, We echo the ruling of the CA in its Decision dated March 27, 2013:
x x x. Not a scintilla of evidence was adduced to convinced the labor tribunal that
respondent was not illegally terminated.1âwphi1 While petitioner argued that the
excerpt on the conversation which transpired between respondent and Pios is untrue,
this however, was not effectively refuted. The failure of Pios or Fabia to submit an
affidavit to disprove that a conversation had actually taken place is fatal, for the
burden to prove the fact of resignation lies with the employer.
It is also worthy to note that after respondent tendered her resignation, petitioner
immediately approved her clearance form. This is totally incompatible with petitioner's
claim that respondent was one of the high-ranking officials who may have participated
in the anomalies at school. The more logical and acceptable approach would have
been to hold respondent's clearance until she has settled her accountability with the
company.39
Resignation is the voluntary act of an employee who is in a situation where one
believes that personal. reasons cannot be sacrificed in favor of the exigency of the
service, and has no other choice but to dissociate from employment. Resignation is a
formal pronouncement or relinquishment of an office, and must be made with the
intention of relinquishing the office accompanied by the act of relinquishment. A
resignation must be unconditional and with the intent to operate as such.40
In voluntary resignation, the employee is compelled by personal reason(s) to
disassociate himself from employment. It is done with the intention of relinquishing an
office, accompanied by the act of abandonment. To determine whether the employee
indeed intended to relinquish such employment, the act of the employee before and
after the alleged resignation must be considered.41
We concur with the findings of the NLRC that the acts of petitioner before and after
she tendered her resignation would show that undue force was exerted upon
petitioner: (1) the resignation letter of petitioner was terse and curt, giving the
impression that it was hurriedly and grudgingly written; (2) she was in the thick of
preparation for an upcoming visit and inspection from the Maritime Training Council; it
was also around that time that she had just requested for the acquisition of textbooks
and teaching aids, a fact which is incongruent with her sudden resignation from
work;42 (3) in the evening, she filed an incident report/police blotter before the
Intramuros Police Station; and (4) the following day she filed a complaint for illegal
dismissal.
In order to withstand the test of validity, resignations must be made voluntarily and
with the intention of relinquishing the office, coupled with an act of relinquishment.
Therefore, in order to determine whether the employees truly intended to resign from
their respective posts, we must take into consideration the totality of circumstances in
each particular case.43
We emphasize that petitioner filed her complaint against the respondent in the NLRC
the day after she tendered her resignation. Indeed, voluntary resignation is difficult to
reconcile with the filing of a complaint for illegal dismissal. The filing of the complaint
belies respondent's claim that petitioner voluntarily resigned. As held by this Court
in Valdez v. NLRC44 which was reiterated in the case of Fungo v. Lourdes School of
Mandaluyong:45
40
x x x It would have been illogical for herein petitioner to resign and then file a
complaint for illegal dismissal. Resignation is inconsistent with the filing of the said
complaint.46
Petitioner's intention to leave the school, as well as her act of relinquishment, is not
present in the instant case. On the contrary, she vigorously pursued her complaint
against respondent. It is a clear manifestation that she had no intention of
relinquishing her employment.47 The element of voluntariness in petitioner's
resignation is, therefore, missing.48
By vigorously pursuing the litigation of her action against respondent, petitioner
clearly manifested that she has no intention of relinquishing her employment, which
act is wholly incompatible to respondent's assertion that she voluntarily resigned. 49
In termination cases, burden of proof rests upon the employer to show that the
dismissal is for a just and valid cause, and failure to do so would necessarily mean
that the dismissal was illegal. In Mobile Protective & Detective Agency v.
Ompad,50 We ruled that should the employer interpose the defense of resignation, it
is incumbent upon the employer to prove that the employee voluntarily resigned. 51 On
this point, respondent failed to discharge the burden.
In its Amended Decision, the CA did not believe that a conversation took place
between petitioner and Pios, the excerpt of which is hereunder reproduced:
"Pios: Flor, do you have any idea on why I need to talk to you now? Actually, yung
mga nangyayaring gayon, medyo nainvolve ka eh. Grande: Ako, may involvement sa
nangyayari? Well, direct me to the point.
Pios: I was talked by [sic ]Atty. Fabia and gave me instructions to talk to you and ask
you to resign.
Grande: For what reasons?
Pios: Ok, sabihin ko na sa yo, it came to our knowledge that you went to the office of
Ricky Ty and asked for a legal advice on what was [sic] happened to Nita.
Grande: Haah! What di totoo yan!
Pios: Well unang nakarating sa amin na balita, and you are even asking Ricky Ty for
an employment.
Grande: That's a big lie. Actually red, kilala mo ba ako talaga? Why do I need to seek
legal assistance to [sic] other people eh samantalang I have a sister and a nephew
who are lawyers? That is not fair. Halatang ploy mo ito sa akin para idawit mo ako sa
nangyayari kay Mam Nitz!
Pios: Well, madami pa kasing lumutang na resulta sa investigation. Like this one
(showing an Enrollment List Form). Is this your signature?
Grande: 0. why?
Pios: Kais [sic] it was noticed that your husband's name was declared here as
Instructor for Basic Safety Course. Eh nag check kami ng records sa accounting, the
inclusive dates declared eh on board mister mo.
Grande: Hala, buti pa kayo alam nyo ung schedule ng mister ko. Hindi mo kasi alam
kung pano ang reporting nyan. Ang ginagawang registration they have to out [sic] a
name on that Instructor and Assessor portion ung name ng taong declared officially
sa maritime Training Council. Eh wala na sila na malagay na pangalan ng qualified
and accredited instructor, that is why nilagay pangalan nya. Hay naku, lahat ng
training center ganyan gawa and dating ginagawang PNTI yan due to lack of qualified
Instructor. Kung tutuusin nga eh, dapat binayaran nyo pa si Nelson kasi ginagamit
ninyo pangalan nya kahit di nya alam. Actually, we did a favor for the company,
kulang kayo sa Qualified Instructor eh, so kami na gagawa ng paraan para may ma-
declare na Instructor.
Pios: Yeah, we have checked on accounting, di naman sya nabayaran sa ganyan
period. Saka I understand what you are trying to say, na iintindihan ko ang prose so.
Grande: Kaya nga Red eh, ang dami nyong accusations sa akin and yet, wala
kayang [sic] mapakitang evidence.
Pios: Saka why did you sign?
Grande: Ha? Syempre, wala si Mam Nitz. Saka nag forge ba ako ng pirma ni Mam
Nitz? Di ba nakalagay dyan for? Saka ako ang next in line na pipirma pag wala sya.
Kelangan ngi-submit ang form sa MTC.
Pios: Another thing Flor, dib a [sic] may na send sa yong text si Nita regarding sa text
ni Leah Fabia, na she is not putting her weight around para mapaalis ka dito. Kaso di
nya talaga gusto na nandito ka.
Grande: Well, that's not my problem anymore, kayo ang kumontak sa akin then all of
a sudden ganyan nyo ako. Tell me honestly, influence ni Leah Fabia itong usapan
natin noh?
Pios: No, it was Atty. Fabia who wants it.
Grande: You don't know what you are talking about. It's not fair to me to get this kind
of treatment.
41
Pios: Kaya nga Flor eh, there is no point of staying. Mabait pa nga ako say o [sic] eh,
coz I believe in you, kaya lang Flor, utos ng Management eh. Alam mo naman na
okay naman tayo, maski ako, di ko gusto itong sinasabi ko say o [sic], kaso I have to
obey. I just want to carry out the order.52
However, the CA relied on the said conversation excerpt to show that no threat or
force was exerted by respondent on petitioner for her to resign from employment,
thus:
It is unfathomable how respondent could actually recount every word that was said by
her and Pios. To be able to quote such a detailed conversation that was not even
recorded or transcribed is absurd, to say the least. As memory is, most often than not,
fleeting and momentary, evidentiary weight cannot as easily be accorded to it.
Again, even assuming that the quoted conversation actually took place, no indication
of threat or force can be adduced from the language used by Pios. He did not even
warn respondent that she will be terminated if she refused to resign. Quite telling, the
conversation between Pios and respondent may well be regarded as a discussion on
the irregularities that took place in the company rather than a confrontation to force
respondent to resign. There was no clear act of discrimination, insensibility or disdain
on the part of Pios so as to force respondent to resign and sever her employment
from the company. x x x.
Respondent's eventual act of resigning and thereafter causing the matter to be
recorded in the police blotter are appreciated as a well thought-out plan carried out in
order to preempt the investigation conducted by petitioner. In fact, right after she
tendered her resignation, respondent wasted no time in obtaining a clearance from
the different offices of petitioner which left the latter with no sufficient time to verify if
she had a hand in the illegal schemes.53
We are not persuaded by the reasoning of the CA. While indeed there was no
employment of force from the language used by Pios, We are convinced that there
was the presence of undue influence exerted on petitioner for her to leave her
employment. The conversation showed that respondent wanted to terminate
petitioner's employment but would want it to appear that she voluntarily resigned.
Undue influence is defined under Article 1337 of the Civil Code, thus:
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family, spiritual,
and other relations between the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.54
As correctly observed by the LA, petitioner's resignation immediately tendered after
the conversation is not voluntary. With an order coming from the President of PNTC,
no less, undue influence and pressure was exerted upon petitioner.
Petitioner declared in her petition that she "felt lambasted" when she was told about
the order of PNTC President for her to resign considering her exemplary performance
in the school. She narrated that when she returned to the school in July 2009 as
Director for Research and Course Department, the offered courses of the school rose
from 29 to 48 courses. As in fact in 2010, she was offered the position of Assistant
Vice-President for Training Department.55 These statements of petitioner were not
disputed by respondent in its comment to the petition.
Indeed, it is very unlikely that petitioner who was in the thick of preparation for an
upcoming visit and inspection from the Maritime Training Council and who had just
requested for the acquisition of textbooks and teaching aids, and had just submitted a
Master Plan to the corporate officers would simply resign voluntarily. She was in the
process of compiling the necessary documents and library holdings for submission to
the Maritime Training Council. Clearly, her consent was vitiated. 56
It must be noted that she was not among those preventively suspended in February
2011, which include the Vice-President for Training, in view of the ongoing
investigation in the Registration Department. We, therefore, believe that petitioner felt
the undue pressure exerted on her to resign from employment despite her "exemplary
performance" and having served the school for years. We agree with petitioner that
she was then without "proper discernment" when she prepared the one-liner
resignation letter.
Also, as a sign that respondent really wanted petitioner to go is the fact that the
former immediately issued the latter her clearance showing the signatures from
different departments of the school.57 If petitioner was being investigated for an
administrative charge, why was she cleared from liabilities.
In administrative proceedings, the quantum of proof required is substantial evidence,
which is more than a mere scintilla of evidence, but such amount of relevant evidence
which a reasonable mind might accept as adequate to justify a conclusion. The Court
of Appeals may review the factual findings of the NLRC and reverse its ruling if it finds
that the decision of the NLRC lacks substantial basis.58
In the case at bar, petitioner's letter of resignation and the circumstances antecedent
and contemporaneous to the filing of the complaint for illegal dismissal are substantial
proof of petitioner's involuntary resignation.1âwphi1 Taken together, the above
circumstances are substantial proof that petitioner's resignation was voluntary.
Factual findings of labor officials who are deemed to have acquired expertise in
matters within their respective jurisdictions are generally accorded not only respect,
but even finality, and are binding on the Us. Verily, their conclusions are accorded
great weight upon appeal, especially when supported by substantial evidence.
Consequently, We are not duty-bound to delve into the accuracy of their factual
findings, in the absence of a clear showing that the same were arbitrary and bereft of
any rational basis.59 Accordingly, the finding of illegal dismissal by both the LA and
42
the NLRC, as affirmed by the CA in its Decision dated March 27, 2013, must be
upheld.
We reiterate that it is axiomatic in labor law that the employer who interposes the
defense of voluntary resignation of the employee in an illegal dismissal case must
prove by clear, positive and convincing evidence that the resignation was voluntary;
and that the employer cannot rely on the weakness of the defense of the
employee.1âwphi1 The requirement rests on the need to resolve any doubt in favor of
the working man.60
Furthermore, in an illegal dismissal case, the onus probandi rests on the employer to
prove that the dismissal of an employee is for a valid cause. Having based its defense
