Page 1 of 93
Sec. 11. Interpretation construed so as to give effect to all
provisions
THIRD DIVISION
[G.R. No. 118972. April 3, 1998]
Home Development Mutual Fund and Marilou Adea-
Protor, petitioners, vs. Court of Appeals and Dr. Cora J.
Virata (CONVIR) and Associates, Inc., respondents.
DECISION
PURISIMA, J.:
At bench is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, to review and set aside the Decision of the
Court of Appeals[1] dated June 30, 1994 in CA-GR No. 35240,
affirming with modification the Decision dated March 22, 1991 in Civil
Case No. 12715 of Branch 145,[2] Regional Trial Court of Makati City.
The antecedent facts that matter can be culled, as follows:
On January 1, 1985, CONVIR and Associates, Inc., represented by its
President, Dra. Cora J. Virata, and the petitioner, Home Development
Mutual Fund (HDMF), represented by its Senior Vice-President,
Vicente Reventar III, entered into a CONSULTANCY AGREEMENT
by virtue of which the former obligated itself to render medical
services to the employees of HDMF. The said service contract
stipulated,among others:
That this AGREEMENT takes effect on January 1, 1985 up to
December 31, 1985, provided however, that either party who desires
to terminate the contract may serve the other party a written notice at
least thirty (30) days in advance.
On December 16, 1985, Dra. Cora J. Virata wrote petitioner Marilou
O. Adea-Proctor, then Deputy Chief Executive Officer and Officer-in-
Charge of HDMF, to inform that she (Dra. Cora J. Virata) was
assuming from their (petitioners) silence that subject Agreement
was renewed for the succeeding period, from January 1, 1986 to
December 31, 1986.[3]
In her Reply-letter, dated December 23, 1985, petitioner Adea-
Proctor notified Dra. Cora J. Virata of the termination of the contract in
question upon its expiration on December 31, 1985; informing Dra.
Virata of the appointment by management of a full-time physician to
the vacant plantilla position, such that her services would not be
needed anymore.[4] But such letter-reply was formally and actually
received by the private respondents only on January 9, 1986.
In the Complaint filed on January 15, 1986, private respondents
averred that petitioners sudden and unexpected termination of the
Consultancy Agreement, which requires a written notice thirty (30)
days in advance, did not conform therewith. Consequently, private
respondents prayed for unrealized income of at least Five Hundred
Thousand (P500,000.00) Pesos resulting from loss of business
opportunities, Four Hundred Thousand (P400,000.00) Pesos, as
exemplary damages, One Hundred Thousand (P100,000.00) Pesos,
as litigation expenses, and 25% of the total amount, as attorneys fees.
In their Answers sent in on January 14, 1986, petitioners Adea-
Proctor and HDMF sought the dismissal of the Complaint;
contending inter alia that the Complaint states no cause of action
arising from the termination of the contract, upon expiration of the
agreed period. They argued that private respondents insistence on
the necessity of a notice of renewal of the contract is predicated on an
erroneous interpretation of its terms, conditions and duration which
are clear.
On March 22, 1991, the trial court of origin came out with a
decision; disposing, as follows:
Wherefore, premises considered, judgment is hereby rendered,
ordering defendant Home Development Mutual Fund, to pay plaintiff
the sum of Fifty Thousand (P50,000.00) Pesos, in Philippine
Currency, as compensatory damages; and Twenty Thousand
(P20,000.00) Pesos, Philippine Currency, as and by way of attorneys
fees, and the costs.
Defendants counterclaims are dismissed/ denied for lack of merit.
SO ORDERED.
On appeal, the aforesaid judgment was affirmed with modification
by the Court of Appeals, deleting the award of compensatory
damages for want of sufficient evidence to support the same. With the
denial of their motion for

reconsideration, petitioners found their way to this Court via the
present Petition; theorizing, that:
I. THE PUBLIC RESPONDENT ERRED WHEN IT RULED
TO THE EFFECT THAT BECAUSE OF THE RENEWAL OF
THE CONSULTANCY AGREEMENT SINCE 1981, THE
1985 CONSULTANCY AGREEMENT IS DEEMED
RENEWED FOR ANOTHER TERM UNLESS ADVANCED
NOTICE OF TERMINATION/NON-RENEWAL IS SERVED
BY EITHER PARTY TO THE OTHER;
II. THE PUBLIC RESPONDENT ERRED WHEN IT RULED
THAT THE MEDICAL SERVICES OF APPELLEE WAS
UNREASONABLY TERMINATED/ NOT RENEWED
BECAUSE THE LETTER OF TERMINATION/NON-
RENEWAL WAS SERVED OR MAILED SO CLOSE TO THE
END OF THE YEAR...;
III. THE PUBLIC RESPONDENT ERRED IN HOLDING
PETITIONER LIABLE FOR ATTORNEYS FEES TO THE
APPELLEE UNDER ART. 19 OF THE NEW CIVIL CODE.
The petition is not impressed with merit.
Our pivot of inquiry is the correct construction or interpretation of
subject Consultancy Agreement, particularly its provision:
That this agreement takes effect on January 1, 1985 to December 31,
1985; Provided, however, that either party who desires to terminate
the contract may serve the other
party a written notice at least thirty(30) days in advance.
The first clause of the aforecited stipulation, which is the bone of
petitioners stance, basically deals with the term of the contract; while
the proviso, which is the core of private respondents
action, prescribes the manner the service contract in question could
be terminated.
It is petitioners submission that the first clause referred to is
independent, distinct and separate from the said proviso, such that
upon the expiration of the period stated in the first clause, the
Consultancy Agreement ceased to have any binding effect between
the contracting parties even though they (petitioners) did not give any
written notice of termination at least thirty (30) days in advance.
Page 2 of 93
We cannot fathom how contracting parties, who are sui juris, and
knowledgeable of the purposes for which they solemnly put their
Agreement into writing, could be so careless as to include inconsistent
conditions in such a short and simple provision in their contract sued
upon.
Time-honored is the rule that In the construction of an instrument
where there are several provisions or particulars, such a construction
is, if possible, to be adopted as will give effect to all.[5] Article 1374 of
the New Civil Code, on the other hand, requires that The various
stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them
taken jointly. Conformably, to ascertain the true meaning or import of
the controverted provision of subject Consultancy Agreement,
its entirety must be considered; not merely the first
clause.[6] Consequently, petitioners interpretation solely based on the
first clause, and which completely ignored the second clause under
scrutiny, cannot be upheld.
The law mandates that Obligations arising from contracts have
the force of law between the contracting parties and should be
complied with in good faith.[7]
Did petitioners comply with their contractual obligation in good
faith, when they served the requisite written notice to private
respondents nine (9) days after the expiration of the Agreement? The
answer to this crucial question is in the negative.
The second clause of the contractual provision in dispute is to the
effect that written notice of termination should be served at least
thirty (30) days in advance. As a rule, the method of terminating
a contract is primarily determined by the stipulation of the
parties.[8] Thus, the requirements of contracts as to notice - as to
the time of giving, form, and manner of service thereof - must be
strictly observed because In an obligation where a period is
designated, it is presumed to have been established for the benefit of
both the contracting parties.[9] Thus, the unilateral termination of the
contract in question by the herein petitioners is violative of
the principle of mutuality of contracts ordained in Art. 1308 of the
New Civil Code.[10]
Petitioner Adea-Proctor contends that on December 26, 1985,
she caused personal delivery of her letter-reply dated December 23,
1985, addressed to private respondent Dra. Cora Virata, informing the

latter of the impending expiration of the contract which would not be
renewed anymore because the petitioners planned to fill up the vacant
plantilla position with a full-time physician, as approved by the Board
of Trustees of HDMF.[11] However, petitioner Adea-Proctor claims that
when the said letter was delivered by one Ramon Ortega, petitioners
messenger, to the Makati office of private respondents, the latters
representative, a certain Rose Sy, refused to receive it. So, petitioner
Adea-Proctor had to send the said letter by registered mail, on the
same day, and private respondents received it on January 9, 1986.
We are not persuaded by petitioners stance. From the evidence
on hand, it can be unerringly gleaned that within the first week of
January, 1986, respondent Dra. Cora J. Virata was allowed by
petitioners to assume her duties as physician of petitioners
employees. As ratiocinated by the Court of Appeals:
For one thing, if it were true that appellant (petitioner HDMF) was
decided in not renewing the consultancy agreement with appellee
(private respondent Cora Virata), it should have instructed and
informed all its employees not to avail anymore of appellees medical
services. As it was, appellant
allowed its employees to still avail of appellees medical services on
the first week of January, 1986.[12]
Granting ex gratia argumenti that petitioners caused personal
delivery of their letter-reply on December 26, 1985, we believe that
the same could not be deemed a substantial compliance with their
contractual obligation because it was done just five (5) days prior to
the expiration of the contract. To repeat, what is stipulated is thirty
(30) days in advance. As the trial court stressed:
Necessarily, such notice of termination or non-renewal must be
served within reasonable time, in fairness to the other party. Under
the circumstances obtaining, however, the defendants (petitioners
herein) notice on plaintiff (private respondent herein) was
unreasonable, particularly as it was served or mailed so close to the
end of the year and at the height of the Christmas holidays, factors
which were unduly disadvantageous to plaintiff as it leaves no
sufficient opportunity to prepare for the closure of the business with
other potential clients, to the detriment of said plaintiff.[13]
Indeed, private respondents had every reason to assume
that subject service contract was deemed renewed. As found by the
Court of Appeals:
Page 3 of 93
The evidence shows in this case that since 1981, appellees (private
respondent herein) consultancy agreement with appellant (petitioners
herein) had been renewed, without renegotiation, so that appellee as
a practice would continue her services to appellant even after expiry
date of the contract.
These implied renewals of the contract had been going on as a
practice of both appellant and appellee since 1981, so that at the start
of each year, appellee would just the same, perform her duties as
appellants physician, with contract to be signed in the first few months
of the year. As this was the practice, appellee could not be blamed for
performing her professional duties as appellants physician even in the
absence of a contract. (CA Decision, p. 5)
Premises studiedly considered, we are of the irresistible
conclusion that the Court of Appeals erred not in adjudging as
renewed the Consultancy Agreement litigated upon.
In the second assigned error, petitioners theorize that the Court
of Appeals erred in ruling that the medical services of private
respondents were unreasonably terminated because the December
26, 1985 letter of termination was served or mailed so close to the
end of the year...
We discern nothing reversible in such conclusion arrived at by
public respondent. Ordinarily, what is reasonable time under the
circumstances of a particular case is a mixed question of law and of
fact, for determination by the trier of facts. This Court is not a trier of
facts. Furthermore, well settled is the doctrine that the findings of fact
by the trial court are accorded great respect by appellate courts and
should not be disturbed on appeal unless the trial court has
overlooked, ignored, or disregarded some fact or circumstances of
sufficient weight or significance which, if considered, would alter the
situation.[14] The facts of the case, as stated by the trial court, were
adopted by the Court of Appeals. And a conscientious sifting of the
records fails to bring to light any fact or circumstance militative against
the correctness of the said findings of the trial court and the Court of
Appeals.
We are likewise in agreement with the Court of Appeals finding
that petitioners acted in bad faith for refusing to comply
with private respondents valid demand. Therefore, it is just and
equitable that attorneys fees be recovered,[15] in the reasonable
amount fixed below.
 Page 4 of 93

WHEREFORE, the Decision of the Court of Appeals in C.A. -

G.R. No. 35240 is hereby AFFIRMED in toto. No pronouncement as
to costs. In this petition for review under Rule 45 of the Rules of Court,

SO ORDERED. petitioner BPI-Family Savings Bank, Inc. assails and seeks to set
aside the following issuances of the Court of Appeals (CA) in CA-G.R.
Narvasa, C.J., (Chairman), Romero, and Kapunan, JJ., concur.
CV No. 60994, to wit:

1. Decision[2] dated May 30,

2002, affirming in toto an earlier decision[3] of
the Regional Trial Court (RTC) of Quezon City,
Branch 81, in its Civil Case No. Q-90-
6402, which adjudgedpetitioner solidarily liable
with Benjamin Villa to the spouses Zenaida
Domingo and Abundio S. Domingo for actual,
moral and exemplary damages and attorney's
SECOND DIVISION
fees, subject to reimbursement by the spouses
Julian Cruz; and
BPI-FAMILY SAVINGS 2. Resolution[4] dated June 10, 2003, denying
G.R. No. 158676 the separate motions for reconsideration filed
BANK, INC.,
Petitioner, by the petitioner, Benjamin Villa and the Cruz
Present: spouses.

PUNO, Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA, The facts:
AZCUNA,
GARCIA, JJ.
Respondent Julian Cruz is the owner of a commercial lot and building
SPS. ZENAIDA DOMINGO &
ABUNDIO S. DOMINGO, located at No. 977 E. Quirino Ave., Novaliches, Quezon City.
BENJAMIN VILLA[1] and SPS. Promulgated:
Sometime in April 1976, he leased out the premises to the Family
JULIAN CRUZ,
Respondents. November 27, 2006 Savings Bank (FSB). In April 1989, after the Bank of the Philippine
Islands (BPI) acquired FSB but before the expiration of the
x-----------------------------------------------------------------------------------------x original lease contractbetween Cruz and FSB, a new lease agreement
over the same property was executed, this time between BPI-FSB
DECISION and Cruz.

GARCIA, J.:
 Page 5 of 93

Both the original and the new lease contracts contained the
following stipulation:
Assignment and Sublease The lessee has the right
to sublease the premises or any portion thereof to a
third party. The lessee may not, however, assign or
transfer its right or interest under this lease without the
written consent of the lessor.
On February 23, 1989, while the original lease agreement between
FSB and Cruz was still subsisting, BPI-FSB subleased
the same premises to respondent Benjamin Villa (now deceased), a
former Vice President of BPI-FSB. While BPI-FSB apparently did not
secure the written consent of Julian Cruz, it appears that the
latter was aware of the sublease and acceded to it because he made
neither an objection nor a protest thereto.
The aforementioned sublease contract between
and Benjamin Villa embodied the following clause:
pushed through and the price of P650,000.00 was agreed
upon between the two. Villa, however, informed Mrs. Domingo that as
a mere sublesseeunder his sublease contract with BPI-FSB, he was
prohibited from assigning his rights as a sublessee. It was, therefore,
necessary to rescind his sublease contract with BPI-FSB so that the
latter could directly execute a sublease contract with the
Domingo spouses. Villa informed the principal lessee BPI-FSB about
the arrangement and the latter acceded.
On June 15, 1990, Villa received from the Domingos the amount
of P300,000.00 as partial payment for his rights over the premises.
The receipt Villa issued therefor reads:
Received from Mrs. Zenaida Domingo the amount of
three hundred thousand pesos (P300,000.00) as partial
payment for my giving up my rights on the premises
presently occupied by Carousel Food House and
BPI-FSB certain equipments and improvements in the same
premises.

The sublessee shall not assign this contract On June 18, 1990, BPI-FSB executed a sublease contract in favor of
of sublease or sublease any part of the premises to
the Domingos. Three days later, or on June 21, 1990, a Deed of
any person or entity.
Rescission of the sublease agreementbetween BPI-FSB and Villa was
executed and signed by BPI-FSB and Villa.
Benjamin Villa occupied and used the premises as a restaurant,
operating thereat the Carousel Food House. His restaurant business,
however, failed to prosper. Hence, after only about a year of
operation, Villa decided to close it down. On June 26, 1990, Villa received from the Domingos the amount
of P350,000.00, representing the full payment of the amount due
On or about June 4, 1990, while still operating the Carousel Food under their agreement. As before, Villa issued the corresponding
House at the premises, Villa learned that Mrs. Zenaida Domingo was receipt, to wit:
interested in taking over his restaurant business thereat. Negotiations

For and in consideration of the sum of Three Hundred
Fifty Thousand Pesos (P350,000.00), Philippine
Currency, receipt of which in full is hereby
acknowledged, the undersigned hereby assigns, cedes
and transfers and sets over to Ms. Zenaida G.
Domingo the goodwill, all rights and interest over the
premises located at 977 Quirino Avenue, Novaliches,
Quezon City, the permanent improvements and certain
equipments thereon, free on any lien or encumbrance
except the legal rights of the owner of the building
thereon...
On the very same day, Villa vacated the subject premises and turned
over the key thereof to the Domingos.
The following day - June 27, 1990 - the Domingos went to clean and
fix the premises but could not enter because the door was padlocked.
Moreover, there was posted at the glass window of the commercial
building a sign to the effect that the place was not for lease
or sublease. Apparently, Julian Cruz, the owner-lessor, preempted the
Domingos' visit in order to padlock the premises and post said notice
the day previous.
The Domingos thus demanded of Villa either compliance with
their contract of sublease or the return of their payment
of P650,000.00. Efforts exerted by Villa and BPI-FSB to place the
Domingos in possession of the subject premises proved futile due to
the refusal of Cruz to open the same.
On account of Villas failure to return their total
of P650,000.00 for the place, the Domingos filed suit in the RTC of
Quezon City for a sum of money with damages against both Villa and
Page 6 of 93
BPI-FSB. In turn, Villa and BPI-FSB filed their respective third-party
complaints against Cruz.
In their complaint, docketed as Civil Case No. Q-90-6402 and raffled
to Branch 81 of the trial court, the Domingos maintained that both Villa
and BPI-FSB assured them that they would be placed in possession
of the subject premises as a sublessee. Hence, the failure of both to
comply with said undertaking makes them jointly and severally
liable to them for the return of the P650,000.00 they paid to Villa, plus
damages.
For their part, Villa and BPI-FSB laid the blame on Cruz. They posited
that they failed to comply with their promise to the plaintiffs-
spouses because of Cruz's illegal, unreasonable and unjustified
action in padlocking the premises. Hence, they argued that should
they be made to return the amount of P650,000.00 which the spouses
Domingo paid to Villa, Cruz should be simultaneously ordered to
reimburse them for the same amount. Additionally, BPI-FSB
contended that under its lease contract with Cruz, it had the right to
sublease the subject premises to a third person even without the
consent of the latter.
On the other hand, Cruz, as third-party defendant in this
case, claimed that he had every right to close down the premises
and to refuse the entry thereto of the Domingos because
under his lease agreement with BPI-FSB, the
latter cannot sublease the premises without his written consent.
payment Purportedly, BPI-FSB violated this condition when it subleased the
premises to the Domingos without his written consent.

In a decision[5] dated June 8, 1998, the trial court found for the
Domingos, and accordingly rendered judgment, to wit:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. Ordering defendants BPI-Family
Savings Bank and Benjamin Villa to pay the plaintiffs,
jointly and severally, the following amounts:
1.1 P650,000.00 as actual
damages, representing the amount paid
by plaintiffs to defendant Villa, with
interest at the legal rate from the filing of
the complaint until fully paid;
1.2 P100,000.00 as moral
damages;
1.3 P50,000.00 as
exemplary damages;
1.4 P25,000.00 as
attorney's fees.
2. Ordering third-party defendant Julian Cruz
to reimburse third-party plaintiffs BPI-FSB and Villa for
whatever amounts said defendants/third-party plaintiffs
will pay the plaintiffs by virtue of this judgment;
3. Ordering third-party defendant Cruz to
pay third-party plaintiff BPI-FSB the amount of
P25,000.00 as attorney's fees;
4. Ordering third-party defendant Cruz to
pay third-party plaintiff Villa the amounts of P50,000.00
as moral damages and P25,000.00 as attorney's fees;
5. Dismissing for lack of merit the
counterclaims and cross-claims of defendants BPI-FSB
Page 7 of 93
and Villa, and the counterclaims of third-party
defendant Cruz.
Costs against third-party defendant Cruz.
IT IS SO ORDERED.
From the foregoing decision, a common appeal was interposed by
BPI-FSB and Villa to the CA. Separate appeal was also taken by the
spouses Cruz, all of which appeals were consolidated and docketed in
the CA as CA-G.R. CV No. 60994.
As stated at the threshold hereof, the CA, in its decision[6] of May 30,
2002, affirmed in toto that of the trial court, and denied in its resolution
of June 10, 2003, the appellantsrespective motions for
reconsideration.
Of the parties below, only petitioner BPI-FSB elevated the case to
this Court via the instant petition for review on the following grounds:
A. The CA gravely abused its discretion and committed
a reversible error in NOT applying the
provisions of Articles 1207 and 1311 of the Civil
Code under which, contrary to its decision, BPI-
FSB could not be held solidarily liable
with VILLA for the return to the DOMINGOS of
the amount of P650,000.00.
B. The action of the DOMINGOS being as it is
indisputably an action for recovery of a sum of
money and not an action for specific
performance and there being no dispute that
the amount of P650,000.00 was received
by VILLA and VILLA alone, the Court of
Appeals gravely abused its discretion and
committed a reversible error in holding NOT
 Page 8 of 93

only VILLA liable for the return of the money but

also BPI-FSB as well.