on resignation, it is incumbent upon respondent, as employer, to prove that petitioner
voluntarily resigned. From the totality of circumstances and the evidence on record, it
is clear that respondent failed to discharge its burden. We have held that if the
evidence presented by the employer and the employee are in equipoise, the scales of
justice must be tilted in favor of the latter.61
Under Article 279 of the Labor Code, an employee unjustly dismissed from work is
entitled to reinstatement and backwages, among others. Reinstatement restores the
employee who was unjustly dismissed to the position from which he was removed,
that is, to his status quo ante dismissal, while the grant of backwages allows the same
employee to recover from the employer that which he had lost by way of wages as a
result of his dismissal. These twin remedies - reinstatement and payment of
backwages - make the dismissed employee whole who can then look forward to
continued employment. Thus, do these two remedies give meaning and substance to
the constitutional right of labor to security of tenure.62 Petitioner is, therefore, entitled
to reinstatement with full backwages.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The
assailed Amended Decision dated November 7, 2013 and Resolution dated June 25,
2014 of the Court of Appeals in CA-G.R. SP No. 125444, respectively, are
hereby SET ASIDE. The Decision dated February 29, 2012 and Resolution dated
May 31, 2012 of the National Labor Relations Commission in NLRC Case No. LAC
08-002290-11 are AFFIRMED with MODIFICATION that Flordaliza L. Grande
is GRANTED payment of backwages, computed from the time she was illegally
dismissed on March 1, 2011 up to the time she is actually reinstated to her former or
substantially equivalent position, and attorney's fees equivalent to 10% of the total
monetary award. Legal interest shall be computed at the rate of six percent (6%) per
annum of the total monetary award from date of finality of this Decision until full
satisfaction
SO ORDERED.
G.R. No. 196182 September 1, 2014
ECE REALTY AND DEVELOPMENT INC., Petitioner,
vs.
RACHEL G. MANDAP, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 and
Resolution2 of the Court of Appeals (CA), dated July 21, 2010 and March 15, 2011,
respectively, in CA-G.R. SP No. 100741.
The factual and procedural antecedents of the case are as follows:
Herein petitioner is a corporation engaged in the building and development of
condominium units. Sometime in 1995, it started the construction of a condominium
project called Central Park Condominium Building located along Jorge St., Pasay
City. However, printed advertisements were made indicating therein that the said
project was to be built in Makati City.3 In December 1995, respondent, agreed to buy
a unit from the above project by paying a reservation fee and, thereafter,
downpayment and monthly installments. On June 18, 1996, respondent and the
representatives of petitioner executed a Contract to Sell. 4 In the said Contract, it was
indicated that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent, through
her counsel, wrote petitioner a letter dated October 30, 1998 demanding the return of
₱422,500.00, representing the payments she made, on the ground that she
subsequently discovered that the condominium project was being built in Pasay City
and not in Makati City as indicated in its printed advertisements. 5
However, instead of answering respondent's letter, petitioner sent her a written
communication dated November 30, 1998 informing her that her unit is ready for
inspection and occupancy should she decide to move in. 6
Treating the letter as a form of denial of her demand for the return of the sum she had
paid to petitioner, respondent filed a complaint with the Expanded National Capital
Region Field Office (ENCRFO) of the Housing and Land Use Regulatory Board
(HLURB) seeking the annulment of her contract with petitioner, the return of her
payments, and damages.7
On September 30, 2005, the ENCRFO dismissed respondent's complaint for lack of
merit and directedthe parties to resume the fulfillment of the terms and conditions of
their sales contract. The ENCRFO held that respondent "failed to show or
substantiate the legal grounds that consist of a fraudulent or malicious dealing with
43
her by the [petitioner], such as, the latter's employment of insidious words or
machinations which induced or entrapped her into the contract and which, without
them, would not have encouraged her to buy the unit." 8
Respondent filed a petition for review with the HLURB Board of Commissioners
questioning the decision of the ENCRFO. On April 25, 2006, the HLURB Board of
Commissioners rendered judgment dismissing respondent's complaint and affirming
the decision of the ENCRFO.9 Giving credence to the Contract to Sell executed by
petitioner and respondent, the Board of Commissioners held that when the parties
reduced their contract in writing, their rights and duties must befound in their contract
and neither party can place a greater obligation than what the contract provides.
Aggrieved, respondent filed an appeal with the Office of the President. On June 21,
2007, the Office of the President dismissed respondent's appeal and affirmed in
totothe decision of the HLURB Board of Commissioners.10Respondent filed a Motion
for Reconsideration,11 but the Office of the President denied it in a Resolution12 dated
August 29, 2007.
Respondent then filed a petition for review with the CA. 13
On July 21, 2010, the CA promulgated its assailed Decision, the dispositive portion of
which reads, thus:
WHEREFORE, premises considered, We hereby REVERSEand SET ASIDEthe
Decision and the Resolution dated June 21, 2007 and August 29, 2007, respectively,
issued by the Office of the President in OP Case No. 06-F-224. Accordingly, the
contract between Rachel G. Mandap and ECE Realty is hereby ANNULLED.
Consequently, ECE Realty is ordered to return the total amountof ₱422,500.00
representing payments made by Rachel G. Mandap on reservation fee,
[downpayment] and monthly installments on the condominium unit, with legal interest
thereon at twelve percent (12%) per annumfrom the date of filing of action until fully
paid.
No costs.
SO ORDERED.14
The CA held that petitioner employed fraud and machinations to induce respondent to
enter into a contract with it. The CA also expressed doubt on the due execution of the
Contract to Sell between the parties.
Petitioner filed a Motion for Reconsideration, but the CA denied it in its March 15,
2011 Resolution.
Hence, the present petition for review on certiorariwith the following Assignment of
Errors:
 I deplorable act of making misrepresentations in its advertisementsand in issuing a
The Court of Appeals gravely erred in ruling that there was fraud in the execution of
the subject contract to sell and declaring the same as annulled and ordering petitioner
ECE to refund all payments made by respondent.
II
The Court of Appeals erred in ordering the award of legal interest at the rate of 12%
per annum starting from the filing of the complaint until fully paid when legal interest
should have been pegged at 6%.15
The Court finds the petition meritorious.
The basic issue in the present caseis whether petitioner was guilty of fraud and if so,
whether such fraud is sufficient ground to nullify its contract with respondent.
Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious
words or machinationsof one of the contracting parties, the other is induced to enter
into a contract which, without them, he would not have agreed to."
In addition, under Article 1390 of the same Code, a contract is voidable or annullable
"where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud."
Also, Article 1344 of the same Codeprovides that "[i]n order that fraud may make a
contract voidable, it should be serious and should not have been employed by both
contracting parties." Jurisprudence has shown that in order to constitute fraud that
provides basis to annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causanteor it must be fraud in obtaining the consent of
the party.16 This is referred to as causal fraud. The deceit must be serious. The fraud
is serious when it is sufficient to impress, or to lead an ordinarily prudent person into
error; that which cannot deceive a prudent person cannot be a ground for
nullity.17 The circumstances of each case should be considered, taking into account
the personal conditions of the victim.18
Second, the fraud must be proven by clear and convincing evidence and not merely
by a preponderance thereof.19
In the present case, this Court finds that petitioner is guilty of false representation of a
fact. This is evidenced by its printed advertisements indicating that its subject
condominium project is located in Makati City when, in fact, it is in Pasay City. The
Court agrees with the Housing and Land Use Arbiter, the HLURB Board
ofCommissioners, and the Office of the President, in condemning petitioner's
44
stern warning that a repetition of this act shall bedealt with more severely.
However, insofar as the present case is concerned, the Court agrees with the
Housing and Land Use Arbiter, the HLURB Board of Commissioners, and the Office
of the President, that the misrepresentation made by petitioner in its advertisements
does not constitute causal fraud which would have been a valid basis in annulling the
Contract to Sell between petitioner and respondent.
In his decision, the Housing and Land Use Arbiter found that respondent failed to
show that "the essential and/or moving factor that led the [respondent] to give her
consent and agree to buy the unit was precisely the project's advantageous or
uniquelocation in Makati [City] – to the exclusion of other places or cityx x x." Both the
HLURB Board of Commissioners and the Office of the President affirmed the finding
of the Arbiter and unanimously held that respondent failed to prove that the location of
the said project was the causal consideration or the principal inducement which led
her into buyingher unit in the said condominium project. The Court finds no cogent
reason to depart from the foregoing findings and conclusion of the above agencies.
Indeed, evidence shows that respondent proceeded to sign the Contract to Sell
despite information contained therein that the condominium is located in Pasay City.
This only means that she still agreed to buy the subject property regardless of the fact
that it is located in a place different from what she was originally informed. If she had
a problem with the property's location, she should not havesigned the Contract to Sell
and, instead, immediately raised this issue with petitioner. But she did not. As
correctly observed by the Office of the President, it took respondent more than two
years from the execution of the Contract to Sell to demand the return of the amount
she paid on the ground that she was misled into believing that the subject property
islocated in Makati City. In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt on the due
execution of the Contractto Sell. The fact remains that the said Contract to Sell was
notarized. Itis settled that absent any clear and convincing proof to the contrary, a
notarized document enjoys the presumption of regularity and is conclusive as to the
truthfulness of its contents.20 Neither does the Court agree thatthe presumption of
regularity accorded to the notarized Contract to Sell was overcome by evidence to the
contrary. Respondent's allegation that she signed the said Contract to Sell with
several blank spaces, and which allegedly did not indicate the location of the
condominium, was not supported by proof. The basic rule is that mere allegation is
not evidence and is not equivalent to proof.21 In addition, the fact that respondent
made several payments prior to the execution of the subject Contract to Sell is not the
kind of evidence needed to overcome such presumption of regularity.
With respect to the foregoing discussions, the Court quotes with approval the
disquisition of the Office of the President on the credibility of the claims of petitioner
and respondent, to wit:
xxxx
We give credence to the version of [petitioner] ECE Realty considering that there is
no cogent reason why this Office could not rely on the truth and veracity of the
notarized Contract to Sell. "Being a notarized document, it had in its favorthe
presumption of regularity, and to overcome the same, there must be evidence that is
clear, convincing and more than merely preponderant; otherwise, the document
should be upheld. [Respondent] Mandap failed to overcome this presumption.
The contention that Mandap signed the Contract to Sell in-blank, and [that] it was
ECE Realty that supplied the details on it is remarkably threadbare for no evidence
was submitted to support such claim in all the proceedings before the ENCRFO and
the Board of Commissioners. It is only now that Mandap has belatedly submitted the
Affidavit of Lorenzo G. Tipon. This cannot be done without running afoul with the well-
settled principle barring a party from introducing fresh defenses and facts at the
appellate stage. Moreover, the infirmity of affidavits as evidence is a matter of judicial
experience. It issettled that no undue importance shall be given to a sworn statement
or affidavit as a piece of evidence because being taken ex parte, an affidavit is almost
always incomplete and inaccurate. Thus, absent, as here, of (sic) any controverting
evidence, it is reasonable to presume that Mandap knew the contents of the Contract
to Sell which was executed with legal formalities. The ruling in Bernardo vs. Court of
Appeals is enlightening in this wise:
Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a
voidable contract." In addition, Article 1396 of the same Code provides that
"[r]atification cleanses the contract from all its defects from the moment it was
constituted."
Hence, based on the foregoing, the findings and conclusions of the Housing and Land
Use Arbiter, the HLURB Board of Commissioners and the Office of the President,
should be sustained.
WHEREFORE, the instant petition is GRANTED. The Decision and Resolution of the
Court of Appeals, dated July 21, 2010 and March 15, 2011, respectively, are
REVERSEDand SET ASIDE. The September 30, 2005 Decision of the Expanded
National Capital Region Field Office of the Housing and Land Use Regulatory Board,
which dismisses respondent's complaint and directs petitioner and respondent to
resume the fulfillment of their sales contract, is REINSTATED.
SO ORDERED.