C. The Court of Appeals gravely abused its discretion
and committed a reversible error in affirming the
decision of the trial court holding that BPI-FSB
is solidarily liable with VILLA for other
damages.[7]
Hence, it is petitioner's submission that it should not be held solidarily
liable with Villa for a transaction that was entered exclusively
between Zenaida Domingo and VILLA,allegedly without the
knowledge, consent or participation of BPI-FSB.[8]

Ironically, Villa, in his memorandum[9] before the Court, uses the same
We AFFIRM but minus the award of moral and exemplary damages. logic in arguing that he should not be held solidarily liable with BPI-
FSB. Villa points out that, not being a party to the
In a nutshell, petitioner BPI-FSB denies knowledge of, let alone second sublease contract between BPI-FSB and the Domingos, he
having anything to do with, the transaction between Villa and the cannot be held responsible for the Domingos' failure to occupy the
Domingos. It points to the express admission of both the Domingos premises. He also alleged having informed the Domingos beforehand
and Villa that BPI-FSB did not receive any portion of the that he had no right
amount of P650,000.00 as it was Villa alone who received the to sublease the premises under his sublease agreement with BPI-
same from the Domingos. As petitioner further claims, it came to know FSB, hence the need for the deed of rescission
of such payment only when the case at bar was filed. Not being ofsaid sublease contract, which deed was in fact executed. To Villa,
a privy to the agreement between the Domingos and the second sublease contract was solely between BPI-FSB and the
Villa, petitionercontends that it cannot be found solidarily liable with Domingos.
Villa for the
latters breach of his sublease agreement with the Domingos. In We rule and so hold, as did the CA, that neither BPI-FSB nor Villa can
support thereof, petitioner invokes the following provisions of the Civil escape liability by disclaiming privity to an agreement with the
Code: Domingos. There are more than one, indeed several, relevant
agreements involved in this case. To waylay any possibility of
Article 1311. Contracts take effect only between the
parties, their assigns and heirs x x x. confusion, we shall enumerate them to distinguish one from the other:

xxx xxx xxx 1. The original lease agreement between Julian Cruz
and BPI-FSB;
Article 1207. x x x There is solidary liability only when
the obligation expressly so states or when the law or 2. The first sublease contract between BPI-FSB and
the nature of the obligation requires solidarity. Villa;

3. The sale of goodwill of the Carousel Food House,
and the assignment and transfer of all of Villa's
rights and interests to the premises and
improvements thereon, between Villa and the
Domingos;
4. The second sublease contract between BPI-FSB
and the Domingos; and
5. The Deed of Rescission of
the first sublease contract between Villa and
BPI-FSB.
The CA found no cogent reason to disturb the trial court's finding
that both BPI-FSB and Villa assured the Domingos that they would
eventually be placed in possession of the premises
question as sublessee. Nor do we. Not only is there evidence to
corroborate this finding; it is likewise the version more consistent with
common human experience. Finding no reversible error in the trial
courts appraisal and appreciation of the facts and evidence on record,
it was not amiss for the CA to adhere to the well-entrenched precept
that factual findings of trial courts are entitled to great weight and
respect, even finality in certain cases.[10] This Court can do no less.
Both BPI-FSB and Villa each had their own respective agreements
with the Domingos, albeit for a single purpose. Villa sold to the
Domingos the goodwill of his restaurant business, as well as all his
rights and interests in the premises and its improvements. BPI-FSB,
on the other hand, subleased the same premises to the Domingos.
These two contracts are intertwined. Indeed, the Domingos'
enjoyment of the goodwill and business of Villa would be an
impossibility without the BPI-FSB Domingos sublease contract.
Page 9 of 93
The Court cannot give credence to BPI-FSB's posture that it had
nothing to do with, nor even had knowledge of, the agreement
between Villa and the Domingos. This scenario is far-fetched, what
with the fact that BPI-FSB is a party to the sublease contract with the
Domingos, and, in pursuance thereof, even executed a deed of
rescission of its earlier sublease agreement with Villa. It had also
exerted efforts, along with Villa, towards putting the Domingos in
possession of the premises by seeking out Cruz. With such a factual
backdrop, it is difficult to grasp how BPI-FSB could not have taken
part and assured the Domingos of possession of the premises, as
found by the two (2) courts below. Indeed, it insults ones credulity for
the petitioner to feign ignorance of the sublease agreement
in between Villa and the Domingos. In any event, it is clear that BPI-
FSBs failure to put the Domingos in possession of the premises as
its sublessees, in breach of its own contract with them, makes the
petitioner solidarily liable with Villa for the amount the Domingos had
paid to enjoy the premises.
Villa, on the other hand, though not a privy to the second (BPI-FSB
Domingos) sublease contract, had his own contract with the
Domingos which he had breached. We refer to the sale by
Villa for P650,000.00, of the goodwill of his restaurant business in the
premises and the assignment of all his rights and interests thereon,
including the equipment and improvements made thereat. To cap it
all, Villa cannot possibly escape liability for said amount as it
was he who had received the same and even issued a receipt
therefor.
Clearly, then, the two (2) courts below had not erred in holding that
both BPI-FSBs and Villa's failure to comply with
 Page 10 of 93

their respective undertakings to place the Domingos in possession of the phrase may not however found in the second sentence, which
the subject premises renders them accountable for breach of contract. means that the act of sub-leasing in the first sentence may be done
As decreed by statute, those who in any manner contravenes the by the lessee without the consent of the lessor but the act
[11]
tenor of their obligations are liable for damages. of assignment or transfer of rights in the second sentence cannot
be done by the lessee without the consent of the lessor. Clearly, the
The Court agrees, however, with petitioner BPI-FSB that it was due to parties intended a distinction between a sublease and an
Cruz's actions of padlocking the premises and posting notices thereat assignment of rights.
that prevented the Domingos from taking possession of the place. It is
precisely for this reason why the two (2) courts below correctly Under the aforequoted contractual stipulation, BPI-FSB, as lessee,
adjudged Cruz to be ultimately liable for what is due is possessed of the authority to sublease the subject premises. No
the Domingos and thus directed him to reimburse what Villa and BPI- mention is made of obtaining any written consent of the lessor
FSB must pay the spouses. (Cruz) as a condition sine qua non for the validity
of a sublease agreement. What necessitates the prior written
As found by the trial court, Cruz himself was guilty of breach with consent of lessor Cruz is the assignment or transfer by BPI-FSB as
respect to his basic lease agreement with BPI-FSB. Concededly, said lessee of its right or interest under the lease agreement.
agreement contained the following stipulation:

Assignment and Sublease The lessee has the right

to sublease the premises or any portion thereof to a
third party. The lessee may not, however, assign or To our mind, the CA was correct in affirming the trial court's
transfer its right or interest under this lease distinguishing between a sublease and an assignment of rights. In
without the written consent of the lessor. (Emphasis
a sublease situation, the lessee (BPI-FSB, in thiscase) continues to
supplied.)
be liable to the lessor (Cruz) for the payment of rent.
The sublessee (the Domingos in this case) pays rent not to the
On surface, the foregoing stipulation seemingly insulates Cruz from
lessor (Cruz) but to the lessee/sub-lessor(BPI-FSB). On the other
any liability in this case. However, basic is the rule that in the
hand, in an assignment of rights, the assignee steps into the shoes of
construction of an instrument where there are several provisions or
the lessee who is thereupon freed from his obligations under the lease
particulars, such a construction is, if possible, to be adopted as will
because from then on it is the assignee who is liable to the lessor
give effect to all.[12] The trial court was quick to point out, and rightly
for rental payment. In other words, in an assignment of rights,
so, that the first sentence of the aforequoted covenant speaks of what
there is a change of lessor, which is not so in
the lessee can do, while the second sentence refers to what
a subleasesituation. It is thus understandable why it is not necessary
it cannot do without the consent of the lessor. This is evident from
 Page 11 of 93

for the lessor to give his consent to a sublease, while in an To respondent Cruz, all the foregoing three elements of
assignment of rights, it is a necessity for the lessor to require his prior an assignment of rights are present in this case. Anent
consent. This is for the lessor's own protection. the first element, Cruz points to BPI-FSB allegedly having no
knowledge, consent or participation[16] in the contract between Villa
For sure, in the very memorandum[13] he filed with the Court, Cruz in and the spouses Domingo. Hence, BPI-FSB must have made an
fact admits that the trial court was correct in making a distinction absolute transfer of its interest, disassociating itself from the original
between a sublease and an assignment of rights. In Cruzs own words: contract of lease. Said denial of knowledge or participation by BPI-
The Honorable Trial Court correctly ruled on page 25 of
FSB upon which Cruz relies cannot, however, be given credence and
its assailed decision that, It is clear that the parties
made a distinction between sublease and an has, in fact, already been struck down in the instant decision. Besides,
assignment of rights. Is there a difference between the as already pointed out, more than one contract is involved
two? BPI-FSB believes so and this Court (i.e., trial
court) agrees.[14] herein. Evidently, the contract alluded to by Cruz is the assignment
of goodwill of Villa's restaurant business executed between Villa and

It is Cruzs contention, however, that the sublease agreement between the Domingos. Separate therefrom is the contract of sublease

BPI-FSB and the Domingos was in fact an assignment of rights, and between the Domingos and BPI-FSB for which the rescission of

not a sublease, as held by the two (2) courts below. In the first sublease contract between BPI-FSB and Villa was necessary.

support thereof, Cruz utilizes the following distinctions Clearly, BPI-FSB made no absolute transfer of interest

between a sublease and an assignment of rights: as the lessee of Cruz.

SUBLEASE ASSIGNMENT Cruz goes on to argue that the case filed by the Domingos only

(a) the lessee retains an (a) the lessee makes an absolute proves that the latter have direct action against him, thereby a
interest in the lease; he transfer of his interest as lessee; showing that the sublease agreement between BPI-FSB and
remains a party to the thus, he disassociates himself from
the Domingos was one of assignment of rights. Again, this argument
contract; the original contract of lease;
is faulty. The Domingos had no direct cause of action against Cruz.
(b) the sublessee does not (b) the assignee has a direct action
have any direct action against against the lessor; That is precisely why they filed their action against Villa and BPI-FSB,
the lessor; having privity of contract only with the latter two. It was BPI-FSB that
(c) can be done without the (c) cannot be done unless the lessor filed a third-party complaint against Cruz, which is only
permission of the lessor consents.[15] proper, because BPI-FSB is a party to the lease contract with Cruz.
(unless there be an express
prohibition). Indeed, if the Domingos had a direct action against Cruz, the two
courts below would have simply ordered Cruz to pay the Domingos
directly instead of choosing the more circuitous route of ordering BPI-
 Page 12 of 93

In case of fraud, bad faith, malice or wanton attitude,

FSB and Villa to pay the Domingos and for Cruz to reimburse them for
the obligor shall be responsible for all damages which
the amount they were adjudged to pay. may be reasonably attributed to the non-performance
of the obligation.

Cruz ends his line of reasoning by saying that the final element is
present: that such assignment could not be done without his written For evident absence of bad faith on the part of BPI-FSB, Villa and
consent. Clearly, this final stab at the dark is a round-about argument Cruz, the award of moral and exemplary damages in favor
unworthy of appreciation. It has already been shown that the subject of the Domingos must be, as it is hereby, deleted.
agreement was not an assignment. Had it been one, then a written
consent of Cruz would have been required; but it was a mere WHEREFORE, minus the award of moral and exemplary damages in
sublease, as correctly ruled by the two (2) courts below. favor of the Domingos, the assailed decision of the CA
is AFFIRMED in all aspects.
To us, however, the imposition by the trial court, as affirmed by the No pronouncement as to costs.
CA, of moral and exemplary damages against petitioner BPI-
FSB is rather harsh. As borne by the facts on record, the failure of SO ORDERED.
BPI-FSB and Villa to comply with their obligations under their
respective contracts with the Domingos was not due to any fault of
their own, but to the acts of Cruz in refusing to allow the
CANCIO C. GARCIA
Domingos access to the premises. For his part, it is entirely possible
Associate Justice
that Cruz's actions stemmed from his misinterpretation
of his lease agreementwith BPI-FSB.
WE CONCUR:
Article 201 of the Civil Code provides:

Art. 201. In contracts and quasi-contracts, the

damages for which the obligor who acted in good faith REYNATO S. PUNO
is liable shall be those that are the natural and Associate Justice
probable consequences of the breach of the obligation, Chairperson
and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was
constituted.
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA
Associate Justice Associate Justice
 Page 13 of 93

MENDOZA, J.:

This is a petition for review on certiorari of the decision,[1] dated

August 7, 1998, and resolution,[2] dated February 11, 1999, of the
Court of Appeals affirming with modification the decision of the
ADOLFO S. AZCUNA Regional Trial Court, Branch 172, Valenzuela, enjoining petitioner
Associate Justice from rescinding the contract it had executed covering the sale of a
parcel of land and ordering respondent spouses, as vendees, to pay
petitioner the amount of P54,200.00.
ATTESTATION
The facts are undisputed:
I attest that the conclusions in the above decision were reached in Petitioner Development Bank of the Philippines is the owner of a
consultation before the case was assigned to the writer of the opinion parcel of land in Bulacan (now Lawang Bato, Valenzuela, Metro
of the Courts Division. Manila)[3] as evidenced by TCT No. 13351(202029).On August 8,
1983, it sold the land to respondent spouses Nilo and Esperanza De
La Pea under a Deed of Conditional Sale for P207,000.00.[4] The
Deed of Conditional Sale stipulated:
REYNATO S. PUNO
Associate Justice That the down payment shall be P41,400.00 and the balance of
Chairperson, Second Division P165,600.00 to be paid in six (6) years on the semi-annual
amortization plan at 18% interest per annum. The first amortization
of P23,126.14 shall be due and payable six (6) months from the date
CERTIFICATION of execution of the Deed of Conditional Sale and all subsequent
amortizations shall be due and payable every six (6) months
Pursuant to Article VIII, Section 13 of the Constitution, and the thereafter;
Division Chairperson's Attestation, it is hereby certified that the After the execution of the contract, the spouses De La Pea
conclusions in the above decision were reached in consultation before constructed a house on the said lot and began living there. They also
the case was assigned to the writer of the opinion of the Court. introduced other improvements therein by planting fruit trees and
building a small garage.[5] Pursuant to their contract with the DBP,
respondent spouses De La Pea made the following payments:
ARTEMIO V. PANGANIBAN
Chief Justice OR. NO. DATE AMOUNT
261122 June 22, 1983 P 36,000.00
SECOND DIVISION 355399 August 4, 1983 5,400.00
[G.R. No. 137557. October 30, 2000] 828029 March 22, 1984 6,000.00
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. HON. 862947 June 4, 1984 21,000.00
COURT OF APPEALS and SPOUSES NILO and 1230133 November 15, 1984 3,000.00
ESPERANZA DE LA PEA, respondents.
1365914 Feb. 8, 1985 6,000.00
DECISION 1545272 March 11, 1985 6,000.00
 Page 14 of 93

1549511 April 8, 1985 6,000.00 As the parties failed to reach an agreement, respondent spouses
1549641 May 3, 1985 6,000.00 filed a complaint against petitioner on January 30, 1990 for specific
performance and damages with injunction before the Regional Trial
1714171 July 9, 1985 11,400.00 Court, Valenzuela, Metro Manila.[11] The case was assigned to Branch
1893683 November 29, 1985 11,400.00 172 of the court. The complaint was later amended to include a prayer
for the issuance of a temporary restraining order to enjoin the
2257661 July 3, 1986 10,000.00 defendant from rescinding the sale and selling the land to interested
2349229 September 3, 1986 15,000.00 buyers.[12]
2529065 November 4, 1986 16,000.00 On March 30, 1993, the trial court rendered a decision, the
2830513 August 18, 1987 21,000.00 dispositive portion of which reads:
3342166 October 12, 1988 10,000.00 WHEREFORE, in view of the foregoing, judgment is hereby rendered,
3367039 December 9, 1988 10,000.00 1. Dismissing the complaint, as plaintiffs have still to pay the
3367193 January 10, 1989 10,000.00 defendant the sum of P54,200.00 as interest to be able to
sue for specific performance;
3367500 February 10, 1989 10,000.00
2. The writ of preliminary injunction is hereby declared
3461778 March 9, 1989 18,000.00
permanent;
3532008 April 10, 1989 18,800.00
3. Defendant to pay plaintiffs attorneys fees in the amount
3617235 August 28, 1989 P33,000.00 of P30,000.00; and
TOTAL P289,600.00[6]
4. Defendant to pay the costs of suit.
After making the above payments, Esperanza De La Pea went to
SO ORDERED.[13]
petitioner DBP and asked for the execution of a Deed of Absolute
Sale and for the issuance of the title to the property.[7] On January 5, Petitioner filed an appeal with the Court of Appeals which
1989, however, respondent spouses De La Pea were informed by rendered a decision, dated August 8, 1997, affirming with modification
DBP through a letter that there was still a balance of P221,86.85, the ruling of the trial court. The dispositive portion of its decision
broken down as follows, owing from them: reads:
Principal P 150,765.35 WHEREFORE, with the MODIFICATION that the grant of attorneys
Regular Interest 57,121.13 fees is deleted, the appealed Decision is AFFIRMED.[14]

Additional Interest 9,799.01 In its resolution, dated February 11, 1999, the Court of Appeals
likewise denied petitioners motion for reconsideration.[15]
Penalty Charges 4,182.36
TOTAL P 221,867.85[8] Hence, this petition. Petitioner now contends:

In another letter, dated July 11, 1989, DBP demanded from 1. BOTH THE TRIAL COURT AND THE COURT OF
respondent spouses the payment of this amount, which had increased APPEALS GAVE A MANIFESTLY MISTAKEN AND
to P225,855.86 as of June 30, 1989, otherwise, it would rescind the ABSURD CONSTRUCTION OF THE DEED OF
sale.[9] In reply, respondent spouses, in a letter dated August 11, CONDITIONAL SALE CONTRACT (ANNEX E).
1989, proposed a settlement of the amount through semi-annual 2. THE HONORABLE COURT OF APPEALS GRAVELY
payments over a period of five years.[10] ERRED AND COMMITTED REVERSIBLE ERROR

WHEN IT AFFIRMED THE TRIAL COURTS ISSUANCE
OF THE INJUNCTION AGAINST PETITIONER DBP
PERMANENT.[16]
First. The Court of Appeals held:
A careful reading of the aforequoted provisions reveals that while the
period of payment (six years) and the amount of the first amortization
(P23,126.14) are stipulated, the amount that the vendees should pay
semi-annually is not specified. Since the Deed of Conditional Sale
executed by the parties is a contract of adhesion, i.e., a ready-made
contract to which appellees merely affixed their assent or adhesion,
as the court a quo correctly found, a restrictive construction of the
obscure provision regarding the amount of semi-annual amortizations
should be made against the drafter DBP (PAL vs. Court of Appeals,
255 SCRA 48, BPI Credit vs. Court of Appeals, 204 SCRA 611;
Maersk Lines vs. Court of Appeals, 222 SCRA 108; Angeles vs.
Calasaz, 135 SCRA 323). It is not disputed that appellant Bank was
the party responsible for the preparation of the Deed of Conditional
Sale. Any ambiguity in the contract whose terms are susceptible of
different interpretations must be read against appellant as the party
which drafted the contract (Nacu vs. Court of Appeals, 231 SCRA
237). Thus the contract of the parties must be interpreted, in so far as
the manner and amounts of amortization is concerned, to be at the
option of the vendees, subject only to the condition that the latter
should pay the balance of the purchase price within a period of six
years.[17]
The questioned provision states:
That the down payment shall be P41,400.00 and the balance
of P165,600.00 to be paid in six (6) years on the semi-annual
amortization plan at 18% interest per annum. The first amortization
of P23,126.14 shall be due and payable six (6) months from the date
of execution of the Deed of Conditional Sale and all subsequent
amortizations shall be due and payable every six (6) months
thereafter;[18]
Contrary to the ruling of the Court of Appeals that the above
stipulation fails to specify the monthly amortization, we find no ground
for construing any ambiguity against the DBP as the party responsible
therefor. As stipulated in the Deed of Conditional Sale, the first
amortization was in the amount of P23,126.14 to be paid six months
from the date of the execution of the contract. Subsequent
Page 15 of 93
amortizations were due and payable every six months
thereafter. Such stipulation cannot be construed other than that the
subsequent amortizations should be in the same amount as the first,
to be paid every six months thereafter. There being no other basis for
the payment of the subsequent amortizations, the reasonable
conclusion one can reach is that subsequent payments shall be made
in the same amount as the first payment.
With regard to the remaining monetary obligation of the private
respondents, the question is whether respondent spouses could be
held liable for the interests and penalty charges considering that they
had already paid the full amount of the principal obligation and
petitioner DBP did not object to the late payments made by them.
The contract provided that [t]he first amortization of P23,236.14
shall be due and payable six (6) months from the date of execution of
the Deed of Conditional Sale and all subsequent amortizations shall
be due and payable every six (6) months thereafter. As the contract
was executed on August 8, 1983,[19] the first amortization became due
on February 8, 1994 while the next one fell due on August 8 of that
year. The subsequent amortizations were to be paid every six months
thereafter, i.e., on February 8 and August 8 of the following
years.Respondent spouses failed to comply with the schedule of
payment of amortizations, their payments having been actually made
as follows:
OR. NO. DATE AMOUNT
261122 June 22, 1983 P 36,000.00
355399 August 4, 1983 5,400.00
828029 March 22, 1984 6,000.00
862947 June 4, 1984 21,000.00
1230133 November 15, 1984 3,000.00
1365914 Feb. 8, 1985 6,000.00
1545272 March 11, 1985 6,000.00
1549511 April 8, 1985 6,000.00
1549641 May 3, 1985 6,000.00
1714171 July 9, 1985 11,400.00
1893683 November 29, 1985 11,400.00
2257661 July 3, 1986 10,000.00
 Page 16 of 93

2349229 September 3, 1986 15,000.00

2529065 November 4, 1986 16,000.00 DATE OR NUM- TOTAL PRINCIPAL REGULAR
BER INTEREST
2830513 August 18, 1987 21,000.00
3342166 October 12, 1988 10,000.00
3367039 December 9, 1988 10,000.00 6-22-83 261122 P36,000.00 P36,000.00 ) Down-
3367193 January 10, 1989 10,000.00
3367500 February 10, 1989 10,000.00
3461778 March 9, 1989 18,000.00 8-04-83 355399 5,400.00 5,400.00 ) Payment
3532008 April 10, 1989 18,800.00
3617235 August 28, 1989 P 33,000.00
TOTAL P 289,600.00[20]
3-22-84 828029 6,000.00 - P5,443.75
As private respondents failed to pay on time, they incurred
additional interests and penalty charges which were applied to the
payments they already made, pursuant to their contract which
provides in pertinent parts as follows:
6-04-84 862947 21,000.00 10,409.95 9,460.25
8. That the sale shall be subject to penalty charges and additional
interest as follows:
a) On sale accounts with amortizations (principal past due
and/or regular interest) or portion thereof in arrears for 11-15- 230123 3,000.00 - 1,665.66
thirty (30) days or less: 84
i. Additional interest at the basic sale interest per annum
computed on total amortizations past due, irrespective
of age. 2-08-85 365914 6,000.00 - 4,837.37
ii. No penalty charge.
b) On sale accounts with amortizations or portion thereof in
arrears for more than thirty (30) days:
i. Additional interest as provided above, plus 3-11-85 1545272 6,000.00 - 5,006.03

ii. Penalty charge of 8% per annum.[21]

The payments made by respondent spouses were applied to their
obligation, including interests, in the following manner:[22] 4-08-85 1549510 6,000.00 - 5,103.08
 Page 17 of 93