x x x. The rule that one who signs a contract is presumed to know its contentshas
been applied even to contract of illiterate persons on the ground that if such persons
are unable to read, they are negligent if they fail to have the contract read to them. If a
person cannot read the instrument, it is as much his duty to procure some reliable
persons to read and explain it tohim, before he signs it, as it would be to read it before
he signed it if he were able to do so and his failure to obtain a reading and
explanation of it is such gross negligence as will estop him from avoiding it on the
ground that he was ignorant of its contents.22

In any case, even assuming that petitioner’s misrepresentation consists of fraud

which could bea ground for annulling their Contract to Sell, respondent's act of
affixing her signatureto the said Contract, after having acquired knowledge of the
property's actual location, can be construed as an implied ratification thereof.

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as
follows:

Art. 1393. Ratification may be effected expressly or tacitly.1âwphi1 It is understood

that there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to waive his
right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by

acts showing approval or adoption of the contract; or by acceptance and retention of
benefits flowing therefrom.23
45
G.R. No. 194533
PHILIPPINE STEEL COATING CORP., Petitioner,
vs.
EDUARD QUINONES, Respondent.
DECISION
SERENO, CJ:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision 1 and Resolution 2 The CA affirmed in
toto the Regional Trial Court (R TC) Decision in Civil Case No. A-1708 for damages. 3
THE FACTS
This case arose from a Complaint for damages filed by respondent Quinones (owner
of Amianan Motors) against petitioner PhilSteel. The Complaint alleged that in early
1994, Richard Lopez, a sales engineer of PhilSteel, offered Quinones their new
product: primer-coated, long-span, rolled galvanized iron (G.I.) sheets. The latter
showed interest, but asked Lopez if the primer-coated sheets were compatible with
the Guilder acrylic paint process used by Amianan Motors in the finishing of its
assembled buses. Uncertain, Lopez referred the query to his immediate superior,
Ferdinand Angbengco, PhilSteel's sales manager.
Angbengco assured Quinones that the quality of their new product was superior to
that of the non-primer coated G.l. sheets being used by the latter in his business.
Quinones expressed reservations, as the new product might not be compatible with
the paint process used by Amianan Motors.
Angbengco fmiher guaranteed that a laboratory test had in fact been conducted by
PhilSteel, and that the results proved that the two products were compatible; hence,
Quinones was induced to purchase the product and use it in the manufacture of bus
units.
However, sometime in 1995, Quinones received several complaints from customers
who had bought bus units, claiming that the paint or finish used on the purchased
vehicles was breaking and peeling off. Quinones then sent a letter-complaint to
PhilSteel invoking the warranties given by the latter. According to respondent, the
damage to the vehicles was attributable to the hidden defects of the primer-coated
sheets and/or their incompatibility with the Guilder acrylic paint process used by
Amianan Motors, contrary to the prior evaluations and assurances of PhilSteel.
Because of the barrage of complaints, Quinones was forced to repair the damaged
buses.
46
PhilSteel counters that Quinones himself offered to purchase the subject product
directly from the former without being induced by any of PhilSteel's representatives.
According to its own investigation, PhilSteel discovered that the breaking and peeling
off of the paint was caused by the erroneous painting application done by Quinones.
The RTC rendered a Decision 4 in favor of Quinones and ordered PhilSteel to pay
damages. The trial court found that Lopez's testimony was damaging to PhilSteel's
position that the latter had not induced Quinones or given him assurance that his
painting system was compatible with PhilSteel's primer-coated G.I. sheets. The trial
court concluded that the paint blistering and peeling off were due to the incompatibility
of the painting process with the primer-coated G .I. sheets. The RTC also found that
the assurance made by Angbengco constituted an express warranty under Article
1546 of the Civil Code. Quinones incurred damages from the repair of the buses and
suffered business reverses. In view thereof, PhilSteel was held liable for damages.
THE RULING OF THE CA
The CA affirmed the ruling of the RTC in toto.
The appellate court ruled that PhilSteel in fact made an express warranty that the
primer-coated G.I. sheets were compatible with the acrylic paint process used by
Quinones on his bus units. The assurances made by Angbengco were confirmed by
PhilSteel's own employee, Lopez.
The CA further held that the cause of the paint damage to the bus units of Quinones
was the incompatibility of the primer-coated sheet with the acrylic paint process used
by Amianan Motors. The incompatibility was in fact acknowledged through a letter
dated 29 June 1996 from Angbengco himself. 5
The CA also agreed with the R TC that PhilSteel was liable for both actual and moral
damages. For actual damages, the appellate court reasoned that PhilSteel committed
a breach of duty against Quinones when the company made assurances and false
representations that its primer-coated sheets were compatible with the acrylic paint
process of Quinones. The CA awarded moral damages, ruling that PhilSteel's almost
two years of undue delay in addressing the repeated complaints about paint blisters
constituted bad faith.
In addition, the CA concurred with the RTC that attorney's fees were in order since
Quinones was forced to file a case to recover damages.
Accordingly, the CA dismissed the appeal of PhilSteel.
Petitioner sought a reversal of the Decision in its Motion for Reconsideration. The
motion was, however, denied by the CA in its Resolution dated 19 November 2010.
Hence, this Petition.
 ISSUES
Petitioner raises the following issues:
1. Whether vague oral statements made by seller on the characteristics of a
generic good can be considered warranties that may be invoked to warrant
payment of damages;
2. Whether general warranties on the suitability of products sold prescribe in
six (6) months under Article 1571 of the Civil Code;
3. Assuming that statements were made regarding the characteristics of the
product, whether respondent as buyer is equally negligent; and
4. Whether non-payment of price is justified on allegations of breach of
warranty.6
OUR RULING
We DENY the Petition.
This Court agrees with the CA that this is a case of express warranty under Article
1546 of the Civil Code, which provides:
Any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer
to purchase the same, and if the buyer purchases the thing relying thereon. No
affirmation of the value of the thing, nor any statement purporting to be a statement of
the seller's opinion only, shall be construed as a warranty, unless the seller made
such affirmation or statement as an expert and it was relied upon by the buyer.
As held in Carrascoso, Jr. v. CA, 7 the following requisites must be established in
order to prove that there is an express warranty in a contract of sale: (1) the express
warranty must be an affirmation of fact or any promise by the seller relating to the
subject matter of the sale; (2) the natural effect of the affirmation or promise is to
induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying
on that affirmation or promise.
An express warranty can be oral
when it is a positive affirmation of a
fact that the buyer relied on.
Petitioner argues that the purported warranties by mere "vague oral statements"
cannot be invoked to warrant the payment of damages.
47
A warranty is a statement or representation made by the seller of goods -
contemporaneously and as part of the contract of sale - that has reference to the
character, quality or title of the goods; and is issued to promise or undertake to insure
that ce1iain facts are or shall be as the seller represents them. 8 A warranty is not
necessarily written. It may be oral as long as it is not given as a mere opinion or
judgment. Rather, it is a positive affirmation of a fact that buyers rely upon, and that
influences or induces 9 them to purchase the product.
Contrary to the assertions of petitioner, the finding of the CA was that the former,
through Angbengco, did not simply make vague oral statements on purported
warranties. 10 Petitioner expressly represented to respondent that the primer-coated
G .I. sheets were compatible with the acrylic paint process used by the latter on his
bus units. This representation was made in the face of respondent's express
concerns regarding incompatibility. Petitioner also claimed that the use of their
product by Quinones would cut costs. Angbengco was so certain of the compatibility
that he suggested to respondent to assemble a bus using the primer-coated sheet
and have it painted with the acrylic paint used in Amianan Motors.
At the outset, Quinones had reservations about the compatibility of his acrylic paint
primer with the primer-coated G.I. sheets of PhilSteel. But he later surrendered his
doubts about the product after 4 to 5 meetings with Angbengco, together with the
latter's subordinate Lopez. Only after several meetings was Quinones persuaded to
buy their G.I. sheets. On 15 April 1994, he placed an initial order for petitioner's
product and, following Angbengco's instructions, had a bus painted with acrylic paint.
The results of the painting test turned out to be successful. Satisfied with the initial
success of that test, respondent made subsequent orders of the primer-coated
product and used it in Amianan Motors' mass production of bus bodies. 11
Thus, it was not accurate for petitioner to state that they had made no warranties. It
insisted that at best, they only gave "'assurances" of possible savings Quinones might
have if he relied on PhilSteel's primer-coated G.I. sheets and eliminated the need to
apply an additional primer. 12
All in all, these "vague oral statements" were express affirmations not only of the
costs that could be saved if the buyer used PhilSteel's G.I. sheets, but also of the
compatibility of those sheets with the acrylic painting process customarily used in
Amianan Motors. Angbengco did not aimlessly utter those "vague oral statements" for
nothing, but with a clear goal of persuading Quinones to buy PhilSteel's product.
Taken together, the oral statements of Angbengco created an express warranty. They
were positive affirmations of fact that the buyer relied on, and that induced him to buy
petitioner's primer-coated G .I. sheets.
Under Article 1546 of the Civil Code, "'[ n ]o affirmation of the value of the thing, nor
any statement purporting to be a statement of the seller's opinion only, shall be
construed as a warranty, unless the seller made such affirmation or statement as an
expert and it was relied upon by the buyer."
Despite its claims to the contrary, petitioner was an expert in the eyes of the buyer
Quinones. The latter had asked if the primer-coated G.I. sheets were compatible with
Amianan Motors' acrylic painting process. Petitioner's former employee, Lopez,
testified that he had to refer Quinones to the former's immediate supervisor,
Angbengco, to answer that question. As the sales manager of PhilSteel, Angbengco
made repeated assurances and affirmations and even invoked laboratory tests that
showed compatibility. 13 In the eyes of the buyer Quinones, PhilSteel - through its
representative, Angbengco - was an expert whose word could be relied upon.
This Court cannot subscribe to petitioner's stand that what they told Quinones was
mere dealer's talk or an exaggeration in trade that would exempt them from liability for
breach of warranty. Petitioner cites Gonzalo Puyat & Sons v. Arco Amusement
Company, 14 in which this Court ruled that the contract is the law between the parties
and should include all the things they agreed to. Therefore, what does not appear on
the face of the contract should be regarded merely as "dealer's" or "trader's talk,"
which cannot Bind either party.15
Contrary however to petitioner's position, the so-called dealer's or trader's talk cannot
be treated as mere exaggeration in trade as defined in Article 1340 of the Civil
Code. 16 Quinones did not talk to an ordinary sales clerk such as can be found in a
department store or even a sari-sari store. If Lopez, a sales agent, had made the
assertions of Angbengco without true knowledge about the compatibility or the
authority to warrant it, then his would be considered dealer's talk. But sensing that a
person of greater competence and knowledge of the product had to answer
Quinones' concerns, Lopez wisely deferred to his boss, Angbengco.
Angbengco undisputedly assured Quinones that laboratory tests had been
undertaken, and that those tests showed that the acrylic paint used by Quinones was
compatible with the primer-coated G.I. sheets of Philsteel. Thus, Angbengco was no
longer giving a mere seller's opinion or making an exaggeration in trade. Rather, he
was making it appear to Quinones that Phil Steel had already subjected the latter's
primed G.I. sheets to product testing. PhilSteel, through its representative, was in
effect inducing in the mind of the buyer the belief that the former was an expert on the
primed G.I. sheets in question; and that the statements made by petitioner's
representatives, particularly Angbengco (its sales manager), 17 could be relied on.
Thus, petitioner did induce the buyer to purchase the former's G.I. sheets.
The prescription period of the
express warranty applies to the
instant case.
Neither the CA nor the RTC ruled on the prescription period applicable to this case.
There being an express warranty, this Court holds that the prescription period
applicable to the instant case is that prescribed for breach of an express warranty.
The applicable prescription period is therefore that which is specified in the contract;
in its absence, that period shall be based on the general rule on the rescission of
contracts: four years (see Article 1389, Civil Code). 18 In this case, no prescription
48
period specified in the contract between the parties has been put forward. Quinones
filed the instant case on 6 September 199619 or several months after the last delivery
of the thing sold. 20His filing of the suit was well within the prescriptive period of four
years; hence, his action has not prescribed.
The buyer cannot be held negligent
in the instant case.
Negligence is the absence of reasonable care and caution that an ordinarily prudent
person would have used in a given situation. 21 Under Article 11 73 of the Civil
Code, 22 where it is not stipulated in the law or the contract, the diligence required to
comply with one's obligations is commonly referred to as paterfamilias; or, more
specifically, as bonos paterfamilias or "a good father of a family." A good father of a
family means a person of ordinary or average diligence. To determine the prudence
and diligence that must be required of all persons, we must use as basis the abstract
average standard corresponding to a normal orderly person. Anyone who uses
diligence below this standard is guilty of negligence. 23
Respondent applied acrylic primers, which are stronger than epoxy primers. The G.I.
sheets of PhilSteel were primer-coated with epoxy primer. By applying the acrylic over
the epoxy primer used on the G.I. sheets, the latter primer was either dissolved or
stripped off the surface of the iron sheets. 24
Petitioner alleges that respondent showed negligence by disregarding what it calls a
"chemical reaction so elementary that it could not have escaped respondent
Quinones who has been in the business of manufacturing, assembling, and painting
motor vehicles for decades."25 For this supposed negligence, petitioner insists that
respondent cannot hide behind an allegation of breach of warranty as an excuse for
not paying the balance of the unpaid purchase price.
It bears reiteration that Quinones had already raised the compatibility issue at the
outset. He relied on the manpower and expertise of PhilSteel, but at the same time
reasonably asked for more details regarding the product. It was not an impulsive or
rush decision to buy. In fact, it took 4 to 5 meetings to convince him to buy the primed
G .I. sheets. And even after making an initial order, he did not make subsequent
orders until after a painting test, done upon the instructions of Angbengco proved
successful. The test was conducted using their acrylic paint over PhilSteel's primer-
coated G.I. sheets. Only then did Quinones make subsequent orders of the primer-
coated product, which was then used in the mass production of bus bodies by
Amianan Motors. "26
This Court holds that Quinones was not negligent and should therefore not be blamed
for his losses.
The nonpayment of the unpaid
purchase price was justified, since a
breach of warranty was proven.
Petitioner takes issue with the nonpayment by Quinones to PhilSteel of a balance of
₱448,041.50, an amount that he has duly admitted. 27 It is the nonpayment of the
unpaid balance of the purchase price, of the primer-coated G.I. sheets that is at the
center of the present controversy.
Quinones, through counsel, sought damages against petitioner for breach of implied
warranty arising from hidden defects under Article 156 l of the Civil Code, which
provides:
The vendor shall be responsible for warranty against the hidden defects which the
thing sold may have, should they render it unfit for the use for which it is intended, or
should they diminish its fitness for such use to such an extent that, had the vendee
been aware thereof he would not have acquired it or would have given a lower price
for it; but said vendor shall not be answerable for patent defects or those which may
be visible, or for those which are not visible if the vendee is an expert who, by reason
of his trade or profession, should have known them.
In seeking a remedy from the trial court, Quinones opted not to pay the balance of the
purchase price, in line with a proportionate reduction of the price under Article 1567
Civil Code, which states:
In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and demanding a proportionate reduction of
the price, with damages in either case.
Petitioner reasons that since the action of respondent is based on an implied
warranty, the action has already prescribed under Article 1571 28 of the Civil Code.
According to petitioner, Quinones can no longer put up the defense of hidden defects
in the product sold as a basis for evading payment of the balance. 29
We agree with petitioner that the nonpayment of the balance cannot be premised on a
mere allegation of nonexisting warranties. This Court has consistently ruled that
whenever a breach of warranty is not proven, buyers who refuse to pay the purchase
price - or even the unpaid balance of the goods they ordered - must be held liable
therefor.30
However, we uphold the finding of both the CA and the RTC that petitioner's breach
of warranty was proven by respondent.
Since what was proven was express warranty, the remedy for implied warranties
under Article 1567 of the Civil Code does not apply to the instant case. Instead,
following the ruling of this Court in Harrison Motors
Corporation v. Navarro,31 Article 1599 of the Civil Code applies when an express
warranty is breached.1awp++i1 The provision reads:
49
Where there is a breach of warranty by the seller, the buyer may, at his election:
(l) Accept or keep the goods and set up against the seller, the breach of
warranty by way of recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for
damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for
damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the
goods have already been received, return them or offer to return them to the
seller and recover the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone
of these ways, no other remedy can thereafter be granted, without
prejudice to the provisions of the second paragraph of article 1191.
Where the goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when he
accepted the goods without protest, or if he fails to notify the seller
within a reasonable time of the election to rescind, or if he fails to
return or to offer to return the goods to the seller in substantially as
good condition as they were in at the time the ownership was
transferred to the buyer. But if deterioration or injury of the goods is
due to the breach or warranty, such deterioration or injury shall not
prevent the buyer from returning or offering to return the goods to
the seller and rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so,
he shall cease to be liable for the price upon returning or offering to
return the goods. If the price or any part thereof has already been
paid, the seller shall be liable to repay so much thereof as has been
paid, concurrently with the return of the goods, or immediately after
an offer to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if
the seller refuses to accept an offer of the buyer to return the
goods, the buyer shall thereafter be deemed to hold the goods as
bailee for the seller, but subject to a lien to secure the payment of
any portion of the price which has been paid, and with the remedies
for the enforcement of such lien allowed to an unpaid seller by
article 1526.
 (5) In the case of breach of warranty of quality, such loss, in the absence of
special circumstances showing proximate damage of a greater amount, is
the difference between the value of the goods at the time of delivery to the
buyer and the value they would have had if they had answered to the
warranty.

Quinones has opted for a reduction in price or nonpayment of the unpaid balance of
the purchase price. Applying Article 1599 (1), this Court grants this remedy.

The above provisions define the remedy of recoupment in the diminution or extinction
of price in case of a seller's breach of warranty. According to the provision,
recoupment refers to the reduction or extinction of the price of the same item, unit,
transaction or contract upon which a plaintiffs claim is founded. 32

In the case at bar, Quinones refused to pay the unpaid balance of the purchase price
of the primer-coated G.I. sheets PhilSteel had delivered to him.1âwphi1 He took this
action after complaints piled up from his customers regarding the blistering and
peeling-off of the paints applied to the bus bodies they had purchased from his
Amianan Motors. The unpaid balance of the purchase price covers the same G .I.
sheets. Further, both the CA and the RTC concurred in their finding that the seller's
breach of express warranty had been established. Therefore, this Court finds that
respondent has legitimately defended his claim for reduction in price and is no longer
liable for the unpaid balance of the purchase price of ₱448,04l.50.

The award of attorney's fees is deleted.

Contrary to the finding of the CA and the RTC, this Court finds that attorney's fees are
not in order. Neither of these courts cited any specific factual basis to justify the award
thereof. Records merely show that

Quinones alleged that he had agreed to pay 25% as attorney's fees to his
counsel. 33 Hence, if the award is based on a mere allegation or testimony that a party
has agreed to pay a certain percentage for attorney's fees, the award is not in
order. 34

WHEREFORE, in view of the foregoing, the instant Petition is DENIED. The Court of
Appeals Decision dated 17 March 2010 and Resolution dated 19 November 20l0
denying petitioner's Motion for Reconsideration are hereby AFFIRMED, except for the
award of attorney's fees, which is hereby DELETED.

SO ORDERED.