5-03-85 1549641 6,000.00 - 5,324.97 1-10-89

524.97
3367193 10,000.00
150.06 - - -

7-09-85 1714171 11,400.00 4,428.85 5,514.20 2-10-89

1,133.31
3367500 10,000.00
323.94 - - -

11-29- 1893683 11,000.00 - 6,352.80 3-10-89

3,757.49
3461778 18,000.00
889.91 - - -
85

7-03-86 2257661 10,000.00 - - 4-10-89

7,693.45
3532008 18,800.00
2,306.55 - - 5,786.19

9-03-86 2349229 15,000.00 - 9,640.76 8-28-89

4,519.05
3617235 33,000.00
840.19 - - 12,880.57

11-04-6 2529065 16,000.00 - 11,120.74

3,813.72 P289,600.00
1,065.54 - P56,238.50 P88,136.37

8-18-87 2830513 21,000.00 - - Hence, as of June 30, 1989,

5,664.24 over and above
5,335.76 - their payments in the
total amount of P289,600.00, respondent spouses still owed DBP the
amount of P225,855.86.[23] By August 15, 1990, this amount ballooned
to P260,945.85, broken down as follows:[24]

10-13- 3342166 10,000.00 - - Amount

- of Loan P 207,000.00
10,000.00 -
88 UNMATURED OBLIGATION
Principal Matured (8-8-89)
MATURED OBLIGATION
12-09- 3367039 10,000.00 - - 4,937.64 5,062.36 -
88 Principal P 150,761.50
Advances 0.00
Regular Interest 57,113.73

AI on PPD & RI 37,086.71
RI on Advances 0.00
Penalty Charge 15,983.91
----------------
Sub Total 260,945.85
TOTAL OBLIGATION 260,945.85
======
Daily Interest on UP P 0.00
Daily Interest on PDO P 150.97
The Court of Appeals ruled:
It is to be noted that appellant did not question the tender of payment
by the appellees-vendees in different amounts and on different dates
as aforestated. It did not call attention to the amortizations paid by
vendees as being wrong or improper. Appellant in fact unqualifiedly
accepted the payments. This is tantamount to a waiver on its part to
demand for the correct amount of the amortization, applying the ruling
of the Supreme Court in Ocampo vs. Court of Appeals (233 SCRA
551) that the vendors unqualified acceptance of payments after the
expiration of the period precludes the vendor from raising the issue of
late payments and constitutes a waiver of the period. It was only after
the appellees asked the appellant to execute the final Deed of Sale
that the bank started to demand for payment under its interpretation of
the Deed of Conditional Sale threatening rescission thereof,
otherwise. As the unqualified acceptance of the payments constituted
a waiver of the correctness of the amortizations, the same likewise
constituted a waiver of the ground to rescind under Art. 1592 of the
Civil Code (Ocampo vs. CA, supra).
On the remaining monetary obligation of plaintiffs, we quote with favor
and hereby adopt the following computation of the trial court:
However, considering the terms of the Deed of Conditional Sale that
plaintiffs must pay 18% per annum for the balance of P165,600.00,
that amount of interest is the only amount due from plaintiffs covering
a period of six years, or a total of P178,200.00. As plaintiffs had paid
already a total of P289,600.00, the amount of P165,000.00 must be
deducted therefrom which results to an overpayment of P124,000.00
on the principal. With this amount of P124,000.00 all what plaintiffs
must pay will only be the amount of P54,200.00 as interest due on the
principal amount of P165,000.00.[25]
Page 18 of 93
The reliance on Ocampo v. Court of Appeals[26] is misplaced
insofar as respondent court used the ruling in said case to justify its
position that petitioner waived the correct amount of amortization to
be paid by private respondents. The case of Ocampo did not involve
interests to be paid by the buyer to the seller in case of late
payments. That case involved a judicial rescission made by the seller
because of the first buyers late payments. In that case, the seller
executed a contract of sale in favor of the first buyer, stipulating
therein that payments should be made in six months. The buyer failed
to pay the consideration in full within the period agreed
upon. However, the seller accepted a partial payment of the balance
even if made after the expiration of the period. The buyer had her
adverse claim annotated on the title of the seller. Later, the seller sold
the land to a second buyer who was able to secure a title in his
name. This Court ruled in that case that the seller was precluded from
raising the issue of late payments because his unqualified acceptance
of payments after the expiration of the six-month period was a waiver
of the period. The Court did not rule in that case that acceptance of
late payments was a waiver on the correct amount of amortization due
to the seller. No mention in fact was made by the Court in Ocampo of
the interests to be paid by the buyer.
On the other hand, in this case, the interest and penalty charges
to be paid by private respondents in case of delay in payments were
expressly stipulated in the Conditional Contract of Sale. Under the
Civil Code, parties to a contract can make stipulations therein
provided they are not contrary to law, morals, good customs, public
order or public policy.[27] There being no question as to the validity of
the Conditional Contract of Sale, the DBP correctly applied the
provision on interests and penalty charges when private respondents
failed to pay on the dates agreed upon. No further notice to private
respondents had to be given to them.
The Court of Appeals likewise erred in disregarding paragraph 8
of the contract on interests and penalty charges and concluding that
the unpaid balance of private respondents was merely in the amount
of P54,200.00. In determining the amount of P54,200.00, both the trial
court and respondent Court of Appeals erroneously took into account
only the 18% annual interest on the remaining balance
of P165,000.00:
In computing the liability of private respondents, the trial court
determined what constitutes 18% of the principal amount

of P165,600.00 and then multiplied such amount by six, the number of
years the loan is to be paid, the product of which
was P178,200.00. From the payments made by private respondents
in the amount of P289,600.00, the remaining balance of P165,600.00
was deducted, which resulted in the overpayment of P124,000. This
supposed overpayment of P124,000.00 was then deducted from the
amount of interest, as determined by the trial court, which is
P178,200.00, resulting in the difference of P54,200.00. This final
amount of P54,200.00, decided by the trial court and affirmed by the
Court of Appeals, was the final remaining balance of private
respondents. However, the computation is erroneous. Following the
method adopted by the trial court, the product of 18% of the principal
amount of P165,600.00 (P29,808.00) multiplied by six is
P178,848.00. Hence, from the amount of P178,848.00 must be
subtracted the supposed overpayment of P124,000.00, resulting in
the difference of P54,848.00.[28]
Article 1374 of the Civil Code provides that the various
stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken
jointly. In the same vein, Rule 130, 11 of the Rules on Evidence states
that In the construction of an instrument where there are several
provisions or particulars, such a construction is, if possible, to be
adopted as will give effect to all. Accordingly, the annual interest of
18% must be construed together with paragraph 8 of the Deed of
Conditional Sale imposing additional interests and penalty in case of
arrears in making payments. Hence, upon failure of private
respondents to pay their amortizations on the prescribed dates, they
incurred interests and penalty charges at the stipulated rates. Private
respondents cannot be allowed to renege on their obligation on the
ground that what they had paid was in excess of the principal
obligation in the amount of P207,000.00. Nor can private respondents
demand fulfillment of petitioners obligation to execute a final deed of
sale and deliver the title to the land in their favor when they have not
yet fully paid their principal obligation with the accrued interests
thereto. [N]either the law nor the courts will extricate a party from an
unwise or undesirable contract he or she entered into with all the
required formalities and with full awareness of its consequences.[29]
Be that as it may, we find the interests to be excessive. It is
noteworthy that the interests paid by private respondents, which
amounted to P233,361.50,[30] including therein the regular interest,
additional interest, penalty charges, and interest on advances, is more
Page 19 of 93
than the principal obligation in the amount of P207,000.00, which
private respondents owed. Moreover, the additional interest of 18%
alone amounted to P106,853.45,[31] which is almost half of what was
already paid by private respondents.
Article 1229 of the Civil Code states that Even if there has been
no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable. In Barons Marketing Corp. v. Court of
Appeals,[32] the Court reduced the 25% penalty charge to cover the
attorneys fees and collection fees, which was in addition to the 12%
annual interest, to 10% for being manifestly exorbitant. Likewise,
in Palmares v. Court of Appeals,[33] the Court eliminated altogether the
payment of the penalty charge of 3% per month for being excessive
and unwarranted under the circumstances. It ruled in that case:
Upon the matter of penalty interest, we agree with the Court of
Appeals that the economic impact of the penalty interest of three
percent (3%) per month on total amount due but unpaid should be
equitably reduced. The purpose for which the penalty interest is
intended - that is, to punish the obligor - will have been sufficiently
served by the effects of compounded interest. Under the exceptional
circumstances in the case at bar, e.g., the original amount loaned was
only P15,000.00; partial payment of P8,600.00 was made on due
date; and the heavy (albeit still lawful) regular compensatory interest,
the penalty interest stipulated in the parties promissory note is
iniquitous and unconscionable and may be equitably reduced further
by eliminating such penalty interest altogether.[34]
In the instant case, private respondents made regular payments
to petitioner DBP in compliance with their principal obligation. They
failed only to pay on the dates stipulated in the contract. This indicates
the absence of bad faith on the part of private respondents and their
willingness to comply with the terms of the contract. Moreover, of their
principal obligation in the amount of P207,000.00, private respondents
have already paid P289,600.00 in favor of petitioner. These
circumstances convince us of the necessity to equitably reduce the
interest due to petitioner and we do so by reducing to 10% the
additional interest of 18% per annum computed on total amortizations
past due. The penalty charge of 8% per annum is sufficient to cover
whatever else damages petitioner may have incurred due to private
respondents delay in paying the amortizations, such as attorneys fees
and litigation expenses.

Second. Petitioner contends that private respondents have not
established a clear legal right so as to be entitled to an injunction
because they are still liable to pay additional interests in accordance
with the contract executed between them.[35] The contention has no
merit.
In its order, dated March 8, 1990, the trial court issued a writ of
preliminary injunction to prevent petitioner from rescinding the
contract with private respondents and selling the land to other
interested persons. The trial court stated:
After studying the respective positions of both parties, the Court
believes that plaintiffs are entitled to the writ of preliminary injunction
prayed for under Section 3 Rule 58 of the Revised Rules of
Court. This is because the Court wants to thresh out the issue of
whether or not the Deed of Conditional Sale which plaintiffs contend is
embodied in a contract of adhesion was really made for the
disadvantage, damage and prejudice of plaintiffs; the issue of whether
or not despite the payment of P289,6000.00 by plaintiffs over and
above the stipulated consideration for the lot in the amount of
P207,000.00, still entitles DBP to rescind the said Deed of Conditional
Sale and sell it to other persons. These two issues and other issues
which it believes will come up as the case proceeds, need be resolved
first, before DBP is allowed to proceed with its intended rescission of
the Contract and sale of the lot to other persons, otherwise, in the
event plaintiffs contention stand would be found meritorious and
tenable, the judgment in their favor would become moot and
academic which would ultimately cause irreparable damage to them.
WHEREFORE, in view of the foregoing, let the Writ of Preliminary
Injunction prayed for issue, provided plaintiffs post an injunction bond
in the amount of P200,000.00 conditional that it shall be liable
together with the principals, spouses Nilo Dela Pea and Esperanza
Dela Pea, to defendant, in the event it shall be found out that plaintiffs
are not entitled to the writ of preliminary injunction prayed for.[36]
In its decision, dated March 30, 1993, the trial court declared
permanent the writ of preliminary injunction issued in favor of private
respondents.[37] Its ruling was subsequently affirmed by the Court of
Appeals.[38]
Two requisites are necessary if a preliminary injunction is to
issue, namely: (1) the existence of a right to be protected and (2) the
facts against which the injunction is to be directed are violative of said
right.[39]
Page 20 of 93
As to the question whether private respondents have a right to be
protected, we hold that they do. Injunction may be resorted to for the
preservation or protection of the rights of the complainant and for no
other purpose during the pendency of the principal action.[40] In the
case at bar, private respondents applied for an injunction in order to
prevent petitioner DBP from rescinding the sale and selling the land to
other interested buyers. They are entitled to such writ because
petitioner DBP had no right to rescind the sale and deprive them of
any right of possession over the property.
In the first place, there was no substantial breach in the
performance of private respondents obligation. Article 1191 of the
Civil Code provides that 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. . . .
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.[41]Private respondents made regular payments to
petitioner DBP. Their fault consisted only of their failure to pay the
installments on the dates stipulated in the contract, for which they
were charged additional interests and penalty charges. In the second
place, private respondents stopped their payments to the DBP only
after they had paid P289,600.00 because of their belief that they had
already complied with their obligation to petitioner. Lastly,
notwithstanding private respondents delay in paying the
amortizations, petitioner DBP unqualifiedly accepted the payments
made by them. Hence, petitioner lost its right to rescind the sale on
the basis of such late payments. In an analogous case, we held:
In the instant case, the sellers gave the buyers until May 1979 to pay
the balance of the purchase price. After the latter failed to pay
installments due, the former made no judicial demand for rescission of
the contract nor did they execute any notarial act demanding the
same, as required under Article 1592. Consequently, the buyers could
lawfully make payments even after the May 1979 deadline, as in fact
they paid several installments, an act which cannot but be construed
as a waiver of the right to rescind. When the sellers, instead of
availing of their right to rescind, accepted and received delayed
payments of installments beyond the period stipulated, and the buyers
 Page 21 of 93

were in arrears, the sellers in effect waived and are now estopped court and the Court of Appeals correctly issued the writ of preliminary
from exercising said right to rescind.[42] injunction against petitioner.
Private respondents, therefore, had the right to prevent the WHEREFORE, the decision of the Court of Appeals is hereby
former from rescinding the sale and selling the property in AFFIRMED with the MODIFICATION that the additional interest is
question. The first requisite had been met. reduced to 10% per annum computed on total amortizations past due,
irrespective of age.
As to the second requisite, it was expressly stipulated in the
contract that should rescission take place, private respondents, as the SO ORDERED.
vendees, shall waive whatever right they may have acquired over the
Bellosillo, J., (Chairman), Quisumbing, Buena, and De Leon, Jr.,
property and that all sums of money paid by them shall be considered
and treated as rentals for the use of the property. In addition, private JJ., concur.
respondents shall vacate the property, waiving whatever expenses
they may have incurred in the property in the form of improvement or
under any concept, without any right of reimbursement.[43] Clearly, the
act sought to be enjoined by the injunction was violative of the rights
that private respondents have acquired over the property. What they
stood to lose in case petitioner decides to rescind the sale is material
and substantial. Not only would they forfeit all the payments they have
made in favor of petitioner, they would also lose their right of
possession over the property.
There was indeed an urgent and permanent necessity for the
issuance of the writ to protect private respondents rights over the
THIRD DIVISION
property.
As held in one case:[44] [G.R. No. 106467-68. October 19, 1999]
DOLORES LIGAYA DE MESA, petitioner, vs. THE COURT OF
The controlling reason for the existence of the judicial power to issue
APPEALS, OSSA HOUSE, INC. AND DEVELOPMENT
the writ is that the court may thereby prevent a threatened or
BANK OF THE PHILIPPINES, respondents.
continuous irremediable injury to some of the parties before their
claims can be thoroughly investigated and advisedly adjudicated. It is
to be resorted only when there is a pressing necessity to avoid DECISION
injurious consequences which cannot be remedied under any PURISIMA, J.:
standard of compensation.
Had no injunction been issued petitioner would have rescinded At bar is a Petition for Review on Certiorari under Rule 45 of the
the sale and sold the property to other parties, and private Revised Rules of Court questioning the Decision[1] of the Court of
respondents would have lost what they have paid to petitioner and Appeals[2] dated March 31, 1992 in CA-G.R. Nos. 19145 and 19146,
any right they may have acquired over the property even without the which modified the decision of Branch 138 of the Regional Trial Court
benefit of a trial. The complaint of respondent spouses would have of Makati in Civil Case Nos. 41059 and 42381.
been rendered moot and academic as the property would be in The antecedent facts are as follows:
possession of an innocent purchaser for value and private
respondents would be powerless to recover the same. Such a Petitioner Dolores Ligaya de Mesa owns several parcels of land
situation cannot be countenanced. Hence, we hold that both the trial in Makati, Pasay City, Cavite, and General Santos City[3] which were

mortgaged to the Development Bank of the Philippines (DBP) as
security for a loan she obtained from the bank. Failing to pay her
mortgage debt, all her mortgaged properties were foreclosed and sold
at public auction held on different days. On April 30, 1977, the Makar
property was sold and the corresponding certificate of sale inscribed
on March 10, 1978. On August 25, 1977, the Naic, Cavite property
was sold and the certificate of sale registered on the same day. On
August 30, 1977, the two (2) parcels of land in Makati were sold at
public auction and the certificate of sale was inscribed on November
25, 1977. And on January 12, 1978, the three (3) parcels of land in
Pasay City were also sold and the certificate of sale was recorded on
the same date. In all the said auction sales, DBP was the winning
bidder.
In a letter dated May 29, 1978, petitioner de Mesa requested
DBP that she be allowed to repurchase her foreclosed properties.
On October 23, 1978, Mrs. de Mesa, under a Deed of Sale with
Assumption of Mortgage,[4] sold the foreclosed properties to private
respondent OSSA under the condition that the latter was to assume
the payment of the mortgage debt by the repurchase of all the
properties mortgaged on installment basis, with an initial payment of
P90,000.00 representing 20% of the total obligation.
On October 23, 1978, private respondent OSSA remitted to DBP
the initial payment of P90,000.00, in addition to the amount
of P10,000.00 previously paid to the petitioner.
On February 22, 1979, DBP granted petitioners request to
repurchase the foreclosed properties such that in March 1979 a Deed
of Conditional Sale was executed under which DBP agreed to sell the
said properties to the petitioner for the sum
of P363,408.20, P90,000.00 of which was to be paid as initial
payment and the balance in seven (7) years on a quarterly
amortization plan, with a first quarterly installment of P15,475.17.
Private respondent OSSA paid DBP the first to eight quarterly
installments from April 11, 1979 to May 8, 1991, in the total amount
of P137,595.31, which installment payments were applied to
petitioners obligation with DBP pursuant to the Deed of Conditional
Sale.
On March 11, 1981, petitioner de Mesa notified private
respondent OSSA that she was rescinding the Deed of Sale with
Assumption of Mortgage she executed in favor of the latter on the
Page 22 of 93
ground that OSSA failed to comply with the terms and conditions of
their agreement, particularly the payment of installments to the
Development Bank of the Philippines, the discharge and cancellation
of the mortgage on the property listed in item IV of the first whereas
clause, and the payment of the balance of more or less P45,000.00 to
petitioner, representing the difference between the purchase price of
subject properties and the actual obligation to the DBP.
On April 11, 1981, OSSA offered to pay the amount
of P34,363.08, which is the difference between the purchase price
of P500,000.00 and the mortgage obligation to DBP of P455,636.92,
after deducting the downpayment of P10,000.00 stipulated in said
Deed of Sale with Assumption of Mortgage, but the petitioner refused
to accept such payment. So, on April 28, 1981, OSSA brought a
Complaint for Consignation against the petitioner, docketed as Civil
Case No. 41059 before the then Court of First Instance of Rizal,
Branch XV, and at the same time, deposited the amount
of P34,363.08 with said court.
On August 5, 1981, DBP refused to accept the 9th quarterly
installment paid by OSSA, prompting the latter to file against DBP and
the petitioner, on August 11, 1981, Civil Case No. 42381 for specific
performance and consignation, with the then Court of First Instance of
Pasig, Rizal, depositing in said case the amount of P15,824.92.
On October 21, 1981, upon petitioner de Mesas motion, Civil
Case Nos. 41059 and 42381 were consolidated before the then Court
of First Instance of Rizal, Branch XV, Makati, Metro Manila, now
Regional Trial Court of Makati City , Branch CXXXVIII (138).
In an Order dated July 23, 1982, the lower court allowed OSSA to
deposit with the Court a quo by way of consignation, all future
quarterly installments without need of formal tenders of payment and
service of notices of consignation. Correspondingly and over the
period of time stipulated, OSSA deposited with the lower court the
10th to the 20th installments in the aggregate amount of P172, 562.11.
After trial, the lower court came out with a Decision for the private
respondent OSSA, holding thus:
WHEREFORE, premises considered, judgment is hereby rendered (a)
declaring the consignation made by plaintiff as proper and valid and
ordering defendants Dolores Ligaya de Mesa and Development Bank
of the Philippines to withdraw and receive said payments due them
which plaintiff has consigned with the Court;

(b) Ordering defendant Development Bank of the Philippines to
furnish plaintiff with a statement of payments and balance, if any, still
due from defendant de Mesa after applying all payments already
received, including the amounts placed under consignation;
(c) Upon payment by the plaintiff of the balance if any, still due on the
properties, defendant Development Bank of the Philippines shall
execute a Deed of Absolute Sale in favor of the plaintiff over the
properties subject matter of the Deed of Absolute Sale with
Assumption of Mortgage executed by and between plaintiff and
defendant de Mesa;
(d) Ordering plaintiff to pay defendant de Mesa the difference, if any,
between the agreed purchase price of P500,000.00 and the payments
made to the defendant Development Bank of the Philippines, less
the P10,000.00 down payment already paid and the P34,363.08
consigned with the Court; and
(e) Ordering defendant de Mesa to pay plaintiff the sum of P10,000.00
as attorneys fees.
SO ORDERED.' [5]
The petitioner appealed to the Court of Appeals which handed
down on March 31, 1992, its decision modifying the challenged
decision, as follows:
WHEREFORE, the decision appealed from is hereby MODIFIED:
(a) declaring the consignation made by OSSA as proper and valid as
far as de Mesa is concerned, and ordering de Mesa to receive the
said amount consigned with the court and pay DBP with the said
amount;
(b) ordering DBP to furnish de Mesa with a statement of payments
and the balance, if any, still due from de Mesa after applying all
payments already received, including the amounts paid under
consignation;
(c) ordering de Mesa to furnish OSSA with a copy of the statement of
payments described in the preceding paragraph, and the balance
appearing therein, if any, shall be paid by OSSA for the account of de
Mesa;
(d) ordering DBP to execute a Deed of Absolute Sale in favor of de
Mesa over the properties subject of the Deed of Conditional Sale;
Page 23 of 93
(e) ordering Ossa to pay de Mesa the difference, if any, between the
agreed purchase price of P500,000.00 and the payments made to
DBP, less the P10,000.00 down payment and the P34,363.08
consigned with the court;
(f) ordering de Mesa thereafter, to execute a Deed of Absolute Sale in
favor of OSSA over the properties subject of the Deed of Sale with
assumption of Mortgage; and
(g) ordering de Mesa to pay OSSA the sum of P10,000.00 as and for
attorneys fees.
No pronouncement as to costs.
SO ORDERED.[6]
On May 5, 1992, petitioner interposed a motion for
reconsideration of the aforesaid decision, theorizing that:
I
THIS COURT ERRED WHEN IT HELD THAT WHAT WAS SOLD
UNDER THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE
WERE THE PROPERTIES LISTED THEREIN AND NOT MERELY
THE RIGHT OF REDEMPTION DESPITE THE TESTIMONIES OF
BOTH CONTRACTING PARTIES THAT WHAT SOLD AND BOUGHT
WAS MERELY THE RIGHT OF REDEMPTION.
II
THIS COURT ERRED IN HOLDING THAT DE MESAS REQUEST
TO REPURCHASE THE FORECLOSED PROPERTIES FROM DBP
REDOUNDED TO THE BENEFIT OF OSSA HOUSE, INC.
III
THIS COURT ERRED IN HOLDING DE MESA IN ESTOPPEL.
IV
THIS COURT ERRED IN RULING THAT THE MANDATORY
REQUIREMENTS OF THE CIVIL CODE ON CONSIGNATION CAN
BE WAIVED BY THE TRIAL COURT.[7]
With the denial of her aforestated motion for reconsideration,
petitioner found her way to this Court via the present petition, raising
the issues:
(i) Whether or not the requirements of Articles 1256 to 1261 can be
relaxed or substantially complied with.