50
G.R. No. 171428 November 11, 2013
ALEJANDRO V. TANKEH, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC.,
RUPERTO V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION
TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed October 25, 2005
Decision and the February 9, 2006 Resolution of the Court of Appeals1 be reversed,
and that the January 4, 1996 Decision of the Regional Trial Court of Manila Branch 32
be affirmed. Petitioner prays that this Court grant his claims for moral damages and
attorney’s fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. It was
incorporated on April 23, 1979 to operate ocean-going vessels engaged primarily in
foreign trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from public
respondent Development Bank of the Philippines for the partial financing of an ocean-
going vessel named the M/V Golden Lilac. To authorize the loan, Development Bank
of the Philippines required that the following conditions be met:
1) A first mortgage must be obtained over the vessel, which by then had been
renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as well
as respondents Sterling Shipping Lines, Inc. and Vicente Arenas should become
liable jointly and severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter and
Shipping Contracts, should be assigned to Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no less than 67% of the
total subscribed and outstanding voting shares of the company. The percentage of
shares assigned should be maintained at all times, and the assignment was to subsist
as long as the assignee, Development Bank of the Philippines, deemed it necessary
during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached him
sometime in 1980.4 Ruperto informed petitioner that he was operating a new shipping
line business. Petitioner claimed that respondent, who is also petitioner’s younger
brother, had told him that petitioner would be given one thousand (1,000) shares to be
a director of the business. The shares were worth ₱1,000,000.00.5
51
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with Voting
Rights.6 Petitioner then signed the May 12, 1981 promissory note in December 1981.
He was the last to sign this note as far as the other signatories were concerned. 7 The
loan was approved by respondent Development Bank of the Philippines on March 18,
1981. The vessel was acquired on September 29, 1981 for $5.3 million.8 On
December 3, 1981, respondent corporation Sterling Shipping Lines, Inc. through
respondent Ruperto V. Tankeh executed a Deed of Assignment in favor of
Development Bank of the Philippines. The deed stated that the assignor, Sterling
Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its
successors and assigns, future earnings of the mortgaged M/V "Sterling Ace,"
including proceeds of charter and shipping contracts, it being understood that this
assignment shall continue to subsist for as long as the ASSIGNOR’S obligation with
the herein ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh saying
that he was severing all ties and terminating his involvement with Sterling Shipping
Lines, Inc.10 He required that its board of directors pass a resolution releasing him
from all liabilities, particularly the loan contract with Development Bank of the
Philippines. In addition, petitioner asked that the private respondents notify
Development Bank of the Philippines that he had severed his ties with Sterling
Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development Bank of
the Philippines were transferred to public respondent Asset Privatization Trust on
June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the Privatization and
Management Office. Asset Privatization Trust was a government agency created
through Presidential Proclamation No. 50, issued in 1986. Through Administrative
Order No. 14, issued by former President Corazon Aquino dated February 3, 1987,
assets including loans in favor of Development Bank of the Philippines were ordered
to be transferred to the national government. In turn, the management and facilitation
of these assets were delegated to Asset Privatization Trust, pursuant to Presidential
Proclamation No. 50. In 1999, Republic Act No. 8758 was signed into law, and it
provided that the corporate term of Asset Privatization Trust would end on December
31, 2000. The same law empowered the President of the Philippines to determine
which office would facilitate the management of assets held by Asset Privatization
Trust. Thus, on December 6, 2000, former President Joseph E. Estrada signed
Executive Order No. 323, creating the Privatization Management Office. Its present
function is to identify disposable assets, monitor the progress of privatization
activities, and approve the sale or divestment of assets with respect to price and
buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by
Development Bank of the Philippines’ legal counsel Atty. Prospero N. Nograles. When
petitioner came to know of the sale, he wrote respondent Development Bank of the
Philippines to express that the final price was inadequate, and therefore, the
transaction was irregular. At this time, petitioner was still bound as a debtor because
of the promissory note dated May 12, 1981, which petitioner signed in December of
1981. The promissory note subsisted despite Sterling Shipping Lines, Inc.’s
assignment of all future earnings of the mortgaged M/V Sterling Ace to Development
Bank of the Philippines. The loan also continued to bind petitioner despite Sterling
Shipping Lines, Inc.’s cash equity contribution of ₱13,663,200.00 which was used to
cover part of the acquisition cost of the vessel, pre-operating expenses, and initial
working capital.14
Petitioner filed several Complaints15 against respondents, praying that the promissory
note be declared null and void and that he be absolved from any liability from the
mortgage of the vessel and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together
with Vicente L. Arenas, Jr. and Jose Maria Vargas, had exercised deceit and fraud in
causing petitioner to bind himself jointly and severally to pay respondent Development
Bank of the Philippines the amount of the mortgage loan.16 Although he had been
made a stockholder and director of the respondent corporation Sterling Shipping
Lines, Inc., petitioner alleged that he had never invested any amount in the
corporation and that he had never been an actual member of the board of
directors.17 He alleged that all the money he had supposedly invested was provided
by respondent Ruperto V. Tankeh.18 He claimed that he only attended one meeting of
the board. In that meeting, he was introduced to two directors representing
Development Bank of the Philippines, namely, Mr. Jesus Macalinag and Mr. Gil
Corpus. Other than that, he had never been notified of another meeting of the board
of directors.
Petitioner further claimed that he had been excluded deliberately from participating in
the affairs of the corporation and had never been compensated by Sterling Shipping
Lines, Inc. as a director and stockholder.19 According to petitioner, when Sterling
Shipping Lines, Inc. was organized, respondent Ruperto V. Tankeh had promised him
that he would become part of the administration staff and oversee company
operations. Respondent Ruperto V. Tankeh had also promised petitioner that the
latter’s son would be given a position in the company. 20 However, after being
designated as vice president, petitioner had not been made an officer and had been
alienated from taking part in the respondent corporation. 21
Petitioner also alleged that respondent Development Bank of the Philippines had
been inexcusably negligent in the performance of its duties. 22 He alleged that
Development Bank of the Philippines must have been fully aware of Sterling Shipping
Lines, Inc.’s financial situation. Petitioner claimed that Sterling Shipping Lines, Inc.
was controlled by the Development Bank of the Philippines because 67% of voting
shares had been assigned to the latter.23Furthermore, the mortgage contracts had
mandated that Sterling Shipping Lines, Inc. "shall furnish the DBP with copies of the
minutes of each meeting of the Board of Directors within one week after the meeting.
Sterling Shipping Lines Inc. shall likewise furnish DBP its annual audited financial
52
statements and other information or data that may be needed by DBP as its
accommodations [sic] with DBP are outstanding."24 Petitioner further alleged that the
Development Bank of the Philippines had allowed "highly questionable acts" 25 to take
place, including the gross undervaluing of the M/V Sterling Aces.26 Petitioner alleged
that one day after Development Bank of the Philippines’ Atty. Nograles sold the
vessel, the ship was re-sold by its buyer for double the amount that the ship had been
bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas had
been the treasurer of Sterling Shipping Lines, Inc. and later on had served as its vice
president, he was also responsible for the financial situation of Sterling Shipping
Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded
respondent Asset Privatization Trust for being the agent and assignee of the M/V
Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following defenses
against petitioner: Respondent Development Bank of the Philippines categorically
denied receiving any amount from Sterling Shipping Lines, Inc.’s future earnings and
from the proceeds of the shipping contracts. It maintained that equity contributions
could not be deducted from the outstanding loan obligation that stood at ₱245.86
million as of December 31, 1986. Development Bank of the Philippines also
maintained that it is immaterial to the case whether the petitioner is a "real
stockholder" or merely a "pseudo-stockholder" of the corporation.29 By affixing his
signature to the loan agreement, he was liable for the obligation. According to
Development Bank of the Philippines, he was in pari delicto and could not be
discharged from his obligation. Furthermore, petitioner had no cause of action against
Development Bank of the Philippines since this was a case between family members,
and earnest efforts toward compromise should have been complied with in
accordance with Article 222 of the Civil Code of the Philippines. 30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed the
promissory note in favor of Development Bank of the Philippines and with full
knowledge of the consequences. Respondent Tankeh also alleged that he did not
employ any fraud or deceit to secure petitioner’s involvement in the company, and
petitioner had been fully aware of company operations. Also, all that petitioner had to
do to avoid liability had been to sell his shareholdings in the company.31
Respondent Asset Privatization Trust raised that petitioner had no cause of action
against them since Asset Privatization Trust had been mandated under Proclamation
No. 50 to take title to and provisionally manage and dispose the assets identified for
privatization or deposition within the shortest possible period. Development Bank of
the Philippines had transferred and conveyed all its rights, titles, and interests in favor
of the national government in accordance with Administrative Order No. 14. In line
with that, Asset Privatization Trust was constituted as trustee of the assets transferred
to the national government to effect privatization of these assets, including
respondent Sterling Shipping Lines, Inc.32 Respondent Asset Privatization Trust also
filed a compulsory counterclaim against petitioner and its co-respondents Sterling
Shipping Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for the amount of
₱264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of petitioner but
filed a Motion to Dismiss that the Regional Trial Court denied. Respondent Asset
Privatization Trust filed a Cross Claim against Arenas. In his Answer 33 to Asset
Privatization Trust’s Cross Claim, Arenas claimed that he had been released from any
further obligation to Development Bank of the Philippines and its successor Asset
Privatization Trust because an extension had been granted by the Development Bank
of the Philippines to the debtors of Sterling Shipping Lines, Inc. and/or Ruperto V.
Tankeh, which had been secured without Arenas’ consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In a
January 4, 1996 Decision,34 the Regional Trial Court ruled:
Here, we find –
1. Plaintiff being promised by his younger brother, Ruperto V. Tankeh, 1,000
shares with par value of ₱1 Million with all the perks and privileges of being
stockholder and director of SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and operation of the
business, so with his son who is with the law firm Romulo Ozaeta Law
Offices;
3. But this was merely the come-on or appetizer for the Real McCoy or the
primordial end of congregating the incorporators proposed - - that he sign
the promissory note (Exhibit "C"), the mortgage contract (Exhibit "A"), and
deed of assignment so SSLI could get the US $3.5 M loan from DBP to
partially finance the importation of vessel M.V. "Golden Lilac" renamed M.V.
"Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-President
in 1979 but he was never notified of any meeting of the Board except only
once, and only to be introduced to the two (2) directors representing no less
than 67% of the total subscribed and outstanding voting shares of the
company. Thereafter, he was excluded from any board meeting, shorn of his
powers and duties as director or Vice-President, and was altogether
deliberately demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their incorporators,
one of their Directors and their paper Vice-President in 1979 by preventing
him access to corporate books, to corporate earnings, or losses, and to any
compensation or remuneration whatsoever? Whose President and Treasurer
53
did not submit the required SEC yearly report? Who did not remit to DBP the
proceeds on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was then
diverted to Singapore to be disposed on negotiated sale, and not by public
bidding contrary to COA Circular No. 86-264 and without COA’s approval.
Sterling Ace was seaworthy but was sold as scrap in Singapore. No
foreclosure with public bidding was made in contravention of the Promissory
Note to recover any deficiency should DBP seeks [sic] to recover it on the
outstanding mortgage loan. Moreover the sale was done after the account
and asset (nay, now only a liability) were transferred to APT. No approval of
SSLI Board of Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V. Tankeh, dated June
15, 1983 (Exhibit "D") his letter thru his lawyer to DBP (Exhibit "J") and
another letter to it (Exhibit "K") show no estoppel on his part as he
consistently and continuously assailed the several injurious acts of
defendants while assailing the Promissory Note itself x x x (Citations
omitted) applying the maxim: Rencintiatio non praesumitur. By this Dr.
Tankeh never waived the right to question the Promissory Note contract
terms. He did not ratify, by concurring acts, express or tacit, after the
reasons had surfaced entitling him to render the contract voidable,
defendants’ acts in implementing or not the conditions of the mortgage, the
promissory note, the deed of assignment, the lack of audit and accounting,
and the negotiated sale of MV Sterling Ace. He did not ratify defendants [sic]
defective acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud committed
by plaintiff’s brother before the several documents were signed (SEC documents,
Promissory Note, Mortgage (MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the latter of his
new shipping business. The project was good business proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth ₱1 Million and he’s
going to be a Director.
3. He tells his brother that he will be part of the company’s Administration
and Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one for the
business, and they therefore need a loan, and they could secure a loan from
DBP with the vessel brought to have a first mortgage with DBP but anyway
the other two directors and comptroller will be from DBP with a 67% SSLI
shares voting rights.
Without these insidious, devastating and alluring words, without the machinations
used by defendant Ruperto V. Tankeh upon the doctor, without the inducement and
promise of ownership of shares and the exercise of administrative and operating
functions, and the partial financing by one of the best financial institutions, the DBP,
plaintiff would not have agreed to join his brother; and the safeguarding of the Bank’s
interest by its nominated two (2) directors in the Board added to his agreeing to the
new shipping business. His consent was vitiated by the fraud before the several
contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates to
plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides him the
way as it requires every person, in the exercise of his rights and performance of his
duties, to act with justice, give everyone his due, and observe honesty and good faith
(Velayo vs. Shell Co. of the Phils., G.R. L-7817, October 31, 1956). Not to release
him from the clutch of the Promissory Note when he was never made a part of the
operation of the SSLI, when he was not notified of the Board Meetings, when the
corporation nary remitted earnings of M/V Sterling Ace from charter or shipping
contracts to DBP, when the SSLI did not comply with the deed of assignment and
mortgage contract, and when the vessel was sold in Singapore (he, learning of the
sale only from the newspapers) in contravention of the Promissory Note, and which
he questioned, will be an injustice, inequitable, and even iniquitous to plaintiff. SSLI
and the private defendants did not observe honesty and good faith to one of their
incorporators and directors. As to DBP, the Court cannot put demerits on what
plaintiff’s memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the discharge of