(ii) Whether or not the Court can supplant its own reading of an
ambiguous contract for the actual intention of the contracting parties
as testified to in open court and under oath.
(iii) Whether or not petitioner de Mesa can be held in estoppel for the
acts of the DBP.
Article 1370 of the New Civil Code, reads:
"Art. 1370. If the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal meaning of its
stipulation shall control.
xxx
When the words of a contract are plain and readily understood, there
is no room for construction. As the agreement of the parties are
reduced to writing, such agreement is considered as containing all its
terms and there can be, between the parties and their successors-in-
interest, no evidence of the terms of the written agreement other than
the contents of the writing.[8]
In the case under consideration, the terms of the Deed of Sale
with Assumption of Mortgage Debt are clear and leave no doubt as to
what were sold thereunder. It provided as follows:
"WHEREAS, the VENDOR has agreed to sell to the VENDEE (plaintiff
Ossa House, Inc.), and the VENDEE has agreed to purchase form the
VENDOR, all the properties described in Items I, II, and III, of the First
Whereas Clause, for the price and under the terms hereinafter
contained;
NOW, THEREFORE, for and in consideration of the premises and the
sum of TEN THOUSAND PESOS (P10,000.00), the receipt whereof is
hereby acknowledged, and the assumption by the VENDEE of the
total mortgage obligation of the VENDOR has sold, transferred, and
conveyed, and by these presents does sell, transfer and convey, unto
the said VENDEE, its administrators and assigns, free from all liens
and encumbrances except as noted herein, the parcels of land
hereinabove described in Items I, II, and III, together with all the
buildings and improvements thereon;
The VENDEE does hereby assume the payment of the mortgage
obligations by repurchase of all the properties mortgaged on
installment, with an initial payment of P90,000.00 representing
payment 20% of the total obligation; and consequently, the within sale
Page 24 of 93
is subject to the mortgage in favor of the Development Bank of the
Philippines;
Nowhere is it provided in the aforequoted provisions, as the
petitioner insists, that what she sold to respondent OSSA was merely
the right to redeem the mortgaged properties and not the foreclosed
properties themselves. On the contrary, the very words of the contract
reveal that the subject of the sale were all the properties described in
items I, II, III of the First Whereas Clause.
Indeed, the contract under scrutiny is so explicit and
unambiguous that it does not justify any attempt to read into it any
supposed intention of the parties, as the said contract is to be
understood literally, just as they appear on its face.[9]
Petitioner capitalizes on the following prefatory clause of the
contract, to wit:
WHEREAS, the VENDOR (defendant De Mesa) is the registered
owner with a preferential right of redemption of the following
mortgaged properties with the Development Bank of the Philippines,
more particularly described as follows:
However, not the slightest indication can be gleaned from the
abovequoted provision that the subject of the Deed of Sale with
Assumption of Mortgage was petitioners right of redemption. The said
provision merely speaks of the preferential right of the latter to redeem
the real properties involved.
Furthermore, the court discerns no inconsistency between the
contracts recognition of the preferential right of petitioner to redeem
the mortgaged properties, and the sale of the said properties to
respondent OSSA. Petitioner can validly redeem subject properties
and still recognize the sale thereof to the respondent corporation
because nothing therein is contrary to law, morals, good customs,
public order or public policy. Besides, it is a well-settled doctrine that
in the construction of an instrument where there are several
provisions, or particulars, such a construction is, if possible, to be
adopted as will give effect to all.[10] Thus, the recognition of both the
preferential right of the petitioner to redeem the mortgaged properties
and the sale of the same properties to respondent OSSA is in order,
as it would harmonize and give effect to all the provisions of the Deed
of Sale with Assumption of Mortgage under controversy.
 Page 25 of 93

As aptly ruled by the respondent court, the grant by DBP of check. This claim, however, does not accord with the records on
petitioners request to repurchase the mortgaged properties hand. Thus, the Court of Appeals ratiocinated:
redounded to the benefit of respondent OSSA, the sale of the said
The Deed of Sale with Assumption of Mortgage, was for a
properties having been previously agreed upon by the petitioner and
consideration of P500,000.00, from which shall be deducted de
respondent OSSA.
Mesass outstanding obligation, with the DBP pegged as of May 10,
Petitioner contends that she is not estopped from questioning 1978, by the parties themselves, at P455,636.92. This amount
DBPs application to her account of OSSAs initial payment of P455,636.92 owing DBP, is what OSSA agreed to assume. What
of P90,000.00 as well as the first to eight quarterly installments. It remained to be paid de Mesa was P44,636.08, but OSSA made an
bears stressing, however, that the remittance of the said payment was advance payment of P10,000.00, hence the remaining amount
made in implementation of the provisions of their contract. The payable to de Mesa is P34,363.08, which OSSA tendered in cash
belated claim of the petitioner, which was not given credence by the (Exhibits X, BB and CC).[14]
trial court, that she objected to the application by DBP to her account
of all the remittances of OSSA is tainted with bad faith as this is an It is thus beyond cavil that the respondent OSSA tendered the correct
amount, the tender of which was in cash and not by check, as
attempt to renegade against her contract with respondent
theorized by petitioner.
OSSA. Besides, the issue of whether or not petitioner objected is a
question of fact that has already been settled by the trial court which Premises studiedly considered, the Court is of the ineluctable
best performs the matter of assigning values to the testimony of conclusion, and so holds, that the Court of Appeals erred not in
witnesses,[11] and whose findings are accorded great weight especially affirming the decision of the trial court of origin.
when affirmed by the Court of Appeals[12], as in the case at bar.
WHEREFORE, the petition is DENIED and the assailed Decision
Petitioner next argues that there was no notice to her regarding of the Court of Appeals in CA-G.R. Nos. 19145 and 19156 dated
OSSAs consignation of the amounts corresponding to the 12th up to March 31, 1992 AFFIRMED. No pronouncement as to costs.
the 20th quarterly installments. The records, however, show that
several tenders of payment were consistently turned down by the SO ORDERED.
petitioner, so much so that the respondent OSSA found it pointless to Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes,
keep on making formal tenders of payment and serving notices of JJ., concur.
consignation to petitioner. Moreover, in a motion dated May 7, 1987,
OSSA prayed before the lower court that it be allowed to deposit by
way of consignation all the quarterly installments, without making
formal tenders of payment and serving notice of consignation, which
prayer was granted by the trial court in the Order dated July 3,
1982. The motion and the subsequent court order served on the
petitioner in the consignation proceedings sufficiently served as notice
to petitioner of OSSAs willingness to pay the quarterly installments
and the consignation of such payments with the court. For reasons of
equity, the procedural requirements of consignation are deemed
substantially complied with in the present case.[13]
Petitioner also insists that there was no valid tender of payment THIRD DIVISION
because the amount tendered was P34,363.08, not P51,243.26, and
assuming ex gratia argumenti that it was the correct amount, the [G.R. No. 154852. October 21, 2004]
tender thereof was still not valid, the same having been made by

MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION, INC. and
DANILO F. CUNETA, petitioners, vs. ARA SECURITY &
SURVEILLANCE AGENCY, INC., Represented by THERESA
C. MAMAED, President and General Manager, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a contract constitutes the law between the
parties. The mere grant to one party of the right to terminate the
agreement because of the nonpayment of an obligation established
therein does not ipso facto give the other party the same right to end
the contract on the ground of allegedly unsatisfactory service.
Concededly, parties may validly stipulate the unilateral rescission of a
contract.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of
Court, challenging the October 11, 2001 Decision[2] and the August
12, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No.
62431. The assailed Decision disposed as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is
hereby AFFIRMED with MODIFICATION to read as follows:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the [respondent] and as against the [petitioners], ordering the
latter to pay the [respondent] jointly and severally the following
amounts:
1. P591,250.00, as actual damages;
2. P30,000.00, as attorneys fees; and
3. Costs of the suit.[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Facts
Page 26 of 93
The antecedents are summarized by the appellate court as
follows:
In the Complaint filed below, it is alleged that Ara Security and
Surveillance, Inc. [(Ara)] was hired by Multinational Village
Homeowners Association, Inc. [(Multinational)] to provide security
services at the Multinational Village, Paraaque, Metro Manila. Their
agreement was embodied in a document, entitled Contract of Guards
Services dated May 30, 1994. The contract was to take effect for a
period of one (1) year from May 25, 1994 up to May 25, 1995 on a
monthly fee of One Hundred Seven Thousand Five Hundred
(P107,500.00) Pesos, payable every 15th and end of the month
without need of demand. Under the same contract, Ara will provide
Multinational with thirty (30) guards.
Not long after, on August 29, 1994, Danilo F. Cuneta, President of
Multinational, wrote Ara a letter terminating the aforesaid contract
effective 1900 hours of August 31, 1994, having found the guards
services to be unsatisfactory, for repeated violations of the Security
Guards Code of Ethics and Conduct, and total disregard of the
General Order causing loss of confidence in the ability of the security
guards to comply with the terms of the contract. Ara replied requesting
Multinational to reconsider its position, which fell on deaf ears. Thus,
on September 13, 1994, Ara commenced the present suit for
injunction with preliminary injunction, preliminary mandatory injunction
and temporary restraining order with damages.
On September 15, 1994, a temporary restraining order was issued
enjoining Multinational, their agents and all persons acting in their
behalf from enforcing the letter dated August 29, 1994 and [from]
replacing the guards with another agency. The injunctive relief was
then set for hearing.
Summons having been served properly, Multinational submitted an
Answer together with an opposition to the injunction claiming that it
has the right to pre-terminate the contract under paragraph 5 thereof
stating:
5. MODE OF PAYMENT:
For and in consideration of the above services and during the
effectivity of this Contract, the CLIENT shall pay the SECURITY
COMPANY the sum indicated in the hereto attached cost analysis per
month which consideration shall be paid every 15th and end of the
month without need of demand.

The CLIENT hereby agrees that it shall pay interest on accounts
covered by billings received by the CLIENT and unpaid for thirty (30)
days or more at the rate of 24 per cent per annum. This shall be
without prejedice (sic) to the right of the SECURITY COMPANY to
terminate this contract immediately, for failure of CLIENT to pay the
aforestated consideration in accordance with its terms without notice.
The SECURITY COMPANY shall be entitled to an automatic
adjustment of its stipulated contract price in (sic) event that the
minimum wage increase[s] (sic) or in favor of the guards are
promulgated by law, executive order, decree or wage order
subsequent to the execution of this contract. Said adjustments shall
be equivalent to the amount of increase in the minimum wage of the
amount benefits promulgated or both as the case may be.
Billing shall be every fifteen (15) days. After three (3) months of
satisfactory performance, the parties may negotiate for the
extension of this contract and other matters that might be
advantageous to both parties.
Meantime, after hearing the trial court denied the prayer for the
issuance of a writ of preliminary injunction on February 16, 1995.
Finally, on December 14, 1998, the court a quo rendered its
decision.[5]
Ruling in favor of Ara, the trial court ordered Multinational to pay
the following:
1. P701,137.50 as actual damages
2. P200,000.00 as exemplary damages
3. P50,000.00 as attorneys fees
4. P20,000.00 as and for costs of suit and expenses of
litigation
Unsatisfied, petitioners appealed to the CA.
Ruling of the Court of Appeals
The CA held that petitioners had breached their Contract when
they pre-terminated it on the basis of paragraph 5 thereof. According
Page 27 of 93
to the appellate court, the said provision did not provide for a pre-
termination option, but was a mere superfluity with no clear meaning.
Furthermore, the CA ruled that petitioners had no good and valid
ground to pre-terminate the Contract, because the documentary
evidence[6] they had presented was hearsay and of no probative
value.[7]
Consequently, the appellate court affirmed the lower courts
findings, but reduced the award of actual damages to P591,250
representing payment for services rendered for five and a half months
at P107,500 per month. It also deleted the award of exemplary
damages, saying that respondent had failed to present evidence
justifying the grant thereof.[8]
Hence, this Petition.[9]
The Issues
In their Memorandum, petitioners raise the following issues for
our consideration:
1. Whether or not the lower erred in finding respondents position as
the more acceptable interpretation of the contract in question that the
contract cannot be terminated even after three months of
unsatisfactory performance.
2. Whether or not the lower court erred in ruling that petitioners failed
to establish that the termination of the contract was for legal cause.
3. Whether or not the lower court erred in declaring that [petitioners]
committed breach of contract.[10]
The issue is simply whether the pre-termination of the Contract
was valid.
The Courts Ruling
The Petition has no merit.
Main Issue:
Interpretation of Paragraph 5

The last portion of paragraph 5 of the Contract of Guard Services
between petitioners and respondent provides:
Billing shall be every fifteen (15) days. After three (3) months of
satisfactory performance, the parties may negotiate for the extension
of this contract and other matters that might be advantageous to both
parties.[11] (Italics supplied)
Petitioners argue that the above stipulation in the Contract of
Guard Services is a resolutory condition. They allege that under this
paragraph, the Contract can no longer be enforced after the three-
month period if the guards performance is unsatisfactory.[12]
They further theorize that since respondent was given the option
to end the Contract upon their failure to pay in accordance with the
specified terms, they are likewise entitled to the option of terminating
the agreement on the basis of allegedly unsatisfactory
performance.[13] They add that it would be unjust to compel
respondent to continue with this Contract despite the security guards
ineptitude, which poses a danger to the lives and properties of the
home owners.[14]
Petitioners contentions are not convincing. A reading of
paragraph 5 yields the simple and natural meaning that the parties
may extend the Contracts life upon mutual agreement. The appellate
court was correct in holding that the provision was a mere superfluity.
The parties need not provide that they may extend the Contract
should they mutually agree, because they may do so with or without
this benign provision. Although paragraph 5 mentions extensions, it is
ominously and significantly silent on the matter of pre-termination.
True, parties may validly provide for resolutory conditions and
unilateral rescission in their contract. However, paragraph 5 is not a
resolutory condition, as it is not one that constitutes a future and
uncertain event[,] upon the happening or fulfillment of which rights
which are already acquired by virtue of the obligation are extinguished
or lost.[15]
Under paragraph 5, the clause satisfactory performance is
expressly and clearly a consideration for extending the life of the
Contract. However, in the same paragraph, there is no mention of the
effect of unsatisfactory performance.
In the absence of any stipulation or provision of law on the
matter, petitioners cannot be deemed to have the contractual right to
Page 28 of 93
pre-terminate the Contract unilaterally as of August 31, 1994, on the
ground of the allegedly unsatisfactory performance of the security
guards. Such interpretation is a direct contravention of paragraph 12,
which clearly states that the term of the Contract shall be one year:
12. TERM OF CONTRACT:
This Contract shall take effect on May 25, 1994 and shall be for a
period of One (1) Year from said date. Thereafter, it shall be deemed
renewed for the same period unless either party notifies the other in
writing not later than one (1) month before the expiry of its intent not
to renew.
xxxxxxxxx
14. Either party may terminate this contract for legal cause by written
notice given to the other party not later than thirty (30) days prior to
the expiry date.[16]
The cases -- Pamintuan v. CA[17] and Viray v. Intermediate
Appellate Court[18] -- cited by petitioners to support the alleged
existence of a resolutory condition are not applicable to the present
controversy. In the cited Decisions, the obligations under the lease
Contracts as well as the consequences of the lessees failure to
comply with those obligations -- particularly, rescission and the
landlords taking possession of the leased premises -- were clearly set
forth in the law and in the Contracts, respectively. Thus, it was clearly
discernible in those cases that the failure to comply with the
contractual obligations constituted a resolutory condition.
The foregoing situation does not obtain in the present case. The
consequence of unsatisfactory performance is not specified in the
Contract of Guard Services. There is no stipulation permitting
petitioners to terminate the Contract upon an unsatisfactory
performance of the security guards. Paragraph 5 cannot be deemed
to be a resolutory condition.
The contention of petitioners that the grant to respondent of the
option to terminate gives them the same right is a non sequitur. As
they themselves argue, parties may validly provide
for unilateral rescission in a contract.
Next, petitioners contend that the court a quo did not comply with
Section 11 of Rule 130 of the Rules of Court, because it failed to give
effect to paragraph 5. They further invoke Section 12[19] of the same
Rule, arguing that relative to the provision of the Contract on the
 Page 29 of 93

duration of its effectivity, which is one year, paragraph 5 is a particular breaches as are so substantial and fundamental as to defeat the
provision.[20] They conclude that since the two provisions are object of the parties in entering into the agreement.[22] Petitioners
inconsistent, paragraph 5 -- being the particular provision -- should failed to produce evidence of any substantial and fundamental breach
prevail. that would warrant the rescission of the Contract.
Section 11 of Rule 130 of the Rules of Court states that [i]n the WHEREFORE, the Petition is DENIED and the assailed
construction of an instrument where there are several provisions or Decision AFFIRMED. Costs against petitioners.
particulars, such a construction is, if possible, to be adopted as will
SO ORDERED.
give effect to all. Contrary to petitioners contention, paragraph 5 is not
inconsistent with paragraph 12. More important, the former does not Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia,
in any way deal with the termination of the Contract. Neither does it JJ., concur.
provide for a right to rescind.
At this point, we stress that the right to rescind is implied in
reciprocal obligations, as provided for in Article 1191 of the Civil Code,
which states:
ART. 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.
x x x x x x x x x.

Therefore, absent any provision providing for a right to rescind,
the parties may nevertheless rescind the contract should the other
obligor fail to comply with its obligations.
As correctly held by the CA in the instant case, petitioners failed
to produce evidence of the alleged breach of obligation by
respondent. The investigation made by Petitioner Danilo F. Cuneta
cannot stand as competent evidence. The Letter-Complaints
presented in court were neither identified, nor were their contents
affirmed, by their authors. Therefore, insofar as they purport to prove
that the security guards were remiss in their duties, the Letter-
Complaints are hearsay and inadmissible evidence.[21] In Desierto v.
Estrada, we held as follows:
Evidence is called hearsay when its probative force depends, in whole
or in part, on the competency and credibility of some persons other
than the witness by whom it is sought to produce it. There are three
reasons for excluding hearsay evidence: (1) absence of cross
examination; (2) absence of demeanor evidence, and (3) absence of
the oath.
Finally, it is a settled principle of law that rescission will not be
permitted for a slight or casual breach of a contract, but only for such

Sec. 12. According to intention; general and particular provisions
SECOND DIVISION
G.R. No.179326 July 31, 2013
LUCIANO P. CANEDO,* Petitioner,
vs.
KAMPILAN SECURITY AND DETECTIVE AGENCY, INC. and
RAMONCITO L. ARQUIZA, Respondents.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the Decision2 dated
January 25, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.
01530 which denied the Petition for Certiorari3 filed by Luciano P.
Cañedo (petitioner) and affirmed the Resolutions dated October 20,
20054 and December 15, 20055 of the National Labor Relations
Commission (NLRC) which declared that petitioner was not illegally
dismissed by respondents Kampilan Security and Detective Agency,
Inc. (respondent agency) and its owner and General Manager, Engr.
Ramoncito L. Arquiza (respondent Arquiza). Likewise assailed is the
CA's Resolution July 25,2007 which denied petitioner's Motion for
Reconsideration.7
Factual Antecedents
Page 30 of 93
Respondent agency hired petitioner as security guard on November
20, 1996 and assigned him at the Naga Power Barge 102 of the
National Power Corporation (NPC) at Sigpit Load Ends, Lutopan,
Toledo City.
For not wearing proper uniform while on duty as per report of Allan
Alfafara (Alfafara) of the NPC, petitioner was suspended for a month
effective May 8, 2003.8
In a letter9 dated June 2, 2003, NPC informed respondent agency that
it was no longer interested in petitioner’s services and thus requested
for his replacement.
On June 17, 2003, petitioner requested respondent Arquiza to issue a
certification in connection with his intended retirement effective that
month.10 Thus, respondent Arquiza issued the Certification11 dated
June 25, 2003 (June 25, 2003 Certification):
CERTIFICATION
TO WHOM IT MAY CONCERN:
This is to certify that Mr. Luciano Paragoso Cañedo whose address is
at Lower Bunga, Toledo City was employed by this agency from
November 20, 1996 up to May 7, 2003 as Security Guard assigned at
NPC, Sigpit Substation. He was terminated from his employment by
this agency on May 7, 2003 as per client’s request.
Done this 25th day of June 2003 at Cebu City, Philippines.
(Signed)
RAMONCITO L. ARQUIZA
General Manager
KSDAI
Five days later, petitioner filed before the Labor Arbiter a Complaint
for illegal dismissal, illegal suspension and non-payment of monetary
benefits against respondents.
Proceedings before the Labor Arbiter
Petitioner alleged that his suspension was without valid ground and
effected without due process, hence, illegal. He claimed that Alfafara’s
report about his non-wearing of uniform was fabricated and ill-
motivated because he declined Alfafara’s invitation to convert to their
religion. In fact, the roving inspector who checked the attendance of
guards on duty does not have any report showing his commission of
any infraction. Petitioner averred that he was suspended without
being given the chance to explain his side.

Petitioner narrated that when he reported back to work after his one-
month suspension, he was surprised to find out that he was already
terminated from the service effective May 7, 2003 as shown by the
June 25, 2003 Certification issued to him by respondent Arquiza. He
then claimed to have been underpaid for services rendered and that
he is entitled to holiday pay, rest day pay, night shift differential,
service incentive leave pay, 13th month pay, retirement benefits,
damages and attorney’s fees.
Respondents, on the other hand, countered that petitioner was not
dismissed from service. In fact, despite petitioner’s propensity for not
wearing uniform while on duty as shown by the entries12 in the NPC
Sigpit Station logbook and after a series of infractions, they still opted
to retain his services. However, in view of NPC’s request for his
replacement, respondents had to pull him out from NPC. But instead
of waiting for a new posting, petitioner filed a complaint against them.
Respondents also denied petitioner’s entitlement to his monetary
claims and averred that he has an outstanding cash advance of
₱10,000.00 as evidenced by a cash voucher13 duly executed by him.
Based on the June 25, 2003 Certification, the Labor Arbiter held that
petitioner was illegally dismissed from the service. He also found
petitioner’s prior suspension illegal and granted him all his monetary
claims except for underpayment of wages. The dispositive portion of
the Labor Arbiter’s Decision14 dated November 11, 2003 reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering respondent Kampilan Security and Detective Agency, Inc. to
pay complainant Luciano Cañedo as follows:
1. Separation pay - ₱43,498.00
2. Backwages - ₱32,026.00
3. Holiday pay - P 7,170.00
4. Service incentive leave pay - P 3,585.00
Total award - ₱86,279.00
The other claims and the case against respondent Ramoncito Arquiza
are dismissed for lack of merit.
SO ORDERED.15
Proceedings before the National Labor Relations Commission
Respondents filed a Memorandum of Appeal16 before the NLRC
arguing that the Labor Arbiter erred in concluding that petitioner was
Page 31 of 93
illegally dismissed based solely on the June 25, 2003 Certification.
They contended that the said Certification is not sufficient to establish
petitioner’s dismissal as such fact must be proven by direct evidence
of actual dismissal. They also averred that the word "terminated" as
used in the said Certification actually meant "pulled-out" and this can
be construed from the following phrase "as per client’s request." This
position is strengthened by petitioner’s June 17, 2003 letter requesting
for a Certification in connection with his intended retirement. At any
rate, respondents explained that the subject Certification was only
issued upon petitioner’s request in order to facilitate his application for
entitlement to retirement benefits with the Social Security System
(SSS). And the word "terminated", assuming its literal meaning, was
only used in order to serve the purpose of the same, that is, to show
SSS that petitioner is no longer in service.
Petitioner in his Appellee’s Memorandum17 regarded respondents’
averments as clear afterthoughts and prayed for the modification of
the Labor Arbiter’s awards to include salary differential, night shift
differential, rest day pay, 13th month pay and retirement benefits.
In a Decision18 dated June 28, 2005, the NLRC initially affirmed with
modification the Labor Arbiter’s Decision, viz:
WHEREFORE, premises considered, the Decision of the Labor
Arbiter is hereby AFFIRMED with a modification in that complainant’s
outstanding cash advance in the amount of ₱10,000.00 shall be
deducted from the monetary award herein.
It is understood that complainant’s backwages and separation pay
shall be computed until finality of the decision.
SO ORDERED.19
However, in resolving respondents’ Motion for Reconsideration,20 the
NLRC reversed itself and set aside its earlier Decision. In a
Resolution21 dated October 20, 2005, it held that the June 25, 2003
Certification should be read in conjunction with the June 2, 2003 letter
of NPC requesting for petitioner’s relief from his post. The NLRC
noted that it is common practice for clients of security agencies to
demand replacement of any security guard assigned to them but
cannot demand their dismissal from the employ of the security
agency. And from the time petitioner was relieved from his NPC
posting, he was considered on a floating status which can last for a
maximum period of six months. Moreover, the NLRC opined that
petitioner’s intention to retire as shown by his June 17, 2003 letter
negated his claim of termination. Nevertheless, it maintained that

petitioner was suspended without being notified of his infraction. Thus,
he should be paid his salary during the period of his illegal
suspension. The dispositive portion of the said Resolution reads:
WHEREFORE, premises considered, our Decision promulgated on
June 28, 2005 is hereby SET ASIDE. A NEW DECISION is entered
declaring that there was no dismissal whatsoever of complainant.
Respondent Kampilan Security and Detective Agency is hereby
ordered to pay complainant the following:
1. Salary 05/08/03-06/07/03 ---------------------- 6. The terms of the certification state₱ merely the length of
2. Holiday Pay --------------------------------------- 1996 up to May 7, 2003, not the period7,170.00
3. Service Incentive Leave Pay -------------------- 3,585.00
Less: Complainant’s Cash Advance - 10,000.00 to dismissal.
NET AMOUNT entitlement to his salary during the period P of6,790.62
The grant of backwages and separation pay are hereby DELETED.
SO ORDERED.22
Petitioner filed an Urgent Motion for Reconsideration,23 which was,
however, denied in a Resolution24 dated December 15, 2005. Hence,
he sought recourse to the CA via a Petition for Certiorari.25
Ruling of the Court of Appeals
The CA, in a Decision26 dated January 25, 2007, denied the Petition
after it found no grave abuse of discretion on the part of the NLRC. It
noted the following circumstances which, to it, negated petitioner’s
submission that he was dismissed from the service:
1. Contrary to what is stated in the certification dated June 25,
2003 that petitioner was dismissed on May 8, 2003, private
respondent’s memorandum of even date merely suspended
petitioner for one month.
2. Contrary to what is stated in the certification, NPC did not
request that petitioner be dismissed from employment but
merely that he be replaced by another security guard.
3. After the expiration of his suspension on June 8, 2003,
petitioner could not but labor under the belief that he has not
Page 32 of 93
been dismissed otherwise he would no longer declare that he
wanted to retire at the end of the month.
4. No dismissal order was issued by private respondent after
the end of the suspension period.
5. After receipt of the certification, petitioner could have, but
did not, sought clarification from private respondent as to
whether or not he was actually terminated. His omission
renders doubtful the validity of his claim.
6,035.62
assignment of petitioner in NPC which is from November 20,
of his employment with
private respondent."27
In view of the above, the CA concluded that petitioner was merely
placed on temporary "off-detail" which is not equivalent
However, like the NLRC, the CA found that petitioner was deprived of
₱16,790.62
due process when he was suspended and thus affirmed his
suspension. It also
affirmed the awards for holiday pay and service incentive leave pay as
well as the deduction therefrom of ₱10,000.00 representing
petitioner’s cash advance. The dispositive portion of the Decision
reads:
WHEREFORE, premises considered, this petition is DENIED. The
Resolutions of the NLRC dated October 20, 2005 and December 15,
2005, respectively, are hereby AFFIRMED.
SO ORDERED.28
As petitioner’s Motion for Reconsideration29 was likewise denied by
the CA in its Resolution30 dated July 25, 2007, he now comes to this
Court through this Petition for Review on Certiorari.
Issues
Petitioner presents the following grounds for review:
I.
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS
REVERSIBLE ERROR IN LAW WHEN IT AFFIRMED THE
RESOLUTION OF THE HONORABLE PUBLIC RESPONDENT AND
CONFORMED TO THE INTERPRETATION OF THE WORD
TERMINATED AS MERE PULL-OUT AND TOTALLY
DISREGARDED THE [PIECES OF EVIDENCE] SUBMITTED BY
PETITIONER, AS WELL AS THE LAWS AND SETTLED

JURISPRUDENCE. SAID FINDINGS OF FACTS HAVE NO BASIS IN
FACT AND IN LAW. THUS, THE QUESTIONED DECISION MUST
BE NULLIFIED AND SET ASIDE.
II.
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS
REVERSIBLE ERROR OF SUBSTANCE IN AFFIRMING THE
RESOLUTION OF THE HONORABLE PUBLIC RESPONDENT BY
TOTALLY DISREGARDING THE PIECES OF EVIDENCE
SUBMITTED BY PETITIONER SHOWING THAT PETITIONER WAS
INDEED TERMINATED FROM SERVICE, WHICH PIECES OF
EVIDENCE ARE NOT REFUTED BY RESPONDENTS AND IN
MAKING CONCLUSIONS WHICH ARE NOT SUPPORTED BY ANY
EVIDENCE AND CONTRARY TO LAW AND SETTLED
JURISPRUDENCE IN DELETING THE AWARD OF BACKWAGES
AND SEPARATION PAY. THE SAID FINDINGS OF FACTS NOT
BEING SUPPORTED BY AN IOTA OF EVIDENCE IS THEREFORE,
DEVOID OF ANY BASIS IN FACT AND LAW.31
Petitioner submits that the CA’s findings are erroneous and
inconsistent with the evidence on record. He insists that the June 25,
2003 Certification issued by respondent Arquiza states in unequivocal
language that he was terminated from service. Thus, there is no need
to interpret the word "terminated" in the Certification as "pulled out."
Besides, any ambiguity in the construction of an instrument should not
favor the one who caused it and any obscurity should be resolved in
favor of labor. Moreover, he was neither given any new assignment
nor called to work after his suspension until the filing of this Petition.
He asks for separation pay and backwages for being illegally
dismissed without valid cause and due process. He also prays that he
be given his salary differentials, rest day pay, night shift differential,
13th month pay and retirement benefits on top of the holiday pay and
service incentive leave pay already awarded in the assailed CA
Decision and questions the authenticity of the cash voucher showing
his outstanding cash advance of ₱10,000.00.
Our Ruling
We deny the Petition.
The primordial issue in this Petition is whether petitioner was
dismissed from service. At the outset, the Court notes that this is a
question of fact which cannot be raised in a Petition for Review on
Certiorari under Rule 45.32 However, when there is no uniformity in
the factual findings of the tribunals below, as in this case, this Court is
Page 33 of 93
resolved to again examine the records as well as the evidence
presented to determine which findings conform with the evidentiary
facts.33
In illegal dismissal cases, "while the employer bears the burden x x x
to prove that the termination was for a valid or authorized cause, the
employee must first establish by substantial evidence the fact of
dismissal from service."34The burden of proving the allegations rests
upon the party alleging and the proof must be clear, positive and
convincing.35 Thus, in this case, it is incumbent upon petitioner to
prove his claim of dismissal.
Petitioner relies on the word "terminated" as used in the June 25,
2003 Certification issued him by respondent Arquiza and argues that
the same is a clear indication that he was dismissed from service. We
are, however, not persuaded. Petitioner cannot simply rely on this
piece of document since the fact of dismissal must be evidenced by
positive and overt acts of an employer indicating an intention to
dismiss.36 Here, aside from this single document, petitioner proffered
no other evidence showing that he was dismissed from employment.
While it is true that he was not allowed to report for work after the
period of his suspension expired, the same was due to NPC’s request
for his replacement as NPC was no longer interested in his services.
And as correctly argued by respondents, petitioner from that point
onward is not considered dismissed but merely on a floating status.
"Such a ‘floating status’ is lawful and not unusual for security guards
employed in security agencies as their assignments primarily depend
on the contracts entered into by the agency with third parties."37
Countering such status, petitioner contends that even at present, he is
still not given any new duties.1âwphi1 A floating status can ripen into
constructive dismissal only when it goes beyond the six-month
maximum period allowed by law.38 In this case, petitioner filed the
Complaint for illegal dismissal even before the lapse of the six-month
period. Hence, his claim of illegal dismissal lacks basis. Moreover and
as aptly observed by the NLRC, it was in fact petitioner who intended
to terminate his relationship with respondents through his planned
retirement. This is further bolstered by his prayer in his Complaint
where he sought for separation pay and not for reinstatement.
At any rate, upon a close reading of the June 25, 2003 Certification,
this Court is of the opinion that petitioner was not dismissed from
service. The import of the said Certification is that petitioner was
assigned in NPC from November 20, 1996 up to May 7, 2003 and that
on May 7, 2003, respondents terminated his assignment to NPC upon
 Page 34 of 93

the latter’s request. This is the correct interpretation based on the true I attest that the conclusions in the above Decision had been reached
intention of the parties as shown by their contemporaneous and in consultation before the case was assigned to the writer of the
subsequent acts and the other evidence on record as discussed opinion of the Court’s Division.
above. Section 12 of Rule 130 of the Rules of Court states that in the ANTONIO T. CARPIO
construction and interpretation of a document, the intention of the Associate Justice
parties must be pursued. Section 13 of the same Rule further instructs Chairperson
that the circumstances under which a document was made may be
shown in order to ascertain the correct interpretation of a document. CERTIFICATION
To recap, petitioner was suspended effective May 8, 2003. On June 2, Pursuant to Section 13, Article VIII of the Constitution and the Division
2003, NPC requested for his replacement. He then intimated his Chairperson's Attestation, I certify that the conclusions in the above
desire to retire from service on June 17, 2003. These circumstances Decision had been reached in consultation before the case was
negate petitioner’s claim that he was terminated on May 7, 2003. assigned to the writer of the opinion of the Court's Division.
Clearly, there is no dismissal to speak of in this case. MARIA LOURDES P. A. SERENO
With respect to the additional benefits prayed for by the petitioner, Chief Justice
suffice it to state that this Court cannot grant him such reliefs. "It is
settled that a non-appellant cannot, on appeal, seek an affirmative
relief."39 It was held that "a party cannot impugn the correctness of a
judgment not appealed from by him, and while he may make counter-
assignment of errors, he can do so only to sustain the judgment on
other grounds but not to seek modification or reversal thereof for in
such a case he must appeal."40
WHEREFORE, the Petition is DENIED. The Decision dated January
25, 2007 and the Resolution dated July 25, 2007 of the Court of
Appeals in CA-G.R. SP No. 01530 are AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
 Page 35 of 93

PUNO, J.,
Chairperson,
- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.

PRIVATE MANAGEMENT OFFICE Promulgated:

(formerly, ASSET PRIVATIZATION
TRUST),
Respondent. November 16, 2006
x------------------------------------------------x

DECISION

PUNO, J.:

At bar is a Petition for Review on Certiorari of the Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 49227 dated
January 30, 2003 and July 31, 2003, respectively, reversing the
decision of the Regional Trial Court of Makati, Branch 62, in Civil
Case No. 93-2756 dated August 10, 1994.

The bare facts are stated in the Joint Motion and

[1]
Stipulation dated March 11, 1994, viz.:

COME NOW the parties, through the

undersigned counsel, to this Honorable Court
Sec. 14. Peculiar signification of terms respectfully make the following agreed statement of
facts and issues:

SECOND DIVISION 1. The parties hereto hereby

JOSE R. MORENO, JR., G.R. No. 159373 confirm the allegations contained in
Petitioner, paragraphs 1, 2, 3 and 4 of the
Complaint, to wit:
Present:

1. Plaintiff is of
legal age, with residence
at No. 700
Gen. Malvar St., Malate,
Manila; while defendant
is a juridical entity with
powers to sue and be
sued under Proclamation
No. 50 with offices at the
10th floor,
BA Lepanto Building,
8747 Paseo de Roxas, M
akati, Metro Manila,
where it may be served
with summons, thru its
Trustees.
2. The subject-
matter (sic) of this
complaint is the J.
Moreno Building (formerly
known as
the North Davao Mining B
uilding) or more
specifically, the 2nd, 3rd,
4th, 5th and 6th floors of
the building.
3. Plaintiff is the
owner of the Ground
Floor, the 7th Floor and
the Penthouse of the J.
Moreno Building and the
lot on which it stands.
4. Defendant is
the owner of the 2nd, 3rd,
4th, 5th and 6th floors of
the building, the subject-
matter (sic) of this suit.
which were admitted in the Answer
dated October 29, 1993;
Page 36 of 93
2. On February 13, 1993, the
defendant called for a conference for the
purpose of discussing plaintiffs right of
first refusal over the floors of the
building owned by defendant. At said
meeting, defendant informed plaintiff
that the proposed purchase price for
said floors was TWENTY[-]ONE
MILLION PESOS (P21,000,000.00);
3. On February 22, 1993,
defendant, in a letter signed by its
Trustee, Juan W. Moran, informed
plaintiff thru Atty. Jose Feria, Jr., that the
Board of Trustees (BOT) of APT is in
agreement that Mr. Jose Moreno, Jr.
has the right of first refusal and
requested plaintiff to deposit 10% of the
suggested indicative price of P21.0
million on or before February 26, 1993
which letter is attached hereto as Annex
A and made an integral part of this
pleading;
4. Plaintiff paid the P2.1 million
on February 26, 1993. A copy of the
Official Receipt issued by defendant to
plaintiff is attached hereto as Annex B
and made an integral part of this
pleading;
5. Then on March 12, 1993,
defendant wrote plaintiff that its Legal
Department has questioned the basis
for the computation of the indicative
price for the said floors. A copy of the
letter is attached hereto as Annex C and
made an integral part of this pleading;
6. On April 2, 1993, defendant
wrote plaintiff that the APT BOT has
tentatively agreed on a settlement price

of P42,274,702.17 for the said floors. A
copy of this communication is attached
hereto as Annex D and made an integral
part hereof;
7. The questions to be resolved
by this Honorable Court are:
7.01. Whether or
not there was a perfected
contract of sale over the
said floors for the amount
of P21.0 million, which
will give rise to a right on
the part of the plaintiff to
demand that the said
floors be sold to him for
said amount;
7.02. Assuming
that there was a On August 10, 1994, the trial court ruled in favor of
perfected contract,
whether or not defendant
can be bound by the
price of P21.0 million;
8. Both parties hereto hereby waive their
respective claims for damages,
attorneys fees and costs;
9. Rule 30 of the Revised Rules of Court
provides that:
SEC. 2. Agreed
statement of facts. The
parties to any action may
agree, in writing, upon
the facts involved in the
litigation, and require the
judgment of the court
upon the facts agreed
Page 37 of 93
upon, without the
introduction of evidence.
10. Both parties have agreed to submit
this stipulation and to request that a
decision of this Honorable Court be
rendered on the basis of the foregoing
stipulation of facts and issues, and after
both parties have submitted their
respective memoranda.
PRAYER
WHEREFORE, it is respectfully prayed that judgment
be rendered on the basis of the agreed stipulation of
facts and issues, without the introduction of evidence in
accordance with Section 2, Rule 30 of the Revised
Rules of Court, and after the submission of the parties
of their respective Memoranda.
xxx
petitioner Moreno, viz.:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendant, ordering defendant to
sell the 2nd, 3rd, 4th, 5th and 6th floors of the J. Moreno
Building to plaintiff at the price of TWENTY[-]ONE
MILLION (P21,000,000.00) PESOS; and ordering
defendant to endorse the transaction to the Committee
on Privatization, without costs.[2]
Respondent filed a Motion for
[3]
Reconsideration. On November 16, 1994, the trial court denied the
motion for lack of merit.[4]
Respondent appealed with the Court of Appeals. From the
time respondent filed its Notice of Appeal with the trial court, the
parties submitted numerous motions, including petitioners Motion to
 Page 38 of 93

WITH LAW AND THE APPLICABLE DECISIONS OF

Dismiss[5] dated July 8, 1996. Petitioner moved that the case be
THE HONORABLE COURT CONSIDERING THAT:
dismissed due to the failure of respondent to file its brief within the
reglementary period. I

GIVEN THE UNDISPUTED FACTS OF

On December 18, 1997, the Eighth Division of the appellate THE INSTANT CASE, IT IS CLEAR
THAT THERE WAS A PERFECTED,
court granted[6] the motion to dismiss and denied[7] respondents
VALID AND BINDING CONTRACT
motion for reconsideration. Respondent then filed a Petition for OF SALEBETWEEN
Review on Certiorari[8] with this Court to reverse the dismissal of the PETITIONER MORENO AND
RESPONDENT APT (NOW PMO) WITH
appeal. On July 5, 1999, this Court, through a Resolution[9] of the RESPECT TO THE SUBJECT
Third Division, reversed the resolution dismissing the appeal on the PROPERTY.
ground that the appeal raises substantial issues justifying a review of II
the case on the merits.
THE PRINCIPLE OF ESTOPPEL
SHOULD HAVE BEEN APPLIED BY
On January 30, 2003, the appellate court found that there was THE COURT OF APPEALS TO HOLD
no perfected contract of sale over the subject floors and reversed the RESPONDENT APT (NOW PMO) TO
ITS CONTRACT OF SALE WITH
ruling of the trial court, viz.: PETITIONER MORENO CONSIDERIN
G THAT:
WHEREFORE, the appeal is hereby
GRANTED. The assailed decision of the Regional Trial A. THERE IS NOTHING
Court of Makati, Metro Manila, Branch 62, rendered in IRREGULAR OR
Civil Case No. 93-2756 is hereby REVERSED and UNCONSCIONABLE IN
SET ASIDE and a new one is entered DISMISSING THE ACTS OF THE
the instant complaint.[10] AGENTS OF
RESPONDENT APT
Petitioner moved for reconsideration but the motion was (NOW PMO) IN
CONNECTION WITH
denied by the appellate court in its questioned THE PERFECTED AND
[11]
Resolution dated July 31, 2003. Hence, this Petition contending PARTIALLY EXECUTED
that: CONTRACT OF SALE.