their functions to protect its interest as expected of them and worst, allowed the
perpetuation of the illegal acts committed in contrast to the virtues they publicly
profess, namely: "palabra de honor, delicadeza, katapatan, kaayusan, pagkamasinop
at kagalingan" Where is the vision banking they have for our country?
Had DBP listened to a cry in the wilderness – that of the voice of the doctor – the
doctor would not have allowed the officers and board members to defraud DBP and
he would demand of them to hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiff’s consent to be with SSLI was vitiated by fraud.
The fact that defendant Ruperto Tankeh has not questioned his liability to DBP or that
Jose Maria Vargas has been declared in default do not detract from the fact that there
was attendant fraud and that there was continuing fraud insofar as plaintiff is
concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of righteous
indignation and fairness, tatahimik na lang siya, sira naman ang pinangangalagaan
niyang pangalan, honor and family prestige [sic] (Emphasis provided).35
54
xxxx
All of the defendants’ counterclaims and cross-claims x x x including plaintiff’s and the
other defendants’ prayer for damages are not, for the moment, sourced and proven
by substantial evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit "C")
and the Mortgage Contract (Exhibit "A") null and void insofar as plaintiff DR.
ALEJANDRO V. TANKEH is concerned, hereby ANNULS and VOIDS those
documents as to plaintiff, and it is hereby further ordered that he be released from any
obligation or liability arising therefrom.
All the defendants’ counterclaims and cross-claims and plaintiff’s and defendants’
prayer for damages are hereby denied and dismissed, without prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas immediately
filed their respective Notices of Appeal with the Regional Trial Court. The petitioner
filed a Motion for Reconsideration with regard to the denial of his prayer for damages.
After this Motion had been denied, he then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the Court of
Appeals reversed the trial court’s findings. The Court of Appeals held that petitioner
had no cause of action against public respondent Asset Privatization Trust. This was
based on the Court of Appeals’ assessment of the case records and its findings that
Asset Privatization Trust did not commit any act violative of the right of petitioner or
constituting a breach of Asset Privatization Trust’s obligations to petitioner. The Court
of Appeals found that petitioner’s claim for damages against Asset Privatization Trust
was based merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
In all the complaints from the original through the first, second and third amendments,
the plaintiff imputes fraud only to defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V.
Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria Vargas signed a
promissory note in favor of the defendant, DBP, wherein plaintiff bound himself to
jointly and severally pay the DBP the amount of the mortgage loan. This document
insofar as plaintiff is concerned is a simulated document considering that plaintiff was
never a real stockholder of Sterling Shipping Lines, Inc. (Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but they
are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE
FACT THAT when the Sterling Shipping Lines, Inc. was organized in 1980, Ruperto
V. Tankeh promised plaintiff that he would be a part of the administration staff so that
he could oversee the operation of the company. He was also promised that his son, a
lawyer, would be given a position in the company. None of these promsies [sic] was
complied with. In fact he was not even allowed to find out the data about the income
and expenses of the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT
THAT PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE
PURPOSE OF INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN
THE BOARD OF THE STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS
MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER INVITED
AGAIN. PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING
LINES, INC. FOR HIS BEING A SO-CALLED DIRECTOR AND STOCKHOLDER.
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE
EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY
RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS OF THE SALE OF THE
‘STERLING ACE’ WAS PUBLISHED AT THE NEWSPAPER, PLAINTIFF TRIED ALL
EFFORTS TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH
AVOIDED ALL CONTACTS WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other defendants,
namely, the DBP, Vicente Arenas, Sterling Shipping Lines, Inc., and the Asset
Privatization Trust, the plaintiff’s evidence thereon should only be against Ruperto,
since a plaintiff is bound to prove only the allegations of his complaint. In any case, no
evidence of fraud or deceit was ever presented against defendants DBP, Arenas,
SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of the
plaintiff. None of his documentary evidence would prove that Ruperto was guilty of
fraud or deceit in causing him to sign the subject promissory note. 39
xxxx
Analyzing closely the foregoing statements, we find no evidence of fraud or deceit.
The mention of a new shipping lines business and the promise of a free 1,000-share
and directorship in the corporation do not amount to insidious words or machinations.
In any case, the shipping business was indeed established, with the plaintiff himself
as one of the incorporators and stockholders with a share of 4,000, worth
₱4,000,000.00 of which ₱1,000,000.00 was reportedly paid up. As such, he signed
the Articles of Incorporation and the corporation’s By-Laws which were registered with
55
the Securities and Exchange Commission in April 1979. It was not until May 12, 1981
that he signed the questioned promissory note. From his own declaration at the
witness stand, the plaintiff signed the promissory note voluntarily. No pressure, force
or intimidation was made to bear upon him. In fact, according to him, only a
messenger brought the paper to him for signature. The promised shares of stock
were given and recorded in the plaintiff’s name. He was made a director and Vice-
President of SSLI. Apparently, only the promise that his son would be given a position
in the company remained unfulfilled. However, the same should have been threshed
out between the plaintiff and his brother, defendant Ruperto, and its non-fulfillment did
not amount to fraud or deceit, but was only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of medicine and a seasoned
businessman. It cannot be said that he did not understand the import of the
documents he signed. Certainly he knew what he was signing. He should have known
that being an officer of SSLI, his signing of the promissory note together with the other
officers of the corporation was expected, as the other officers also did. It cannot
therefore be said that the promissory note was simulated. The same is a contract
validly entered into, which the parties are obliged to comply with.40 (Citations omitted)
The Court of Appeals ruled that in the absence of any competent proof, Ruperto V.
Tankeh did not commit any fraud. Petitioner Alejandro V. Tankeh was unable to prove
by a preponderance of evidence that fraud or deceit had been employed by Ruperto
to make him sign the promissory note. The Court of Appeals reasoned that:
Fraud is never presumed but must be proved by clear and convincing evidence, mere
preponderance of evidence not even being adequate. Contentions must be proved by
competent evidence and reliance must be had on the strength of the party’s evidence
and not upon the weakness of the opponent’s defense. The plaintiff clearly failed to
discharge such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and ordered that
plaintiff’s Complaint be dismissed. Petitioner filed a Motion for Reconsideration dated
October 25, 2005 that was denied in a Resolution 42promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously erred
and gravely abused its discretion in acting and deciding as if the evidence stated in
the Decision of the Regional Trial Court did not exist. He averred that the ruling of
lack of cause of action had no leg to stand on, and the Court of Appeals had
unreasonably, whimsically, and capriciously ignored the ample evidence on record
proving the fraud and deceit perpetrated on the petitioner by the respondent. He
stated that the appellate court failed to appreciate the findings of fact of the lower
court, which are generally binding on appellate courts. He also maintained that he is
entitled to damages and attorney's fees due to the deceit and machinations
committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner had
chosen the wrong remedy. He ought to have filed a special civil action of certiorari
and not a Petition for Review. Petitioner raised questions of fact, and not questions of
law, and this required the review or evaluation of evidence. However, this is not the
function of this Court, as it is not a trier of facts. He also contended that petitioner had
voluntarily entered into the loan agreement and the position with Sterling Shipping
Lines, Inc. and that he did not fraudulently induce the petitioner to enter into the
contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust also
contended that petitioner's mode of appeal had been wrong, and he had actually
sought a special civil action of certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals erred in finding that
respondent Rupert V. Tankeh did not commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to address a
procedural issue raised by respondents. Collectively, respondents argue that the
Petition is actually one of certiorari under Rule 65 of the Rules of Court43 and not a
Petition for Review on Certiorari under Rule 45.44 Thus, petitioner’s failure to show
that there was neither appeal nor any other plain, speedy or adequate remedy
merited the dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy contemplated by petitioner is clearly
that of a Rule 45 Petition for Review. In Tagle v. Equitable PCI Bank,45 this Court
made the distinction between a Rule 45 Petition for Review on Certiorari and a Rule
65 Petition for Certiorari:
Certiorari is a remedy designed for the correction of errors of jurisdiction, not errors of
judgment.1âwphi1 In Pure Foods Corporation v. NLRC, we explained the simple
reason for the rule in this light: When a court exercises its jurisdiction, an error
committed while so engaged does not deprive it of the jurisdiction being exercised
when the error is committed x x x. Consequently, an error of judgment that the court
may commit in the exercise of its jurisdiction is not correctable through the original
civil action of certiorari.
Even if the findings of the court are incorrect, as long as it has jurisdiction over the
case, such correction is normally beyond the province of certiorari. Where the error is
not one of jurisdiction, but of an error of law or fact a mistake of judgment, appeal is
the remedy.
In this case, what petitioner seeks to rectify may be construed as errors of judgment
of the Court of Appeals. These errors pertain to the petitioner’s allegation that the
appellate court failed to uphold the findings of facts of the lower court. He does not
56
impute any error with respect to the Court of Appeals’ exercise of jurisdiction. As
such, this Petition is simply a continuation of the appellate process where a case is
elevated from the trial court of origin, to the Court of Appeals, and to this Court via
Rule 45.
Contrary to respondents’ arguments, the allegations of petitioner that the Court of
Appeals "committed grave abuse of discretion"46 did not ipso facto render the
intended remedy that of certiorari under Rule 65 of the Rules of Court.47
In any case, even if the Petition is one for the special civil action of certiorari, this
Court has the discretion to treat a Rule 65 Petition for Certiorari as a Rule 45 Petition
for Review on Certiorari. This is allowed if (1) the Petition is filed within the
reglementary period for filing a Petition for review; (2) when errors of judgment are
averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.48 When this Court exercises this discretion, there is no need to comply with the
requirements provided for in Rule 65.
In this case, petitioner filed his Petition within the reglementary period of filing a
Petition for Review.49 His Petition assigns errors of judgment and appreciation of facts
and law on the part of the Court of Appeals. Thus, even if the Petition was designated
as one that sought the remedy of certiorari, this Court may exercise its discretion to
treat it as a Petition for Review in the interest of substantial justice.
We now proceed to the substantive issue, that of petitioner’s imputation of fraud on
the part of respondents. We are required by the circumstances of this case to review
our doctrines of fraud that are alleged to be present in contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
x x x fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not
have agreed to.
This is followed by the articles which provide legal examples and illustrations of fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the
parties are bound by confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity
to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an
expert and the other party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute
error. (n)
The distinction between fraud as a ground for rendering a contract voidable or as
basis for an award of damages is provided in Article 1344:
In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
There are two types of fraud contemplated in the performance of contracts: dolo
incidente or incidental fraud and dolo causante or fraud serious enough to render a
contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of birth or perfection of a
contract may either be dolo causante or dolo incidente. The first, or causal fraud
referred to in Article 1338, are those deceptions or misrepresentations of a serious
character employed by one party and without which the other party would not have
entered into the contract. Dolo incidente, or incidental fraud which is referred to in
Article 1344, are those which are not serious in character and without which the other
party would still have entered into the contract. Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some particular or
accident of the obligation. The effects of dolo causante are the nullity of the contract
and the indemnification of damages, and dolo incidente also obliges the person
employing it to pay damages.51
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al., 52 this Court
elaborated on the distinction between dolo causante and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious machination,
manipulation, concealment or misrepresentation -- that would lead an ordinarily
prudent person into error after taking the circumstances into account. In contracts, a
fraud known as dolo causante or causal fraud is basically a deception used by one
party prior to or simultaneous with the contract, in order to secure the consent of the
other. Needless to say, the deceit employed must be serious. In contradistinction,
only some particular or accident of the obligation is referred to by incidental fraud or
dolo incidente, or that which is not serious in character and without which the other
party would have entered into the contract anyway.53
57
Under Article 1344, the fraud must be serious to annul or avoid a contract and render
it voidable. This fraud or deception must be so material that had it not been present,
the defrauded party would not have entered into the contract. In the recent case of
Spouses Carmen S. Tongson and Jose C. Tongson, et al., v. Emergency Pawnshop
Bula, Inc.,54 this Court provided some examples of what constituted dolo causante or
causal fraud:
Some of the instances where this Court found the existence of causal fraud include:
(1) when the seller, who had no intention to part with her property, was "tricked into
believing" that what she signed were papers pertinent to her application for the
reconstitution of her burned certificate of title, not a deed of sale; (2) when the
signature of the authorized corporate officer was forged; or (3) when the seller was
seriously ill, and died a week after signing the deed of sale raising doubts on whether
the seller could have read, or fully understood, the contents of the documents he
signed or of the consequences of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that this type
of fraud is not serious enough so as to render the original contract voidable.
A classic example of dolo incidente is Woodhouse v. Halili.56 In this case, the plaintiff
Charles Woodhouse entered into a written agreement with the defendant Fortunato
Halili to organize a partnership for the bottling and distribution of soft drinks. However,
the partnership did not come into fruition, and the plaintiff filed a Complaint in order to
execute the partnership. The defendant filed a Counterclaim, alleging that the plaintiff
had defrauded him because the latter was not actually the owner of the franchise of a
soft drink bottling operation. Thus, defendant sought the nullification of the contract to
enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant that he
was the holder of the exclusive franchise. The defendant was made to believe, and he
actually believed, that plaintiff had the exclusive franchise. x x x The record abounds
with circumstances indicative that the fact that the principal consideration, the main
cause that induced defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the
defendant or for the partnership. x x x The defendant was, therefore, led to the belief