B. RESPONDENT APT
IN REVERSING THE TRIAL COURTS DECISION (NOW PMO) HAS
DATED 10 AUGUST 1994, THE COURT OF DESCENDED TO THE
APPEALS DECIDED ISSUES NOT IN ACCORDANCE LEVEL OF A PRIVATE
INDIVIDUAL OR ENTITY
 Page 39 of 93

BOUND BY VALID
CONTRACTUAL
OBLIGATIONS WHEN IT The hinge issue is whether there was a perfected contract of sale
ENGAGED IN over the subject floors at the price of P21,000,000.00.
PROPRIETARY AND/OR
COMMERCIAL
FUNCTIONS. A contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price.[13] Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
III
contract. The offer must be certain and the acceptance absolute.[14]
THE COURT OF APPEALS ERRED
WHEN IT RULED THAT
RESPONDENT APT (NOW PMO) To reach that moment of perfection, the parties must agree on the
TIMELY RAISED THE ISSUES ON THE same thing in the same sense,[15] so that their minds meet as to all the
ALLEGED REQUIREMENT OF
terms.[16] They must have a distinct intention common to both and
APPROVAL FOR THE INDICATED
PRICE AND THE ALLEGED without doubt or difference; until all understand alike, there can be no
UNCONSCIONABLY LOW PRICE FOR assent, and therefore no contract.[17] The minds of parties must meet
THE SALE OF THE SUBJECT
PROPERTY, CONSIDERING THAT at every point; nothing can be left open for further arrangement.[18] So
SAID ISSUES WERE NEVER RAISED long as there is any uncertainty or indefiniteness, or future
IN THE PROCEEDINGS BEFORE THE
TRIAL COURT AND DO NOT BEAR negotiations or considerations to be had between the parties, there is
RELEVANCE OR CLOSE RELATION not a completed contract, and in fact, there is no contract at all.[19]
TO THE ISSUES RAISED IN THE
PROCEEDINGS BEFORE THE COURT
OF APPEALS. Contract formation undergoes three distinct stages preparation or
negotiation, perfection or birth, and consummation. Negotiation begins
IV
from the time the prospective contracting parties manifest their
THE COURT OF APPEALS ERRED IN interest in the contract and ends at the moment of agreement of the
RULING THAT THE BRIEF FILED BY
RESPONDENT APT (NOW PMO) DID parties. The perfection or birth of the contract takes place when the
NOT VIOLATE SECTION 1(F) OF THE parties agree upon all the essential elements thereof. The last stage is
RULES OF COURT WHICH SHOULD
the consummation of the contract wherein the parties fulfill or perform
HAVE WARRANTED A DISMISSAL OF
RESPONDENT APTS (NOW PMO) the terms agreed upon, culminating in its extinguishment.[20] Once
APPEAL.[12] there is concurrence of the offer and acceptance of the object and
cause, the stage of negotiation is finished. This situation does not

obtain in the case at bar. The letter of February 22, 1993 and the
surrounding circumstances clearly show that the parties are not past
the stage of negotiation, hence there could not have been a perfected
contract of sale.
The letter[21] is clear evidence that respondent did not intend to
sell the subject floors at the price certain of P21,000,000.00, viz.:
22 February 1993
ATTY. JOSE FERIA, JR.
FERIA, FERIA, LUGTU & LAO
Ferlaw Building, 336 Cabildo Street
Intramuros, Manila
Dear Atty. Feria:
During its meeting on February 19, 1993, our Board
reviewed your letter of February 18, 1993.
We are pleased to inform you that the Board is in
agreement that Mr. Jose Moreno, Jr. has the right of
first refusal. This will be confirmed by our Board during
the next board meeting on February 26, 1993. In the
meantime, please advise Mr. Moreno that the
suggested indicative price for APTs five (5) floors of the
building in question is P21 Million.
If Mr. Moreno is in agreement, he should deposit with
APT the amount of P2.1 Million equivalent to 10% of
the price on or before February 26, 1993. The balance
will be due within fifteen (15) days after Mr. Moreno
receives the formal notice of approval of the indicative
price.
If you or Mr. Moreno have (sic) any question, please let
me know.
Page 40 of 93
Very truly yours,
(Signed)
JUAN W. MORAN
Associate Executive Trustee
The letter clearly states that P21,000,000.00 is merely a
suggested indicative price of the subject floors as it was yet to be
approved by the Board of Trustees. Before the Board could confirm
the suggested indicative price, the Committee on Privatization must
first approve the terms of the sale or disposition. The imposition of this
suspensive condition finds basis under Proclamation No. 50[22] which
vests in the Committee the power to approve the sale of government
assets, including the price of the asset to be sold, viz.:
ARTICLE II. COMMITTEE ON PRIVATIZATION
xxx
SECTION 5. POWERS AND FUNCTIONS. The
Committee shall have the following powers and
functions:
(1) x x x x Provided, further, that any
such independent disposition shall be
undertaken with the prior approval of the
Committee and in accordance with the
general disposition guidelines as the
Committee may provide; Provided,
finally, that in every case the sale or
disposition shall be approved by the
Committee with respect to the buyer and
price only;

xxx
(4) To approve or disapprove, on behalf
of the National Government and without
need of any further approval or other
action from any other government
institution or agency, the sale or
disposition of such assets, in each case
on terms and to purchasers
recommended by the Trust or the
government institution, as the case may
be, to whom the disposition of such
assets may have been delegated;
Provided that, the Committee shall not
itself undertake the marketing of any
such assets, or participate in the
negotiation of their sale;
xxx
ARTICLE III. ASSET PRIVATIZATION TRUST
xxx
SECTION 12. POWERS. The Trust shall, in the
discharge of its responsibilities, have the following
powers:
xxx
(2) Subject to its having received the
prior written approval of the Committee
to sell such asset at a price and on
terms of payment and to a party
disclosed to the Committee, to sell each
asset referred to it by the Committee to
such party and on such terms as in its
discretion are in the best interest of the
National Government, and for such
purpose to execute and deliver, on
behalf and in the name of the National
Government. Such deeds of sale,
contracts and other instruments as
Page 41 of 93
may be necessary or appropriate to
convey title to such assets;
Petitioner construes Section 12, Article III of the Proclamation
differently. He argues that what the law says is that even before
respondent sells or offers for sale a government asset, the terms
thereof have already been previously approved by the
Committee,[23] i.e., [s]ubject to its having received the prior written
approval of the Committee to sell such an asset at a price and on
terms of payment and to a party disclosed to the Committee, to sell
each asset referred to it by the Committee to such party and on such
terms as in its discretion are in the best interest of the National
Government.[24] Thus, the Committees approval of the suggested
indicative price of P21,000,000.00 is not necessary.
We are not persuaded.
If we adopt the argument of petitioner, Section 12, Article III
would nullify the power granted to the Committee under Section 5 (4),
Article II of the same Proclamation. Under Section 5 (4), the
Committee has the power to approve or disapprove, on behalf of
the National Government and without need of any further approval or
other action from any other government institution or agency, the sale
or disposition of such assets, in each case on terms and to
purchasers recommended by the Trust or the government
institution, as the case may be, to whom the disposition of such
assets may have been delegated; Provided that, the Committee shall
not itself undertake the marketing of any such assets, or participate in
the negotiation of their sale.[25] The law is clear that the Trust shall
recommend the terms for the Committees approval or disapproval,
and not the other way around.

It is a basic canon of statutory construction that in interpreting
a statute, care should be taken that every part thereof be given effect,
on the theory that it was enacted as an integrated measure and not as
a hodge-podge of conflicting provisions. The rule is that a construction
that would render a provision inoperative should be avoided; instead,
apparently inconsistent provisions should be reconciled whenever
possible as parts of a coordinated and harmonious whole.[26]
To bolster the argument that the Committees approval may be
dispensed with, petitioner also cites Opinion No. 27, Series of 1989, of
the Secretary of Justice which recognizes a case where the
Committee may delegate to respondent the power to approve the sale
or disposition of assets with a transfer price not
exceeding P60,000,000.00.[27]
The argument fails to impress. The Opinion involves a case
where no material discretion is involved in the disposition of assets
pursuant to the subject proposal and the act which could be
delegated, as opined, is ministerial. The Opinion further notes that the
criteria and guidelines stated therein are concrete and definite enough
that once these criteria and guidelines are present in a particular
case, the APT is practically left with no choice in the disposition of the
assets involved and that all that the APT shall do in disposing off an
asset thereunder is ascertain whether a prospective buyer and the
price he offers satisfy such conditions. Petitioner failed to show that
the case at bar is of the same nature that is, that the disposition of the
subject floors partakes of the nature of a ministerial act which has
been defined as one performed under a given state of facts, in a
prescribed manner, in obedience to the mandate of legal authority,
Page 42 of 93
without regard to the exercise of judgment upon the propriety or
impropriety of the act done.
Petitioner further argues that the suggested indicative price
of P21,000,000.00 is not a proposed price, but the selling price
indicative of the value at which respondent was willing to
sell.[28] Petitioner posits that under Section 14, Rule 130 of the
Revised Rules of Court, the term should be taken in its ordinary and
usual acceptation and should be taken to mean as a price which is
indicated or specified which, if accepted, gives rise to a meeting of
minds.[29] This was the same construction adopted by the trial
court, viz.:
Going to defendants main defense that P21
Million was a suggested indicative price we have to find
out exactly what indicative means. Webster
Comprehensive Dictionary, International Edition, gives
us a graphic meaning that everybody can understand,
when it says that to indicate is [t]o point out; direct
attention[;] to indicate the correct page[.] Indicative is
merely the adjective of the verb to indicate. x x x when
the price of P21 [M]illion was indicated then it becomes
the indicative price the correct price, no ifs[,] no
buts.[30] (emphases in the original)
We do not agree.
Under the same section and rule invoked by petitioner, the
terms of a writing are presumed to have been used in their primary
and general acceptation, but evidence is admissible to show that they
have a local, technical, or otherwise peculiar signification, and
were so used and understood in the particular instance, in which case
the agreement must be construed accordingly.[31]

The reliance of the trial court in the Webster definition of the
term indicative, as also adopted by petitioner, is misplaced. The
transaction at bar involves the sale of an asset under a privatization
scheme which attaches a peculiar meaning or signification to the term
indicative price. Under No. 6.1 of the General Bidding Procedures and
[32]
Rules of respondent, an indicative price is a ball-park figure and
[respondent] supplies such a figure purely to define the ball-
[33]
park. The plain contention of petitioner that the transaction involves
an ordinary armslength sale of property is unsubstantiated and leaves
much to be desired. This case sprung from a case of specific
performance initiated by petitioner who has the burden to prove that
the case should be spared from the application of the technical terms
in the sale and disposition of assets under privatization. Petitioner
failed to discharge the burden.
It appears in the case at bar that petitioners construction of the
letter of February 22, 1993 that his assent to the suggested indicative
price of P21,000,000.00 converted it as the price certain, thus giving
[34]
rise to a perfected contract of sale is petitioners own subjective
understanding. As such, it is not shared by respondent. Under
American jurisprudence, mutual assent is judged by an objective
standard, looking to the express words the parties used in the
contract.[35] Under the objective theory of contract, understandings
and beliefs are effective only if shared.[36] Based on the objective
manifestations of the parties in the case at bar, there was no meeting
of the minds. That the letter constituted a definite, complete and
certain offer is the subjective belief of petitioner alone. The letter in
question is a mere evidence of a memorialization of inconclusive
negotiations, or a mere agreement to agree, in which material term is
left for future negotiations.[37] It is a mere evidence of the parties
Page 43 of 93
preliminary transactions which did not crystallize into a perfected
contract. Preliminary negotiations or an agreement still involving
future negotiations is not the functional equivalent of a valid,
subsisting agreement.[38] For a valid contract to have been created,
the parties must have progressed beyond this stage of imperfect
negotiation. But as the records would show, the parties are yet
undergoing the preliminary steps towards the formation of a valid
contract. Having thus established that there is no perfected contract of
sale in the case at bar, the issue on estoppel is now moot and
academic.
Finally, petitioner contends that the appellate court should
have dismissed the appeal of respondent on the procedural
technicality that the Appellants Brief does not have page references to
the record in its Statement of Facts, Statement of the Case and
Arguments in the Appellants Brief.[39]
We find no reason to reverse the ruling of the appellate court
which has judiciously explained why the appeal should not be
dismissed on this ground, viz.:
x x x x Procedural rules are required to be
followed as a general rule, but they may be relaxed to
relieve a litigant of an injustice not commensurate with
the degree of his noncompliance with the procedure
required. In this case, [respondents] brief does not
substantially violate our procedural rules. Besides, the
merits of its arguments will show that the trial court
seriously erred in issuing its assailed decision.[40]
 Page 44 of 93

IN VIEW WHEREOF, the assailed Decision and Resolution of
the Court of Appeals in CA-G.R. CV No. 49227 dated January 30,
2003 and July 31, 2003, respectively, are AFFIRMED.
SO ORDERED.
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairpersons Attestation, I certify that the conclusions in the
above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

REYNATO S. PUNO
Associate Justice

WE CONCUR:

ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
EN BANC
RENATO C. CORONA ADOLFO S. AZCUNA G.R. No. L-8227 March 9, 1914
Associate Justice Associate Justice
ANTONIO M. JIMENEZ, plaintiff and appellant,
vs.
CANCIO C. GARCIA FIDEL REYES, defendant and appellee.
Associate Justice
Antonio M. Jimenez in his own behalf.
Alberto Reyes for appellee.
ATTESTATION TRENT, J.:
This is a civil action for libel. The defendant is editor and proprietor of
I attest that the conclusions in the above Decision had been reached the weekly newspaper called "El Mensajero Catolico," published in the
city of Vigan, Ilocos Sur. The plaintiff is also a resident of Vigan,
in consultation before the case was assigned to the writer of the following the profession of attorney at law; he is also a druggist and
opinion of the Courts Division. ha operated a drug store in Vigan for the last seventeen years; and he
is a councilman of the municipality. On August 29, 1910, the
REYNATO S. PUNO defendant published, in the aforesaid newspaper, an article which is
Associate Justice quoted in full below. These facts are alleged in the complaint and
Chairperson
expressly admitted in the answer. The article in question follows:
CERTIFICATION FATHER THOMPKINS ACQUITTED.
Innocence has triumphed again. Truth and Justice even in the
midst of the passions and miseries of mankind, cannot be
trampled under foot when Providence , the Divine Intelligence,

intervenes. Lord, the insufferable Protestant, the constant
persecutor of the Faith and her ministers, was unable to prove
the complaint which he presented, through his attorney, Mr.
Antonio Maria Jimenez, before the justice of the peace of
Vigan. It could not have been otherwise. The intelligent
populace of Vigan had expected this result and they were not
mistaken. The judgment handed down by the upright justice of
the peace, Mr. Lupo Asurin, is replete with rational logic, which
demonstrates his great talent. From a mere persual of the
judgment, one can not help being satisfied with the clearness
of expression, the depth of though, and the simplicity of style.
We regret that we can not publish it in its entirety because of
its length.
To the Rev. Father Thompkins and the Order to which he
belongs we extend our most cordial congratulations, because
Innocence emerged triumphant in spite of the efforts of her
enemies to tarnish her, to cover her with filth and human
wretchedness. The Catholic Church is also to be congratulated
because the acquittal of the Rev. Father Thompkins in her
victory against error and falsity, against the mendacity and bad
faith of certain miserable creatures who had used their
profession to deceive unwary public and encompass its ruin.
It is alleged that part of the last sentence of this article following the
word "victory" is libelous of the plaintiff.
Move by the institution of the present action, the defendant published
another article in his newspaper on September 5, 1910, which is
reproduced below:
OUR EDITOR AGAIN THE COURTS OF JUSTICE.
Explanation. Our esteemed editor, Mr. Fidel Reyes, has been
again charged with libel before the Court of First Instance of
this province. The complainant is Mr. Antonio Maria Jimenez,
lawyer, druggist, president of the Ilocano University, and
councilman of this municipality of Vigan, who asks an
indemnity of ten thousand pesos in his complaint for losses
and damages. On learning of the complaint, we felt in the
bottom of our heart s sincere pleasure, because, beyond it, we
perceived another fine opportunity to demonstrate to the public
the sanity of the doctrine for which we stand, and the purity of
our motives and intentions.
Page 45 of 93
The cause of the complaint was our article of last Monday,
entitled "Father Thompkins Acquitted," and we are going to
reproduce it to-day below in its entirety, to satisfy the curiosity
of our readers. Here it is:
[Here is quoted in full the article already quoted above.]
According to the complaint, it is alleged that our words,
"certain miserable creatures who have been used their
profession to deceive the unwary public and encompass its
ruin," alluded to Mr. Antonio Maria Jimenez. Why it is thought
that those words refer to Mr. Antonio Maria Jimenez is beyond
our comprehension, because, frankly, our intention was not to
censure him in the least, nor did we endeavor, through them,
to reproach any specific individual with respect to his position
or professional honor.
We are first to recognize the nobility of character,
the loftiness of purpose, and the probity in his dealings which
Mr. Jimenez has always shown in all his acts, social as well as
private and official.
In his profession as attorney, all Vigan knows and we are the
first to admit that Mr. Jimenez is the No. 1, or, in other words,
he is the non plus ultra of his colleagues. Mr. Jimenez is not
like other shameless lawyers who undertake the despicable
business of pettifogging.
In his profession of pharmacist, all Vigan is aware of and we
are the first to admit his great skill in the various drug-
chemical combinations, and that Mr. Jimenez has never used
his pharmaceutical knowledge to cause harm to anyone; Mr.
Antonio Maria Jimenez is not the type of other druggists who,
forgetting the high mission with which they have been
endowed by God superiority over their neighbors, use their
knowledge to satisfy base passions and execute dreadful
plans.
In his profession as proprietor of the Ilocano University, Mr.
Jimenez has never deceived students like certain directors of
universities and colleges who issue title of lawyer or bachelor
without even examining the candidates, provided they give
them a little money.
In his capacity of councilman, we are also the first to recognize
his activity.

In his domestic relations, all Vigan knows and we are the first
to admit that Mr. Jimenez leads a tranquil and happy life in the
midst of his family; because, as a father, he loves his children ;
and as a husband, affectionate to his wife, because every time
he travels he takes with him his sweet helpmate.
Finally, we did not endeavor to humiliate any specific person
by our article, "Father Thompkins Acquitted," much less the
famous and celebrated lawyer and druggist, Mr. Antonio Maria
Jimenez.
In conclusion, permit us to say that we do not make this
explanation with the intention of disavowing any responsibility,
criminal or civil, because we are convinced that we have not
committed any crime against anyone; rather, we desire to
make it plain that our purpose was to oppose the enemies of
our Faith, as to whom our pen will never rest in showing them
the error into which they have fallen, to the end that they may
return to the bosom of the Catholic Church, which the only true
religion.
The publication of this article is alleged in the complaint and admitted
in the answer; while the allegation in the complaint that it contains
satirical comment and ridicule, was denied, the defendant alleging
that the words used should be construed in their true and natural
grammatical sense.
We consider that a large part of the testimony introduced at the trial
relating to the construction that should be placed on the language of
these two article is immaterial. Whether particular witnesses thought
that the first article as a whole was defamatory of the plaintiff was
wholly incompetent as proof of the libelous or harmless character of
the publication, as no attempt was made by either party to prove that
the language had a double or ambiguous meaning. The efforts of both
parties have been confined to a mere construction. The plaintiff has
attempted to show that the odium of the last paragraph will be
attached to him as the attorney for the prosecution in the Thompkins
case. The defendant has attempted to show that the criticism in the
last paragraph referred to the determinate person, but to those clergy
of other religions that his own who resort to deceit in their efforts to
inculcate their doctrines and promote, in that manner, the interest of
their respective creeds. This is the explanation given the last
paragraph of the second article as amplified in the brief of the
defendant on this appeal.
Page 46 of 93
We cannot allow either party to an action for libel to furnish us to the
meaning of an alleged libelous publication which is plain and
unambiguous in its terms. Were we to accept assistance in such a
matter, it would be a confession of our inability to understand the
official language of this country. This court, and in fact every court in
the land, is daily engaged in interpreting the meaning and import of
language used by the people in contracts, wills, and all sorts of
documents which create, establish, or extinguish legal rights and
liabilities.
The terms of a writing are to have been used in their primary
and general acceptation, but evidence is nevertheless
admissible that they have a local, technical or otherwise
peculiar signification, and were so used and understood in the
particular instance, in which case the agreement must be
construed accordingly. (Sec. 290, Code Civ. Proc.)
No attempt has been made to show that the words of either of these
articles "have a local, technical, or otherwise peculiar signification."
No ambiguities appear upon to show the face of the article.
Words of common and ordinary import alone are used. No
technical or provincial terms are contained therein. The names
of all parties in any way connected with the affair are plainly
given. Under such circumstances, the article is libelous per se,
or it is not libelous at all. If, by fair inferences and deductions
from the article, taken as a whole, it can be said that murder is
charged against plaintiff, then the article is libelous per se. And
the deductions and conclusions of any number of witnesses
looking forward or against plaintiff's contention in this regard
could not aid the jury in arriving at the true deduction from
publication. Of necessity, these witnesses simply stood upon
equal footing wit the jurors, and their deductions from the
publication were no more likely to be correct than the juror's
deductions. . . . Not withstanding the courts have not all trod
the same path upon this question, yet of the many cases cited
by the respondent we fail to find one that reaches the mark of
sustaining the legal admissibility of the evidence here
introduced. Indeed, when the article is libelous upon the face,
and the party libeled is named upon the face of the article,
there is no room for the introduction of evidence of witnesses
as to their understanding of its meaning. . . . We conclude that
the common import of the words of this article must be applied
to test its libelous character. The publisher's intention are to be

gauged by such import. The reader's understanding of it must
be based upon such import; and, that being the fact, it is the
sole province of the jury to declare its true import from the
words used. By such rule the law fully guards the liberty of the
press, and also at the same time defends the reputation of the
citizen against defamation. (Hearne vs. De Young. 119 Cal.,
670.)
In the recent case of Arnold vs. Ingram (138 N. W., 111, 118), the
supreme court of Wisconsin said: "In libel, words are to be understood
according to their plain and natural import. Where there is no
ambiguity in the language its meaning is for the court to determine."
In Sheibley vs. Ashton (130 Iowa, 195), the court said: "Where the
situation is not controlled by matters of inducement or colloquium
pleaded, the question whether a publication relied upon as libelous
comes within the statutory definition, and hence is to be taken as
actionable per se, is always a question for the court. (18 Am. and Eng.
Ency., 990.) Our cases fully recognize the doctrine as thus stated."
As to the effect to be given an alleged libelous article, Townshend on
Slander and Libel (sec. 139), has the following to say: "The sense in
which the publisher meant the language cannot be material. The dicta
which apparently sanction such a rule will, on a comparison with their
context, be found in reality to be, not what did the defendant mean,
but what properly may he be taken to have meant. How might the
language be understood by those to whom it was published. It cannot,
therefore, be correct to say the language is to be construed in the
sense in which the publisher intended it to be understood. 'When a
party has made a charge that clearly imputes a crime, he cannot
afterwards be permitted to say, I did not intend what my words legally
imply.' "
In Tawney vs Simonson, Whitcomb and Hurley Co. (109 Minn., 341),
the court had the following to say on this point: "In determining
whether the specified matter is libelous per se, two rules of
construction are conspicuously applicable: (1) That construction must
be adopted which will give to matter such a meaning as is natural and
obvious in the plain and ordinary sense in which the public would
naturally understand what was uttered. (2) The published matter
alleged to be libelous must be construed as a whole."
In applying these rules to the language of an alleged libel, the court
will disregard any subtle or ingenious explanation offered by the
publisher on being called to account. The whole question being the
Page 47 of 93
effect the publication had upon the minds of the readers, and they not
having been assisted by the offered explanation in reading the article,
it comes too late to have the effect of removing the sting, if any there
be, from the words used in the publication.
Considering the first article quoted above in its entirety, what
impression would its perusal leave upon the minds of the people who
read it as to the attorney who filed the complaint in the Thompkins
case? From the rather extravagant language used, it is clear that the
defendant was exulting over the fact that Thompkins was acquitted.
The acquittal is referred to as a triumph for the Catholic Church
against "the error and falsity, against the mendacity and bad faith of
certain miserable creatures who have used their profession to deceive
the unwary public and encompass its ruin." For the purpose of
determining the effect of this statement we must assume its truth.
(Simons vs. Burnham, 102 Mich., 189; Mosnat vs. Snyder, 105 Iowa,
500.) To whom connected with the Thompkins case could it have
referred? Obviously, the defendant and the court itself must be
eliminated. The question is therefore narrowed down to the
complaining witness and his counsel. Both of these parties are
specifically mentioned in the publication, the first being one Lord, and
the latter the attorney Antonio Maria Jimenez, the plaintiff in the case
at bar.
In the first sentence of the last paragraph it is stated that Father
Thompkins was innocent, and that an attempt was made to cover his
innocence with filth and human wretchedness. In the last sentence it
is stated that his acquittal was a victory "against error and falsity,
against the mendacity and bad faith" of certain persons referred to as
"miserable creatures who have used their profession to deceive."
Assuming that the complaining witness in the Thompkins case was
the object of the author's wrath, would the censure and criticism
directed at him in the last paragraph of the publication be apt to reflect
upon the integrity and professional reputation of his attorney? The
vitriolic comment on the merits of the charges against the defendant in
that case would lead any ordinary person to believe that the charges
had been wholly trumped up, were a tissue of lies, were not made in
good faith, and were intended merely to harass and persecute the
defendant; in other words, that the moving witness in the case was
practically guilty of malicious prosecution, a most reprehensible act,
and made a crime by the laws of all civilized countries.
The professional deportment of members of the bar and bench is,
perhaps, accorded greater prominence in the forum of public opinion