that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive franchise, or
the option thereto, at the time the contract was perfected. But while he had already
lost his option thereto (when the contract was entered into), the principal obligation
that he assumed or undertook was to secure said franchise for the partnership, as the
bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if
he was guilty of a false representation, this was not the causal consideration, or the
principal inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his
exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling plant
being built, all that he suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was used by
plaintiff to get from defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising to transfer it to
defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the
net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code,
because it was used to get the other party's consent to a big share in the profits, an
incidental matter in the agreement.57
Thus, this Court held that the original agreement may not be declared null and void.
This Court also said that the plaintiff had been entitled to damages because of the
refusal of the defendant to enter into the partnership. However, the plaintiff was also
held liable for damages to the defendant for the misrepresentation that the former had
the exclusive franchise to soft drink bottling operations.
To summarize, if there is fraud in the performance of the contract, then this fraud will
give rise to damages. If the fraud did not compel the imputing party to give his or her
consent, it may not serve as the basis to annul the contract, which exhibits dolo
causante. However, the party alleging the existence of fraud may prove the existence
of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the Parties
The Civil Code, however, does not mandate the quantum of evidence required to
prove actionable fraud, either for purposes of annulling a contract (dolo causante) or
rendering a party liable for damages (dolo incidente). The definition of fraud is
different from the quantum of evidence needed to prove the existence of fraud. Article
1338 provides the legal definition of fraud. Articles 1339 to 1343 constitute the
behavior and actions that, when in conformity with the legal provision, may constitute
fraud.
Jurisprudence has shown that in order to constitute fraud that provides basis to annul
contracts, it must fulfill two conditions. First, the fraud must be dolo causante or it
must be fraud in obtaining the consent of the party. Second, this fraud must be proven
by clear and convincing evidence. In Viloria v. Continental Airlines, 58 this Court held
that:
58
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to. In order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract. In Samson v. Court of Appeals,
causal fraud was defined as "a deception employed by one party prior to or
simultaneous to the contract in order to secure the consent of the other." Also, fraud
must be serious and its existence must be established by clear and convincing
evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals 60 stating that mere
preponderance of evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them,
he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be
established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious when it is
sufficient to impress, or to lead an ordinarily prudent person into error; that which
cannot deceive a prudent person cannot be a ground for nullity. The circumstances of
each case should be considered, taking into account the personal conditions of the
victim."61
Thus, to annul a contract on the basis of dolo causante, the following must happen:
First, the deceit must be serious or sufficient to impress and lead an ordinarily prudent
person to error. If the allegedly fraudulent actions do not deceive a prudent person,
given the circumstances, the deceit here cannot be considered sufficient basis to
nullify the contract. In order for the deceit to be considered serious, it is necessary
and essential to obtain the consent of the party imputing fraud. To determine whether
a person may be sufficiently deceived, the personal conditions and other factual
circumstances need to be considered.
Second, the standard of proof required is clear and convincing evidence. This
standard of proof is derived from American common law. It is less than proof beyond
reasonable doubt (for criminal cases) but greater than preponderance of evidence (for
civil cases). The degree of believability is higher than that of an ordinary civil case.
Civil cases only require a preponderance of evidence to meet the required burden of
proof. However, when fraud is alleged in an ordinary civil case involving contractual
relations, an entirely different standard of proof needs to be satisfied. The imputation
of fraud in a civil case requires the presentation of clear and convincing evidence.
Mere allegations will not suffice to sustain the existence of fraud. The burden of
evidence rests on the part of the plaintiff or the party alleging fraud. The quantum of
evidence is such that fraud must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to ascertain the
liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo
causante that must be proven by clear and convincing evidence. It stands to reason
that both dolo incidente and dolo causante must be proven by clear and convincing
evidence. The only question is whether this fraud, when proven, may be the basis for
making a contract voidable (dolo causante), or for awarding damages (dolo
incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to assess the
personal circumstances of the party alleging fraud. This may require a review of the
case facts and the evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on applicable
law and on standing jurisprudence. The findings of the Court of Appeals are generally
binding on this Court provided that these are supported by the evidence on record. In
the recent case of Medina v. Court of Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review on
certiorari under Rule 45. This rule provides that the parties may raise only questions
of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-
bound to analyze again and weigh the evidence introduced in and considered by the
tribunals below. When supported by substantial evidence, the findings of fact of the
Court of Appeals are conclusive and binding on the parties and are not reviewable by
this Court, unless the case falls under any of the following recognized exceptions: (1)
When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) When the inference made is manifestly mistaken, absurd or
impossible; (3) Where there is a grave abuse of discretion; (4) When the judgment is
based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6)
When the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (7) When
the findings are contrary to those of the trial court; (8) When the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) When
the facts set forth in the petition as well as in the petitioner’s main and reply briefs are
not disputed by the respondents; and (10) When the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and contradicted by the
evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case
differently.
59
The Court of Appeals was not correct in saying that petitioner could only raise fraud
as a ground to annul his participation in the contract as against respondent Rupert V.
Tankeh, since the petitioner did not make any categorical allegation that respondents
Development Bank of the Philippines, Sterling Shipping Lines, Inc., and Asset
Privatization Trust had acted fraudulently. Admittedly, it was only in the Petition before
this Court that the petitioner had made the allegation of a "well-orchestrated
fraud"64 by the respondents. However, Rule 10, Section 5 of the Rules of Civil
Procedure provides that:
Amendment to conform to or authorize presentation of evidence. — When issues not
raised by the pleadings are tried with the express or implied consent of the parties
they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any
time, even after judgment; but failure to amend does not effect the result of the trial of
these issues. If evidence is objected to at the trial on the ground that it is not within
the issues made by the pleadings, the court may allow the pleadings to be amended
and shall do so with liberality if the presentation of the merits of the action and the
ends of substantial justice will be subserved thereby. The court may grant a
continuance to enable the amendment to be made. (5a)
In this case, the commission of fraud was an issue that had been tried with the
implied consent of the respondents, particularly Sterling Shipping Lines, Inc., Asset
Privatization Trust, Development Bank of the Philippines, and Arenas. Hence,
although there is a lack of a categorical allegation in the pleading, the courts may still
be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the contract
with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling Shipping
Lines, Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh
mentioning to me that he is operating a new shipping lines business and he is giving
me free one thousand shares (1,000) to be a director of this new business which is
worth one million pesos (₱1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be made a
part of the administration staff so that I can oversee the operation of the business plus
my son, the eldest one who is already a graduate lawyer with a couple of years of
experience in the law firm of Romulo Ozaeta Law Offices (TSN, April 28, 1988, pp.
10-11.).65
The Second Amended Complaint of petitioner is substantially reproduced below to
ascertain the claim:
2. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto
V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria
Vargas, signed a promissory note in favor of the defendant DBP, wherein
plaintiff bound himself to jointly and severally pay the DBP the amount of the
mortgage loan. This document insofar as plaintiff is concerned is a simulated
document considering that plaintiff was never a real stockholder of the
Sterling Shipping Lines, Inc.
3. That although plaintiff’s name appears in the records of Sterling Shipping
Lines, Inc. as one of its incorporators, the truth is that he had never invested
any amount in said corporation and that he had never been an actual
member of said corporation. All the money supposedly invested by him were
put by defendant Ruperto V. Tankeh. Thus, all the shares of stock under his
name in fact belongs to Ruperto V. Tankeh. Plaintiff was invited to attend the
board meeting of the Sterling Shipping Lines, Inc. only once, which was for
the sole purpose of introducing him to the two directors of the DBP, namely,
Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter he was never invited
again. Plaintiff was never compensated by the Sterling Shipping Lines, Inc.
for his being a so-called director and stockholder. It is clear therefore that the
DBP knew all along that plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN
BY THE FACT THAT when the Sterling Shipping Lines, Inc. was organized
in 1980, Ruperto V. Tankeh promised plaintiff that he would be a part of the
administration staff so that he could oversee the operation of the company.
He was also promised that his son, a lawyer, would be given a position in the
company. None of these promises was complied with. In fact, he was not
even allowed to find out the data about the income and expenses of the
company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY
THE FACT THAT PLAINTIFF WAS INVITED TO ATTEND THE BOARD
MEETING OF THE STERLING SHIPPING LINES, INC. ONLY ONCE,
WHICH WAS FOR THE SOLE PUPOSE OF INTRODUCING HIM TO THE
TWO DIRECTORS OF THE DBP IN THE BOARD OF THE STERLING
SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL
CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF
WAS NEVER COMPENSATED BY THE STERLING SHIPPING LINES, INC.
FOR HIS BEING A SO-CALLED DIRECTOR AND STOCKHOLDER.
60
6. That in 1983, upon realizing that he was only being made a tool to realize
the purposes of Ruperto V. Tankeh, plaintiff officially informed the company
by means of a letter dated June 15, 1983 addressed to the company that he
has severed his connection with the company, and demanded among
others, that the company board of directors pass a resolution releasing him
from any liabilities especially with reference to the loan mortgage contract
with the DBP and to notify the DBP of his severance from the Sterling
Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF
MADE EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM
AND HIS BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE
SPURNED BY RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS OF
THE SALE OF THE "STERLING ACE" WAS PUBLISHED AT THE
NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS TO CONTACT
RUPERTO V. TANKEH FOR THE PURPOSE OF ARRIVING AT SOME
COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL
CONTACTS [sic] WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned counsel,
and to the Honorable Court, most respectfully alleges:
3. That paragraph 4 is admitted that herein answering defendant together
with the plaintiff signed the promissory note in favor of DBP but specifically
denied that the same was done through deceit and fraud of herein answering
defendant the truth being that plaintiff signed said promissory note voluntarily
and with full knowledge of the consequences thereof; it is further denied that
said document is a simulated document as plaintiff was never a real
stockholder of the company, the truth being those alleged in the special and
affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially the
imputation of deceit and fraud against herein answering defendant, the truth
being those alleged in the special and affirmative defenses;
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein answering
defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company organized in
accordance with the laws of the Republic of the Philippines with the plaintiff
as one of the incorporators;
 10. Plaintiff as one of the incorporators and directors of the board was fully
aware of the by-laws of the company and if he attended the board meeting
only once as alleged, the reason thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting through its
board of directors, herein answering defendant could not have promised
plaintiff that he would be a part of the administration staff;
12. As member of the board, plaintiff had all the access to the data and
records of the company; further, as alleged in the complaint, plaintiff has a
son who is a lawyer who could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his connection
with the company, he should have been aware that all he had to do was sell
all his holdings in the company;
14. Herein answering defendant came to know only of plaintiff’s alleged
predicament when he received the summons and copy of the complaint; x x
x.67
An assessment of the allegations in the pleadings and the findings of fact of both the
trial court and appellate court based on the evidence on record led to the conclusion
that there had been no dolo causante committed against the petitioner by Ruperto V.
Tankeh.
The petitioner had given his consent to become a shareholder of the company without
contributing a single peso to pay for the shares of stock given to him by Ruperto V.
Tankeh. This fact was admitted by both petitioner and respondent in their respective
pleadings submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never invested any
amount in said corporation and that he had never been an actual member of said
corporation. All the money supposedly invested by him were put up by defendant
Ruperto V. Tankeh."69 This fact alone should have already alerted petitioner to the
gravity of the obligation that he would be undertaking as a member of the board of
directors and the attendant circumstances that this undertaking would entail. It also
does not add any evidentiary weight to strengthen petitioner’s claim of fraud. If
anything, it only strengthens the position that petitioner’s consent was not obtained
through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade
which negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity
to know the facts, are not in themselves fraudulent.
61
Given the standing and stature of the petitioner, he was in a position to ascertain
more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a
party is guilty of fraud in obtaining the consent of the party claiming that fraud existed.
The plaintiff Lamberto Songco sought to recover earnings from a promissory note that
defendant George Sellner had made out to him for payment of Songco’s sugar cane
production. Sellner claimed that he had refused to pay because Songco had promised
that the crop would yield 3,000 piculs of sugar, when in fact, only 2,017 piculs of
sugar had been produced. This Court held that Sellner would still be liable to pay the
promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable output of his crop
was disingenuous and uncandid, we nevertheless think that Sellner was bound and
that he must pay the price stipulated. The representation in question can only be
considered matter of opinion as the cane was still standing in the field, and the
quantity of the sugar it would produce could not be known with certainty until it should
be harvested and milled. Undoubtedly Songco had better experience and better
information on which to form an opinion on this question than Sellner. Nevertheless
the latter could judge with his own eyes as to the character of the cane, and it is
shown that he measured the fields and ascertained that they contained 96 1/2
hectares.