and discussion of the present day than ever before. The legal
technicalities and the law's delay, with the consequent defeat of
justice in many instances, which had become an unbearable burden
of an era scarcely yet relegated to the past, have aroused public
opinion. The pettifogger, the shyster, who live by sharp practices and
whose sole consideration in accepting a case is the offered fee, are
responsible in no small degree for the present-day criticism of the bar.
It is this ilk that have forgotten the oath they took on being admitted to
the bar, which reads as follows:
. . . I do solemnly swear that I will do no falsehood, nor
consent to the doing of any in court; I will not wittingly or
willingly promote or sue any false, groundless, or unlawful suit,
nor give aid nor consent to the same; I will delay no man for
money or malice, but will conduct myself in the office of a
lawyer within the courts according to the best of my knowledge
and discretion, and with all good fidelity as well to the courts
as to my clients. So help me God. (Sec 18, Code Civ. Proc.)
They are the ones who undertake and press to a conclusion the kind
of cases described by the epithets in the article complained of. It is
hardly necessary to say that the attorney who undertakes such a case
is detested as heartily as his client by all honest people. We are
clearly of the opinion that the connection of any attorney with such a
case as that described in the language of the publication in question
will not redound to his credit; that, on the contrary, in the language of
section 1 of the Libel Law, it will impeach his "honesty, virtue, and
reputation," and "thereby expose him to public hatred, contempt, or
ridicule." No attempt was made to prove the utter lack of merit in the
prosecution of the Thompkins case, alleged in the publication in
question. We must assume, therefore, that such comment was
altogether unwarranted. The consequence is that no privilege can
attach to its publication. The article must be held a libel against the
plaintiff, within the purview of section 1 of the Libel Law.
The subject of the second article, it must be conceded, is the private
and professional reputation of the plaintiff. The question to be decided
is, whether the remarks contained therein are in the nature of a
panegyric or a pasquinade. Had the remarks of the defendant been
limited to the generalities of the second paragraph following the
quotation of the first article, we are clearly of the opinion that there
would have been room for no pique on the part of the plaintiff. That
paragraph taken alone is hardly anything more than an effusive
display of hero-worship. But the article does no stop at this point. It
Page 48 of 93
proceeds to take up one by one the various activities of the plaintiff
and concludes with a paragraph concerning his private life.
In the first of these the professional ability of the plaintiff as a lawyer is
discussed. It is asserted that he is the No. 1, or the non plus ultra of
his profession, and that all Vigan knows this. We do not think the
average reader would place any attorney upon so high a pinnacle, let
alone an attorney whose activities were practically confined to the city
of Vigan, Ilocos Sur. And the absurdity of such a shining legal light
hiding his great talents in that small city heightens the suggestion that
the comment is insincere and intended to ridicule rather than praise
the attorney referred to. "Praise undeserved is slander in disguise."
(Pope, Epistles of Horace.) Common sense would indicate to the
average reader that the author's purpose was not praise, and the next
sentence of the paragraph offers him an explanation of the real
purpose of the author. It being apparent that the attorney in question
could not possibly occupy so high an eminence, the reader, by the
second sentence, is abruptly invited to look into the sordidness and
baseness of the legal profession, and the unpleasant thought
immediately suggests itself that here is where the writer desires to
place the subject of the sketch. This conclusion is strengthened, when
we remember that pains were taken to reproduce just above the first
publication in its entirety, in which Mr. Jimenez is pointed out as
attorney in a prosecution entirely devoid of righteousness.
With this key to the drift of the author's thought, it is easy to interpret
the rest of the article. The satirical comment on the plaintiff's
professional ability and reputation as a lawyer being so apparent, it is
clear to the reader, as he peruses the remainder of the article, that the
object of the author in praising the plaintiff, followed with a reminder of
the sharp practices of the black sheep among druggists and directors
of universities, is to convey the impression that he is, in those phases
of his activities, what has been so pointedly suggested of him as an
attorney. Finally, the pseudoattempt to prove the plaintiff's affection
for his wife by the assertion that he always takes her with him on all
his travels, coupled with the information that she is "sweet" can hardly
be considered as anything but a gibe at an eccentricity of the plaintiff.
The constant repetition, in these paragraphs, that "all Vigan knows
and we are the first to recognize" the various worthy and amiable
traits of plaintiff's character, and the studied arrangement in each
paragraph of praise of the plaintiff followed by dispraise of the seamy
side of each of the pursuits in which he is engaged, put at rest any
doubt as to the real purpose of the writer. We are clearly of the

opinion that this article also tends to expose the plaintiff to public
contempt, hatred, and ridicule.
The proof introduced by the plaintiff as to injury to his business as a
result of the libelous publications of the defendant is not definite
enough upon which to base an award of actual pecuniary damages.
The first libel was published on August 29, 1910. The clerk of the
court testified that in May, 1910, plaintiff had appeared in no cases; in
June he had appeared in one case. The trial was held on November
1, 1910. In his own behalf, plaintiff testified that he had appeared in
about ten civil cases and four or five criminal cases during the then
term of court. He testified that his business in the justice peace court
of Laoag had practically ceased since the libel was published, as had
also his business in Cagayan. So far as the volume of business done
by the plaintiff in the Court of First Instance is concerned, the fact the
he appeared in only one case from August 29 to the date of the trial, a
period of two months, does not tend to prove a falling off in his
business, when it is remembered that during July and August, a like
period just preceding the trial, his business in the court was only
limited to one case. While he testifies in his own behalf that his
business in Laoag and Cagayan has practically been destroyed by the
publication of the libel, no statement is given as to its value. Nor does
he attempt to say how much his business in the Court of First
Instance was worth. Obviously, both value and volume are necessary
to any intelligent estimate of damage to the business of a professional
man. We cannot, therefore, allow him anything for this item.
Notwithstanding that plaintiff has failed to establish actual pecuniary
damages, he may recover under section 11 of Act No. 277 damages
for injury to his feelings and reputation. These are generally referred
to as general damages. The English rule is stated in Odgers on L. and
S. (5th ed., p. 372), as follows:
General damages are such as the law will presume to be the
natural or probable consequence of the defendant's conduct.
They arise by inference of law , and need not therefore be
proved by evidence. Such damages may be recovered
wherever the immediate tendency of the words is to impair the
plaintiff's reputation, although no actual pecuniary loss has in
fact resulted.
Such general damages will only be presumed where the words
are actionable per se. If any special damage has also been
suffered, it should be set out on the pleadings; but, should the
Page 49 of 93
plaintiff fail in proving it at the trial, he may still recover general
damages.
How nearly this approaches the American rule may be judged from
the following quotation from Fenstermaker vs.Tribune Pub. Co. (13
Utah, 532; 35 L. R. A. 611):
If the publication was false, the plaintiff was entitled, in the
absence of allegation and proof of special damage, to such
general damages as the law would presume to be the natural
or probable consequence of the defamatory words. These
damages arise by inference of law, and need not be proved by
evidence. Such damages may be recovered wherever the
immediate tendency of the libelous words is to impair the
party's reputation, although no actual pecuniary loss has in
fact resulted. (3 Sutherland, Damages, 2d ed., pars. 1204-
1206; Newell, Defamation, Slander, and Libel, p. 838 et seq.;
Wilson vs Fitch, 41 Cal., 363-386.)
In considering damage to reputation there must be taken into account
the publicity given to the publication, the extent to which it tends to
expose the plaintiffs reputation to public hatred, contempt, or ridicule ,
and the social and business standing of the parties. In estimating
damages for injured feelings there should be considered the manner
of the publication, that is, whether the method of publication tends to
add ignominy to the natural effects of the publication. Also, those
factors which enter into assessment of damages for injury to
reputation must influence the injury to plaintiff's feelings. Plaintiffs
feelings, in this sense, are considered to be the mental suffering,
shame, and humiliation experienced by him as a result of the libel.
While the statement of these abstract rules for the ascertainment of
damages to feelings and reputation is practically free from difficulty,
their application to particular cases is a difficult manner. In England
and America the measure of damages is left entirely to the jury. The
following comment from Graham and Waterman on New Trials
(second ed., p. 451), as quoted in Minter vs. Bradstreet Co. (174 Mo.,
444), explains the attitude of courts in those countries with reasonable
clearness:
The reason for holding parties so tenaciously to the damages
found by the jury in personal torts is, that in cases of this class
there is no scale by which the damages are to be graduated
with certainty. They admit of no other test than the intelligence
of a jury governed by a sense of justice. . . . To the jury,

therefore, as a favorite and almost sacred tribunal, is
committed, by unanimous consent, the exclusive task of
examining the facts and circumstances, and valuing the injury
and awarding compensation in damages. The law that confers
on them is power, and exacts of them the performance of this
solemn trust, favors the presumption that they are actuated by
pure motives, . . . and it is not until the result of the deliberation
of the jury appears in a form calculated to shock the
understanding and impress no dubious conviction of their
prejudice and passion, that courts have found themselves
compelled to interpose.
In this jurisdiction al the function of the Anglo-Saxon jury, except in
those few cases wherein assessors sit at the special request of the
parties, devolve upon the trial judge. It is not necessary for us to say
now whether an assessment of damages found by the trial judge
should carry the same or less weight than the findings of a jury for the
reason that the plaintiff was allowed no damages in the court below.
We are given plenary power, however, to affirm, modify, or reverse all
decisions brought to us on appeal, when the evidence is before us;
and we are of the opinion that the test to be applied to an award of
damages is much the same as that applied to any other findings of
fact by the trial judge. Such as award must appear reasonable in view
of all the evidence of the case and the presumption of correctness
attaching to findings of fact made by a trial court. And when, as in the
case at bar, this court is called upon to fix those damages imprimis, or
when it can not agree with the award made by the trial court, it will
endeavor, in accordance with the rules laid down above, to fix the
damages of the plaintiff at a reasonable amount. To attempt a more
definite formula for the assessment of damages of the findings and
reputation of libeled plaintiffs, would be to invite it is our purpose to
avoid, namely, erroneous bases of calculation. After a consideration
of all the evidence of record, we fix the damages to plaintiff's feelings
and reputation at P300.
Plaintiff has further asked for punitive or exemplary damages. Plaintiff
may prove in aggravation subsequent remarks defamatory of the
plaintiff. (Townshend, L. and S., p. 650.) Refusal to retract a libelous
publication is evidence of aggravation. It is proper to show the
conduct of the defendant from the publication of the libel to the
rendition of judgment as evidence of express malice or ill-will.
Evidence may be give of antecedent or subsequent libels or slanders
to show quo animo the words were published (Odgers, L. and S., 5th
Page 50 of 93
ed., p. 390). Punitive damages may be given where there is actual
malice or a reckless disregarded of plaintiff's rights. (Cases digested
in 12 Dec. Dig., Libel and Slander, sec. 120 (2).) The authorities are
eminently satisfactory and harmonious upon this point, and they are,
we believe, applicable to the facts of the present case. The first
publication was libelous per se. The second publication, a pretended
disavowal of the first, was also libelous per se, and contains a
reproduction of the first publication. No better evidence of express
malice and ill-will toward the plaintiff could be afford than a sham
"explanation" that a previous libelous publication did not refer to the
plaintiff. Such conduct dispels any doubt as to the original intention of
the author, indelibly stamps his opinion of the injured person as
contemptuous if not worse, and invites his auditors to shares in the
opinion. We have also observed in the perusal of the testimony taken
in open court, a degree of acrimony and captiousness in the questions
put to the plaintiff concerning his professional ability put his private
life, a considerable number of which were put by the defendant
himself, entirely inappropriate to the defense of a charge of exposing
a fellow man to public contempt and ridicule. For these reasons,
exemplary damages should be allowed. We fix these damages at
P200.
The judgment appealed from is therefore reversed and total damages
are awarded to the defendant in the sum of P500. Without costs.
Carson, J., concurs.
Arellano, C.J., Moreland and Araullo, JJ., concur in the result.
 Page 51 of 93

Security Bank Corporation (SBC) pro tanto as against respondent

Philippine Industrial Security Agency Corporation (PISA). [2]
FIRST DIVISION
SECURITY BANK CORPORATION, G.R. No. 141733
Petitioner, On October 23, 1991, SBC and PISA entered into a Contract
of Security Services (CSS)[3] wherein PISA undertook to secure,
Present:
PUNO, CJ, Chairperson, guard, and protect the personnel and property of SBC through the
- versus - SANDOVAL-GUTIERREZ,
CORONA, deployment of qualified and properly equipped guards in SBCs
* premises and branches. Paragraph 9 of the CSS provides:
AZCUNA,
and [PISA] shall be liable for any loss, damage or injury
GARCIA, JJ. suffered by [SBC], its officers, employees, clients,
guests, visitors and other persons allowed entry into
HON. COURT OF APPEALS, [SBCs] premises where such loss, damage or injury is
LIBERTY INSURANCE CORPORATION Promulgated: due to the negligence or willful act of the guards or
AND PHILIPPINE INDUSTRIAL representatives of [PISA]. If such loss, damage or injury
SECURITY AGENCY CORPORATION, is caused by a party other than the guards or
Respondents. February 8, 2007 representatives of [PISA], [PISA] shall be jointly and
severally liable with said party if [PISA] failed to exercise
x-------------------------------------------------- due [diligence] in preventing such loss, damage or
x injury. [4]

DECISION
PUNO, CJ:
Before us is a petition for review on certiorari under Rule 45 of the
Rules of Court to set aside the Decision dated August 31, 1999 and
the Resolution dated January 31, 2000 of the Court of Appeals in CA-
G.R. CV No. 45259,[1] which affirmed the Order dated July 12, 1993 of
the Regional Trial Court (RTC), dismissing the complaint of petitioner
Paragraph 12 of the CSS also provides:
12. [SBC] obliges itself to inform [PISA] in writing
through [the] Guard-in-Charge assigned to the former,
the existence of any loss or damage to [SBCs]
properties within Forty-Eight (48) hours after its
discovery by [SBC]; otherwise, [SBC] shall be
considered to have waived its right to proceed against
[PISA] by reason of such loss or damage. Such written
notice is not required if [PISA] took part in the
investigation of the loss or damage or in case the loss
or damage is caused by [PISAs] guard/s or
representative/s, in which case [SBC] may assert
the claim for reimbursement at any time. x x
x [5] (Emphasis added)

On March 12, 1992, the Taytay Branch Office of SBC was
robbed PHP12,927,628.01. Among the suspects in the robbery were
two regular security guards of PISA. [6]
At the time, SBC Taytay Branch was covered by a Money,
Securities and Payroll Robbery Policy with Liberty Insurance
Corporation (LIC), wherein the latter endeavored to indemnify the
former against loss of money, payroll and securities that may result
from robbery or any attempt thereof within the premises of SBCs
Taytay Branch Office, up to the maximum amount of
PHP9,900,000.00. [7] The insurance policy provided, however, that LIC
would not be liable if the loss was caused by any dishonest,
fraudulent or criminal act of SBC officers, employees or by its
authorized representative.[8]
On June 23, 1992, SBC and PISA entered into a Post-Robbery
Agreement (PRA) whereby PISA paid PHP3,027,728.01, which was
the difference between the total amount lost and the maximum
amount insured.[9] PISA made the payment in the interest of
maintaining good relations, without necessarily admitting its liability for
the loss suffered by SBC by reason of the Taytay robbery. [10]
Page 52 of 93
Paragraph 5 of the PRA specifically states that PISAs payment
was subject to express terms and conditions, one of which was the
following:
(e) The parties hereto further agree that this agreement
and/or payment of the whole amount of P3,027,728.01,
shall not affect or prejudice, directly or indirectly,
whatever cause of action SBC may have against PISA
and whatever claim or defense the latter may have
against SBC, if the maximum recoverable proceeds of
the insurance covering the loss suffered by SBC could
not be recovered from the insurer. Further, it is agreed
that should Security Guards Wilson Taca and Ernesto
Mariano be absolved from the charge of robbery in band
and/or are found by the proper court not to have been
involved at all in the alleged conspiracy, and that it is
duly established through legal action before the
competent court that their failure to prevent the robbery
was not due to their, or their PISA co-guards negligence
and/or willful act, whatever installments may have been
paid by PISA under this Agreement shall be reimbursed
with legal interest to be computed from the time of
actual payment, the same to be amortized in eighteen
(18) equally monthly installments, with the interest
thereto being based on the diminishing
[11]
balance. (Emphasis added)
SBC filed a claim with LIC based on its existing insurance
policy. LIC denied the claim for indemnification on August 5, 1992, on
the ground that the loss suffered by SBC fell under the general
exceptions to the policy, in view of the alleged involvement of PISAs
two security guards. [12]
In its letter dated August 28, 1992, SBC informed PISA of the
denial of the formers insurance claim with LIC and thereafter sought
indemnification of the unrecovered amount of

PHP9,900,000.00.[13] PISA denied the claim in a letter written by its
counsel, dated September 17, 1992, to wit: [14]
We have advised our client that your letter of demand
appears to be premature, in light of the following
circumstances:
(a) precisely under par. 5(e) of the [PRA],
upon which your demand letter is based, it
is too early in the day to impute to our
client any responsibility for the loss
suffered by the bank.
(b) The mere rejection by the insurer of the
Banks claim does not really seal the fate of
said claim, for the Bank can very ably
show that the insurer erred in rejecting the
claim.
(c) In any case, the question of criminal
involvement of PISAs guards has not been
resolved as yet by a competent court as
called for by par. 5(e) of the [PRA], let
alone with any degree of finality. [15]
On November 16, 1992, SBC filed a complaint for a sum of
money against LIC based on the Money, Securities and Payroll
Robbery Policy, and against PISA as an alternative defendant based
on the CSS. SBC prayed that it be indemnified by either one of the
defendants for PHP9,900,000.00 plus 15% as attorneys fees and cost
of suit. [16]
Instead of filing an answer, PISA filed a motion to dismiss, on
the ground that the complaint failed to state a cause of action and/or
the supposed cause of action was premature.[17] PISA, noting that it
Page 53 of 93
was being sued by SBC under an alternative cause of action, invoked
paragraph 5(e) of the PRA and claimed that SBCs right of action
against PISA was subject to at least two suspensive conditions. First,
SBC could not recover the PHP9.9-million from the insurer, defendant
LIC; and second, the two security guards facing criminal prosecution
for robbery in band must first be convicted and found to have been
involved in the robbery or otherwise found by a competent court to
have been negligent. According to PISA, SBCs complaint made no
averment that (a) there had been a final judgment rejecting SBCs
claim against the insurer; or (b) that the two PISA guards had been
convicted of the charge of robbery in band, or had been found by a
competent court to have been involved in the alleged conspiracy or to
have been negligent in connection with the robbery.
Hence, PISA concluded that SBCs complaint against it was premature
and should be dismissed. [18]
SBC opposed PISAs motion to dismiss, arguing that the latters
interpretation of the PRA was erroneous.[19] According to SBC, the
CSS was expressly made an integral part of the PRA, so their
provisions should be used hand in hand in determining the respective
rights and obligations of the parties. Thus, the PRA does not, to the
exclusion of [the CSS], control or govern the determination of the right
or accrual of the right of SBC to sue PISA.[20] Invoking paragraph 12
of the CSS, SBC asserted that it could pursue its claim for

reimbursement against PISA at any time, without regard to the
fulfillment or non-fulfillment of the supposed suspensive conditions.
SBC also denied that the PRA had suspensive conditions. It
claimed that the interim non-recovery of the insured amount may only
be an occasion for SBC to suspend the collection of PISAs liability,
but does not operate to prevent SBC from pursuing its claim
against PISA anytime. SBC pointed out that the insurance contract
was not intended for PISAs benefit, as the latter was not privy to the
contract and hence, could not avail itself of the benefits thereby given
to SBC. As for the second alleged suspensive condition, SBC
disagreed that the conviction or acquittal of the guards (from the
robbery charge) would preclude SBC from recovering against PISA,
as the former could still prove the other security guards negligence,
for which PISA may be made liable. SBC then stressed that the main
issue in the criminal case was the guilt of the accused guards,
whereas the issue in its civil complaint pertains to the negligence of
the same, or that of the other guards of PISA, and PISAs liability
therefor. SBC thus posits that it was not necessary for it to make
averments as to the fulfillment of these two alleged suspensive
conditions.
The RTC granted PISAs motion, and dismissed the case pro tanto as
against PISA.[21] The trial court sustained PISAs interpretation of the
PRA, i.e., that the latters liability to SBC for the losses incurred from
the March 12, 1992 robbery was dependent upon the occurrence of
Page 54 of 93
two events: (1) SBCs claim for indemnity against LIC is resolved by
final judgment against the bank; and (2) the two security guards of
PISA facing criminal charges for robbery are found guilty, or declared
to have been negligent in the performance of their guard duties. Since
SBCs complaint made no averment as to the fulfillment of these
suspensive conditions, the RTC held that the suit by SBC
against PISA was premature.[22]
The RTC likewise denied SBCs motion for reconsideration. [23]
On appeal, the Court of Appeals affirmed the dismissal. [24] Although it
ruled that SBCs right of action against PISA was not subject to the
condition that the two security guards of PISA facing criminal charges
for robbery should have been found guilty, or declared to have been
negligent in the performance of their guard duties, the appellate court
held that SBCs right of action against PISA was subject to a condition
precedent, i.e., that there first be a final adjudication of SBCs case
against LIC, denying SBCs claim for indemnification. According to the
Court of Appeals, the PRA takes precedence over the CSS in respect
of PISAs liability for the robbery.
Unsatisfied, SBC comes now before this Court, on the grounds that
the Court of Appeals erred in declaring:
(1) A suspensive condition exists in paragraph 5 of the
PRA which bars SBC from impleading PISA as an
alternative defendant in civil case No. 92-337 until after
 Page 55 of 93

the final adjudication of the suit instituted by SBC

against LIC for payment of indemnity; and It is the thrust of PISAs arguments that while the CSS
governs generally the question of PISAs liability to SBC (for the loss,
(2) The PRA takes precedence over the CSS.
damage or injury that is due to the negligence or willful act of PISAs
guards or representatives), SBCs complaint deals with a specific