The law allows considerable latitude to seller's statements, or dealer's talk; and
experience teaches that it is exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have admonished the purchaser
that that estimate was put forth as a mere opinion; and we will not now hold the seller
to a liability equal to that which would have been created by a warranty, if one had
been given.
It is not every false representation relating to the subject matter of a contract which
will render it void. It must be as to matters of fact substantially affecting the buyer's
interest, not as to matters of opinion, judgment, probability, or expectation. (Long vs.
Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2
Allen [Mass.], 212; Williamson vs. McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.)
When the purchaser undertakes to make an investigation of his own, and the seller
does nothing to prevent this investigation from being as full as he chooses to make it,
the purchaser cannot afterwards allege that the seller made misrepresentations.
(National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349;
Williamson vs. Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having special or expert knowledge,
takes advantage of the ignorance of another to impose upon him, the false
representation may afford ground for relief, though otherwise the injured party would
be bound. But we do not think that the fact that Songco was an experienced farmer,
while Sellner was, as he claims, a mere novice in the business, brings this case within
that exception.71
The following facts show that petitioner was fully aware of the magnitude of his
undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping Lines,
Inc. had been undergoing, and he took great pains to release himself from the
obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman with
experience in the textile business and real estate should have apprised him of the
irregularity in the contract that he would be undertaking. This meant that at the time
petitioner gave his consent to become a part of the corporation, he had been fully
aware of the circumstances and the risks of his participation. Intent is determined by
the acts.
Finally, the records showed that petitioner had been fully aware of the effect of his
signing the promissory note. The bare assertion that he was not privy to the records
cannot counteract the fact that petitioner himself had admitted that after he had
severed ties with his brother, he had written a letter seeking to reach an amicable
settlement with respondent Rupert V. Tankeh. Petitioner’s actions defied his claim of
a complete lack of awareness regarding the circumstances and the contract he had
been entering.
The required standard of proof – clear and convincing evidence – was not met. There
was no dolo causante or fraud used to obtain the petitioner’s consent to enter into the
contract. Petitioner had the opportunity to become aware of the facts that attended
the signing of the promissory note. He even admitted that he has a lawyer-son who
the petitioner had hoped would assist him in the administration of Sterling Shipping
Lines, Inc. The totality of the facts on record belies petitioner’s claim that fraud was
used to obtain his consent to the contract given his personal circumstances and the
applicable law.
However, in refusing to allow petitioner to participate in the management of the
business, respondent Ruperto V. Tankeh was liable for the commission of incidental
fraud. In Geraldez, this Court defined incidental fraud as "those which are not serious
in character and without which the other party would still have entered into the
contract."72
Although there was no fraud that had been undertaken to obtain petitioner’s consent,
there was fraud in the performance of the contract. The records showed that
petitioner had been unjustly excluded from participating in the management of the
affairs of the corporation. This exclusion from the management in the affairs of
Sterling Shipping Lines, Inc. constituted fraud incidental to the performance of the
obligation.
This can be concluded from the following circumstances.
62
First, respondent raised in his Answer that petitioner "could not have promised
plaintiff that he would be a part of the administration staff" 73 since petitioner had been
fully aware that, as a corporation, Sterling Shipping Lines, Inc. acted through its board
of directors. Respondent admitted that petitioner had been "an incorporator and
member of the board of directors"74 and that petitioner "was fully aware of the by-laws
of the company."75 It was incumbent upon respondent to act in good faith and to
ensure that petitioner would not be excluded from the affairs of Sterling Shipping
Lines, Inc. After all, respondent asserted that petitioner had entered into the contract
voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on severing his connection
with the company, all that petitioner had to do was to sell all his holdings in the
company. Clearly, the respondent did not consider the fact that the sale of the shares
of stock alone did not free petitioner from his liability to Development Bank of the
Philippines or Asset Privatization Trust, since the latter had signed the promissory
and had still been liable for the loan. A sale of petitioners’ shares of stock would not
have negated the petitioner’s responsibility to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioner’s claim that the latter
only received news about the sale of the vessel M/V Sterling Ace through the media
and not as one of the board members or directors of Sterling Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare assertion that petitioner had access to
the records cannot discredit the fact that the petitioner had been effectively deprived
of the opportunity to actually engage in the operations of Sterling Shipping Lines, Inc.
Petitioner had a reasonable expectation that the same level of engagement would be
present for the duration of their working relationship. This would include an
undertaking in good faith by respondent Ruperto V. Tankeh to be transparent with his
brother that he would not automatically be made part of the company’s administration.
However, this Court finds there is nothing to support the assertion that Sterling
Shipping Lines, Inc. and Arenas committed incidental fraud and must be held liable.
Sterling Shipping Lines, Inc. acted through its board of directors, and the liability of
respondent Tankeh cannot be imposed on Sterling Shipping Lines, Inc. The shipping
line has a separate and distinct personality from its officers, and petitioner’s assertion
that the corporation conspired with the respondent Ruperto V. Tankeh to defraud him
is not supported by the evidence and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed in the answer of their
co-defendant or co-defendants not in default but also to expect a result of the litigation
totally common with them in kind and in amount whether favorable or unfavorable.
The substantive unity of the plaintiffs’ cause against all the defendants is carried
through to its adjective phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself.77
As such, despite Arenas’ failure to submit his Answer to the Complaint or his
declaration of default, his liability or lack thereof is concomitant with the liability
attributed to his co-defendants or co-respondents. However, unlike respondent
Ruperto V. Tankeh’s liability, there is no action or series of actions that may be
attributed to Arenas that may lead to an inference that he was liable for incidental
fraud. In so far as the required evidence for both Sterling Shipping Lines, Inc. and
Arenas is concerned, there is no basis to justify the claim of incidental fraud.
In addition, respondents Development Bank of the Philippines and Asset Privatization
Trust or Privatization and Management Office cannot be held liable for fraud.
Incidental fraud cannot be attributed to the execution of their actions, which were
undertaken pursuant to their mandated functions under the law. "Absent convincing
evidence to the contrary, the presumption of regularity in the performance of official
functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner
Alejandro, for damages. The obligation to pay damages to petitioner is based on
several provisions of the Civil Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a single action may serve as
the source of several obligations to pay damages in accordance with the Civil Code.
Thus, the liability of respondent Ruperto V. Tankeh is based on the law, under Article
1344, which provides that the commission of incidental fraud obliges the person
employing it to pay damages.
63
In addition to this obligation as the result of the contract between petitioner and
respondents, there was also a patent abuse of right on the part of respondent
Tankeh. This abuse of right is included in Articles 19 and 21 of the Civil Code which
provide that:
Article 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good
faith.
Article 21. Any person who willfully causes loss or injury to another in manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.
Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the
interest of his business operations. This is because of his failure to at least act in
good faith and be transparent with petitioner regarding Sterling Shipping Lines, Inc.’s
daily operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay, 79 this Court held
that:
When a right is exercised in a manner not conformable with the norms enshrined in
Article 19 and like provisions on human relations in the Civil Code, and the exercise
results to [sic] the damage of [sic] another, a legal wrong is committed and the
wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by the following
circumstances.
First, petitioner was informed by Development Bank of the Philippines that it would
still pursue his liability for the payment of the promissory note. This would not have
happened if petitioner had allowed himself to be fully apprised of Sterling Shipping
Lines, Inc.’s financial straits and if he felt that he could still participate in the
company’s operations. There is no evidence that respondent Ruperto V. Tankeh
showed an earnest effort to at least allow the possibility of making petitioner part of
the administration a reality. The respondent was the brother of the petitioner and was
also the primary party that compelled petitioner Alejandro Tankeh to be solidarily
bound to the promissory note. Ruperto V. Tankeh should have done his best to
ensure that he had exerted the diligence to comply with the obligations attendant to
the participation of petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter into an agreement or
settlement with petitioner after the latter’s discovery of the sale of the M/V Sterling
Ace was an action that constituted bad faith. Due to Ruperto’s refusal, his brother,
petitioner Alejandro, became solidarily liable for an obligation that the latter could
have avoided if he had been given an opportunity to participate in the operations of
Sterling Shipping Lines, Inc. The simple sale of all of petitioner’s shares would not
have solved petitioner’s problems, as it would not have negated his liability under the
terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc.,
namely, public respondents Development Bank of the Philippines and Asset
Privatization Trust. This is an additional financial burden for petitioner. Nothing in the
records suggested the possibility that Development Bank of the Philippines or Asset
Privatization Trust through the Privatization Management Office will not pursue or is
precluded from pursuing its claim against the petitioner. Although petitioner Alejandro
voluntarily signed the promissory note and became a stockholder and board member,
respondent should have treated him with fairness, transparency, and consideration to
minimize the risk of incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded on the
following bases:
To recover moral damages in an action for breach of contract, the breach must be
palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral
damages may be recovered when the defendant acted in bad faith or was guilty of
gross negligence (amounting to bad faith) or in wanton disregard of his contractual
obligation and, exceptionally, when the act of breach of contract itself is constitutive of
tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it imports a dishonest
purpose or some moral obliquity and conscious doing of a wrong, a breach of known
duty through some motive or interest or ill will that partakes of the nature of fraud.
xxxx
The person claiming moral damages must prove the existence of bad faith by clear
and convincing evidence for the law always presumes good faith. It is not enough that
one merely suffered sleepless nights, mental anguish, serious anxiety as the result of
the actuations of the other party. Invariably such action must be shown to have been
willfully done in bad faith or will ill motive. Mere allegations of besmirched reputation,
embarrassment and sleepless nights are insufficient to warrant an award for moral
damages. It must be shown that the proximate cause thereof was the unlawful act or
omission of the [private respondent] petitioners.
An award of moral damages would require certain conditions to be met, to wit: (1)
first, there must be an injury, whether physical, mental or psychological, clearly
64
sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.
(Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner suffered
an injury due to the mental duress of being bound to such an onerous debt to
Development Bank of the Philippines and Asset Privatization Trust. Second, the
wrongful acts of undue exclusion done by respondent Ruperto V. Tankeh clearly
fulfilled the same requirement. Third, the proximate cause of his injury was the failure
of respondent Ruperto V. Tankeh to comply with his obligation to allow petitioner to
either participate in the business or to fulfill his fiduciary responsibilities with candor
and good faith. Finally, Article 221983 of the Civil Code provides that moral damages
may be awarded in case of acts and actions referred to in Article 21, which, as stated,
had been found to be attributed to respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of Appeals to demand from
respondents, except from respondent Asset Privatization Trust, the amount of five
million pesos (₱5,000,000.00). This Court finds that the amount of five hundred
thousand pesos (₱500,000.00) is a sufficient amount of moral damages.
In addition to moral damages, this Court may also impose the payment of exemplary
damages.1âwphi1 Exemplary damages are discussed in Article 2229 of the Civil
Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or
correction of the public good, in addition to moral, temperate, liquidated or
compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly
regarding the pre-requisites of ascertaining moral damages and the fact that it is
discretionary upon this Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court
will decide whether or not they should be adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the
plaintiff must show that he is entitled to moral, temperate or compensatory damages
before the court may consider the question of whether or not exemplary damages
should be awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and
subsequent parties from the commission of a similar offense. The case of People v.
Rante85 citing People v. Dalisay86 held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages
are intended to serve as a deterrent to serious wrong doings, and as a vindication of
undue sufferings and wanton invasion of the rights of an injured or a punishment for
those guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings and for the sense of
indignity and humiliation suffered by a person as a result of an injury that has been
maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the
defendant—associated with such circumstances as willfulness, wantonness, malice,
gross negligence or recklessness, oppression, insult or fraud or gross fraud—that
intensifies the injury. The terms punitive or vindictive damages are often used to refer
to those species of damages that may be awarded against a person to punish him for
his outrageous conduct. In either case, these damages are intended in good measure
to deter the wrongdoer and others like him from similar conduct in the future. 87

To justify an award for exemplary damages, the wrongful act must be accompanied
by bad faith, and an award of damages would be allowed only if the guilty party acted
in a wanton, fraudulent, reckless or malevolent manner. 88 In this case, this Court finds
that respondent Ruperto V. Tankeh acted in a fraudulent manner through the finding
of dolo incidente due to his failure to act in a manner consistent with propriety, good
morals, and prudence.

Since exemplary damages ensure that future litigants or parties are enjoined from
acting in a similarly malevolent manner, it is incumbent upon this Court to impose the
damages in such a way that will serve as a categorical warning and will show that
wanton actions will be dealt with in a similar manner. This Court finds that the amount
of two hundred thousand pesos (₱200,000.00) is sufficient for this purpose.

In sum, this Court must act in the best interests of all future litigants by establishing
and applying clearly defined standards and guidelines to ascertain the existence of
fraud.

WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of

Appeals as to the assailed Decision in so far as the finding of fraud is SUSTAINED
with the MODIFICATION that respondent RUPERTO V. TANKEH be ordered to pay
moral damages in the amount of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00) and the amount of TWO HUNDRED THOUSAND PESOS
(₱200,000.00) by way of exemplary damages.

SO ORDERED.

65