We grant the petition. situation arising from a distinct, particular event of robbery, for which
PISA and SBC have executed a new special Agreement (the PRA) to
At the outset, it should be noted that at the heart of this controversy is
govern their rights and obligations. Invoking the maxim generalia
the proper interpretation of paragraph 5(e) of the PRA, which
specialibus non derogant (general provisions do not derogate special
provides:
or specific ones), PISA asserts that the PRA precisely governs the
The parties hereto further agree that this agreement question of whether SBCs right to sue PISA for an alleged liability
and/or payment of the whole amount of P3,027,728.01,
shall not affect or prejudice, directly or indirectly, arising from robbery has accrued and become enforceable. Thus, it is
whatever cause of action SBC may have against PISA
and whatever claim or defense the latter may have alleged that SBCs right to sue PISA is no longer unrestricted, as the
against SBC, if the maximum recoverable proceeds of clear import of paragraph 5(e) of the PRA is that recovery of the
the insurance covering the loss suffered by SBC could
not be recovered from the insurer. x x x insurance proceeds would affect or prejudice SBCs claim
against PISA. PISA argues, therefore, that it is only upon the failure of
SBC to recover from the insurance proceeds, by final judgment, that
Prior to the robbery, the right of SBC to claim indemnity
the latter would have recourse against PISA.
from PISA for the damage done by the willful or negligent acts of the
formers guards could be asserted at any time, under paragraphs 9
SBC, on the other hand, argues that the legal effect of a contract (the
and 12 of the CSS. But after the robbery and the execution of the
PRA) is not to be determined alone by any particular provision taken
PRA, the question now raised is whether SBCs right of action
separately and independently from other provisions thereof. The
against PISA accrues only upon the non-recovery of indemnity from
contract must be taken as a whole, inclusive of all annexes that have
LIC; and if so, whether the non-recovery should be the result of a final
been made an integral part. SBC argues that there was no intention to
adjudication by a court.
make the PRA a separate and independent agreement that would

take precedence over other agreements between the parties because
of the following reasons:
(a) paragraph 1 of the PRA explicitly states that the respective
rights and obligations of the parties x x x with respect to
the security services being performed by PISA is
embodied in x x x the Contract of Security Services;
(b) the contract of security services was explicitly attached and
made an integral part of the PRA; and
(c) it is in paragraph 9 of the CSS that PISAs liability is
determined for the loss, damage or injury due to the
negligence or willful act of the guards or representative of
PISA, or when such loss, damage or injury is caused by
another party if PISA failed to exercise due diligence in
preventing such loss, damage or injury.
SBC, therefore, denies that paragraph 5(e) made the non-
recovery from LIC a condition precedent before SBC could file a case
against PISA.
SBC also asserts that even if it could be argued that the PRA
governs the liability of PISA as to the robbery, this liability would only
be for the amount of PHP3,027,728.01 which the latter has paid, and
not the PHP9,900,000.00, which is the balance of the loss suffered by
SBC from the robbery. This balance, SBC said it could pursue
against PISA at any time, pursuant to the CSS.
SBC also objects to the interpretation of paragraph 5(e) that
there must be a finality of denial by LIC before SBC can pursue its
Page 56 of 93
claim against PISA. SBC argues that this paragraph only provides the
availability of recourse against PISA in the event of non-recovery from
LIC, and is not a suspensive condition.
Finally, SBC claims that nowhere in the PRA is the liability
of PISA made dependent on and subsidiary to LIC, and points out
that PISA and LIC have no privity of contract between
them. According to SBC, the sole reason for impleading PISA in the
civil suit was pursuant to Rule 3 of the Rules of Court on alternative
defendants. SBC thus stresses that inasmuch as the liabilities of LIC
and PISA are primary under their respective contracts, and both have
denied the claim of SBC, the latter has properly impleaded LIC
and PISA in order to be afforded complete relief in one instance.
To start with, we agree with the Court of Appeals that SBCs
right of action against PISA was modified by the PRA, insofar as
the PISAs liability for the Taytay robbery is concerned, particularly
through paragraph 5(e). The Court of Appeals stated:[25]
While it cannot be gainsaid that the terms and
conditions in the Contract of Security Services (CSS)
were incorporated to the PRA (sic) as integral parts
thereof, nevertheless, We conform to the finding of the
court of origin that the 2nd contract (PRA) precisely and
particularly dealt with the mode of resolving PISAs
liability resulting, if any, from [the] March 12, 1992
robbery. (Order dated July 12, 1993, p.1; Records,
p.113). It distinctively provides a clear cut manner by
which the right of action against PISA may be exercised
by [SBC] pertaining to a specific robbery incidenta
matter visibly non-existent in the CSS. Indeed, this

special provision controls and prevails over the general
terms and conditions extant on the CSS. (Yatco v. El
Hogar Filipino, 67 Phil. 610) When a general and a
particular provision are inconsistent, the latter is
paramount to the former. Ergo, a particular intent, as in
this case reflected in letter e, paragraph 5 of the PRA
will control a general intent embodied in paragraph 9 of
the Contract of Security Services. (Section 12, Rule
130, Revised Rules of Court) Thus, the PRA is
paramount to and prevails over the terms and
stipulations in the first contract (CSS) on matters
relevant and material to PISAs liability relating to the
robbery. [26]
Indeed, the clear import of paragraph 5(e) of the PRA is that
recovery of the insurance proceeds would affect or prejudice SBCs
claim against PISA. If LIC had granted SBCs claim for indemnity, then
SBC could no longer claim the same amount from PISA. As a
corollary, it is only upon LICs denial of SBCs claim that SBCs right of
action against PISA could accrue. To rule otherwise would be to
countenance SBCs double recovery from its loss and lead to its unjust
enrichment.
The more important question is whether the written letter of
LIC, rejecting SBCs claim for indemnity, satisfied this condition.
PISA claims that the condition could not be recovered from the
insurer requires a final judgment against SBCs claim for indemnity
against LIC, because only then would the non-recovery be a final,
immutable fact. Since SBC has only just filed a case against LIC, and
recovery is still possible, the action against PISA is allegedly
Page 57 of 93
premature as the fact of non-recovery is not yet in esse. [27] That SBC
may be able to prove the negligence of the other security guards of
PISA in the event of the acquittal of the two accused security guards
is of no moment; PISA posits that the condition requires that recovery
from the insurer be impossible, i.e., upon a final adjudication by a
court, and not merely a denial by LIC of the claim. Only in such event
may suit be brought and proof of the other guards negligence
adduced, otherwise, paragraph 5(e) of the PRA would be rendered
nugatory.[28]
We hold that reading the clause as requiring a final judgment
is a strained interpretation and contrary to settled rules of
interpretation of contracts. Paragraph 5(e) only requires that the
proceeds could not be recovered from the insurer, and does not state
that it should be so declared by a court, or even with finality. In
determining the signification of terms, words are presumed to have
been used in their primary and general acceptance, and there was no
evidence presented to show that the words used signified a judicial
adjudication.[29] Indeed, if the parties had intended the non-recovery to
be through a judicial and final adjudication, they should have stated
so. In its primary and general meaning, paragraph 5(e) would cover
LICs extrajudicial denial of SBCs claim.
In sustaining PISA, the Court of Appeals relied on the
argument that paragraph 5(e) of the PRA was intended to
benefit PISA. The appellate court held that the phrase could not be

recovered from the insurer gives rise to doubt as to the intention of the
parties, as it is capable of two interpretations: either (1) the insurer
rejects the written demand for indemnification by the insured; or (2) a
court adjudges that the insurer is not liable under the policy. The
Court of Appeals then interpreted the antecedent circumstances prior
to the institution of Civil Case No. 92-3337 as manifesting SBCs
agreement to suspend the filing of the suit against PISA until after the
case against LIC has been decisively terminated.[30]
We have gone over the records and are unable to agree with
the Court of Appeals findings on this matter. Even if we are to agree
with the Court of Appeals that paragraph 5(e) is susceptible of two
interpretations, the stipulations in the PRA and the parties acts
contemporaneous with and subsequent to the execution of the
PRA[31] belie any intent of SBC to delay its suit against PISA until a
judicial declaration of non-recovery against LIC.
It should be noted that the PRA was entered into as a result of
the robbery, in which two of PISAs security guards were
implicated. The PRA expressly stated that the agreement was entered
into with respect to certain facts, among which were that (a) PISA was
providing security guards for SBC pursuant to the CSS, the said
contract being attached to the PRA and forming an integral part
[32]
thereof; and (b) pursuant to paragraph nine (9) of the CSS, PISA
shall be liable for any loss, damage or injury suffered by [SBC], its
officers, employees, clients, guests, visitors and other persons
Page 58 of 93
allowed entry into [SBCs] premises where such loss, damage or injury
is due to the negligence or willful act of the guards or representatives
of [PISA]. Moreover, if such loss, damage or injury is caused by a
party other than the guards or representatives of [PISA], [PISA] shall
be jointly and severally liable with said party if [PISA] failed to exercise
due diligence in preventing such loss, damage or injury. [33]
The express inclusion of these provisionsparticularly those
relating to the liability of PISA for the willful or negligent acts of its
guards, or its failure to exercise diligence, and the right of SBC to hold
PISA liable speaks of SBCs diligence in ensuring that notwithstanding
the PRA and the partial payment by PISA, SBCs right of action
against PISA for its liabilities under the CSS is preserved. SBC may
have agreed to delay the suit against PISA until after the formers
claim for indemnity against LIC has been decided, but it is far-fetched
to believe that SBC agreed to hold such right of action in abeyance
until after a legal claim against LIC had been adjudicated. This
conclusion is further bolstered by the following material events:
1. The Taytay robbery was committed on March 12, 1992.
2. SBC made a written demand on April 10,
1992 against PISA for the losses sustained by SBC from
the robbery.
3. SBC and PISA executed the PRA on June 23, 1992.
 Page 59 of 93

4. LIC rejected SBCs claim for indemnity under the If some stipulations of any contract should admit of several
insurance on August 5, 1992. meanings, it shall be understood as bearing that import which is most
adequate to render it effectual.[34] The various stipulations of a
5. SBC protested the LIC rejection in a letter dated August contract shall be interpreted together, attributing to the doubtful ones

28, 1992. that sense which may result from all of them taken jointly. [35] When it

6. On the same date, August 28, 1992, SBC is impossible to settle doubts by the rules established in the preceding

informed PISA of the denial by LIC of SBCs insurance articles, and the doubts refer to incidental circumstances of an

claim, and demanded from PISA indemnification based on onerous contract, the doubt shall be settled in favor of the greatest

paragraph 5(e) of the PRA. reciprocity of interests. [36]

We therefore hold that SBCs suit against PISA was not

7. On September 17, 1992, PISA denied the letter of
premature, and the dismissal of the action as against PISA was
demand of SBC.
improper.
8. On November 16, 1992, SBC sued LIC and PISA.

IN VIEW WHEREOF, the petition is GRANTED. The assailed

From the above events, it seems clear that SBCs suit against
Decision of the Court of Appeals in CA-G.R. CV No. 45259,
LIC was not a mere afterthought after LIC had rejected its
dated August 31, 1999, as well as its Resolution dated January 31,
claim. Rather, SBC exercised its right of action against PISA pursuant
2000, is REVERSED. Civil Case No. 92337 is REMANDED to the
to paragraph 5(e) of the PRA. This interpretion is consistent with
RTC, NCJR, Makati City for further proceedings.
settled canons of contract interpretation, has the import that would
make SBCs right of action effectual, and would yield the greatest
reciprocity of interests. Indeed, we agree with SBC that PISAs SO ORDERED.
REYNATO S. PUNO
Chief Justice
interpretation of the clause would lead to an effective waiver of SBCs
right of action, because to await the judicial determination of the LIC WE CONCUR:
suit may lead to the prescription of SBCs right of action against PISA.
ANGELINA SANDOVAL-
GUTIERREZ
 Page 60 of 93

Associate Justice their participation in that property; that on January 19, 1907, the other
(on leave) plaintiffs executed the same mortgage and lease in favor of the
RENATO C. CORONA ADOLFO S. AZCUNA defendant upon their interest in the same property; that the said
Associate Justice Associate Justice contract of lease has been terminated by the payment by the plaintiffs
to the defendant of the principal and interest of the mortgage; that the
CANCIO C. GARCIA said contract of lease is null and of no effect by reason of the minority
Associate Justice of the plaintiff Antonio Gascon, who is still a minor; that the defendant,
after June 22, 1906, made all the repairs necessary to its business
CERTIFICATION with the approval of the plaintiffs.
The plaintiffs further allege that there exists in that building a principal
Pursuant to Section 13, Article VIII of the Constitution, I certify that wall about one meter in thickness and five meters in height, which
extends from the front of the building on the Escolta to the rear of the
the conclusions in the above decision had been reached in same; that upon this wall rests the second floor of the building and
consultation before the case was assigned to the writer of the opinion that it is necessary to safely maintain the building against earthquakes
and typhoons; that on 11th of April, 1911, the defendant commenced
of the Courts Division. to destroy and remove the said wall and was on the date of the filing
REYNATO S. PUNO of this complaint actually engaged in the destruction and removal of
Chief Justice the same; and unless restrained, would continue such destruction and
removal, to the irreparable injury of the plaintiffs; and that the
defendant has varied the form and substance of the leased premises.
The plaintiffs therefore prayed that the defendant be prohibited from
destroying and removing said wall; that it be ordered to rebuild or
replace that part which it had removed or destroyed; and that the
contract of lease be declared terminated and rescinded.
EN BANC On the 12th day of April, 1911, a preliminary injunction was issued by
G.R. No. L-7180 March 30, 1912 the Court of First Instance, prohibiting and restraining the defendant
from continuing the removal and destruction of the wall in question,
RAFAEL ENRIQUEZ, ET AL., plaintiffs-appellants,
and requiring it to appear in court on the 17th of that month to show
vs.
cause why such preliminary injunction should not be continued in
A.S. WATSON & CO. LTD., defendant-appellee.
force during the pendency of this action.
Rohde and Wright for appellants.
On the 21st of that month, the defendant company answered,
W. A. Kincaid and Thomas L. Hartigan for appellee.
admitting the allegations as to the ownership, mortgage, and lease,
TRENT, J.: contained in paragraphs 1, 2, an 3 of the complaint, and denying all
This action was brought on April 12, 1911, by Rafael, Antonio, the other allegations therein. The defendant set up by way of special
Trinidad, Cayetano, Rosario, Gertrudis and Carmen Enriquez, and defense that the wall in question was not a principal wall and did not
Antonio Gascon (the latter being a minor, was represented by his extend the entire length of the building; that said wall consisted of two
guardian ad litem), as owners and lessors of the property Nos. 72, 74, shells filled with mortar; that it was very old, deteriorated, and weak;
an 76 Escolta, city of Manila, against A. S. Watson & Company, Ltd., that it was necessary, in order to conserve the property, to remove
as lessee of said property. The plaintiffs allege that on June 22, 1906, said wall and to substitute it with other material; that the wall in
Rafael, Carmen, Antonio, and Trinidad Enriquez and Antonio Gascon question is so located that it and its subtenant are deprived of the use
executed to the defendant a contract of mortgage and lease upon of a large part of the ground floor fronting on the Escolta; that under

Clause M of the contract of lease, the defendant has the right to
remove the wall, substituting in lieu thereof other material, this being
required by the business established in said building.
As a second special defense, the defendant admits the payment of
the mortgage by the plaintiffs, but alleges that the contract of lease is
independent of the mortgage contract, and that in satisfying the
mortgage of the defendant, the leasehold was specifically continued in
force by all parties.
As a third special defense, the defendant alleges that under the
provisions of Paragraph M of the contract of lease, it has expended
the sum of over sixty thousand pesos in improving the leased
premises, and that on making such expenditure it believed that it
would be reimbursed by enjoying the occupancy and subrenting of the
premises.
On the 24th day of May, 1911, The Philippines Drug Company, a
corporation organized under the laws of the Philippine Islands,
appeared and asked leave to intervene as an interested party. This
leave being granted, it alleged that it is the actual owner of the
pharmacy situated in the leased premises, which formerly belonged to
the defendant A. S. Watson & Company, Ltd.; and that the defendant
sublet to it the ground floor of the leased property under the same
conditions as are expressed in the original contract of lease. The
intervener further alleged, as did the defendant, the necessity for the
removal of the wall in question in order to give it more space as
required by its business, and that the removal of this wall was
authorized in Paragraph M of the original lease.
The trial court, after considering the evidence presented, making a
personal inspection of the leased premises, and hearing the
arguments of counsel for both parties, and after making its findings of
facts and conclusions of law, entered the following decree, to wit:
The court denies the rescission and declaration of nullity of the
contract of lease demanded by the plaintiffs, declaring such
contract of lease to be valid and subsisting and binding upon
the parties thereto, and upon the sublessee and intervener,
the Philippine Drug Company, and continues and declares
final the preliminary writ of injunction issued herein on the 12th
day of April, 1911, but modifying the same by permitting the
defendant, A. S. Watson & Co. Ltd., or the intervener, the
Philippines Drug Company, to remove the wall in question on
the condition that they substitute it with properly constructed
Page 61 of 93
concrete pillars and arches and such other work as may be
necessary as specified in Finding No. 17 of this judgment
using such temporary shoring and bracing as shall be
necessary to insure the safety of the building while such
change is being made, which work of removal and substitution
may be commenced and carried out upon the defendant or
intervener, or both, filing herein an undertaking in the sum of
P10,000 with sureties approved by the court, conditioned that
it or they will reimburse the plaintiff lessors for any and all
damage that may be caused the leased premises by a failure
to take proper precautions and employ proper means to
safeguard and protect the building while such work of removal
and substitution is being accomplished.
From this judgment the plaintiffs appealed and make the following
assignment of errors:
1. The judgment is erroneous in not having declared rescinded
the contract of lease.
2. The judgment is erroneous in finding that the lessee and
sublessee have the right to change the form and substance of
the property leased.
3. The judgment is erroneous in finding that the lessee acted
in good faith in beginning the destruction of the wall. believing
that under the contract of lease it had the right to do this.
4. The judgment is erroneous in not finding that the building is
weakened by the destruction of the wall.
5. The judgment is erroneous is so far as it modifies the
preliminary injunction.
6. The judgment is erroneous in not declaring perpetual the
preliminary injunction.
7. The judgment is erroneous in the dispositive part thereof
relating to the form and manner of making the modifications in
the property because it does not relate to anything at issue in
the case.
8. The judgment is erroneous in the part relating to the form
and manner of making the modifications in the property
because it does not dispose of anything judicially, but, on the
contrary, gives permission to the opposing parties without
commanding them to do anything.

9. The judgment is erroneous because it does not order the
repair of the destruction made in the wall.
10. The judgment is erroneous because it declares valid the
contract of lease.
11. The court erred in denying the motion for a new trial.
All the questions in this case may be merged into one, and that is: Did
the trial court err in failing to declare the contract of lease voidable or
rescinded for one of two reasons: first, because of the minority of one
of the lessors; and second, because neither the defendant nor
intervener had authority under the contract of lease to remove the wall
in question? Plaintiffs do not now insist that the contract of lease was
terminated on the payment of the mortgage.
The eight plaintiffs each have a one-eight undivided interest in the
leased premises. The property was leased to the defendant for a
period of twelve years with permission to renew the lease for a further
period of six years. Seven of these plaintiffs were of age when they
executed this contract of lease. The other, Antonio Gascon, was a
minor. At the time this contract of lease was executed, the minor was
represented by his judicial guardian. The guardian having obtained
authority or permission of the court to enter into this contract of lease
for and on behalf of his ward, the action of the guardian in executing
said contract was approved by the probate court.
Article 1548 of the Civil Code reads:
ART. 1548. The husband can not give in lease the property of
the wife, the father and guardian, that of the son or minor, and
the administrator of property, not having a special power, for a
period exceeding six years.
Article 398 of the same code provides:
ART. 398. The decision of a majority of the coowners as to the
management and better enjoyment of the thing owned in
common shall be obligatory.
There shall be no majority, unless the resolution has been
adopted by the coowners representing a majority of the
interests which constitute the object of the community.
Should there be no majority, or the resolution of the latter is
seriously prejudicial to the parties interested in the thing
owned in common, the judge, at the instance of a party, shall
Page 62 of 93
decree what may be proper, including the appointment of an
administrator.
xxx xxx xxx
Counsel for the plaintiffs do not claim that the contract of lease which
was made for a period of more than six years is seriously prejudicial
to the interests of the minor, nor do they claim that said contract, of
itself, prejudices in any way the minor's interest.
The supreme court of Spain had under consideration this very
question in its resolution of April 26, 1907 (vol. 15 Jurisprudencia
referente al Codigo Civil, p. 194). In this case, a contract of lease for
twelve years, executed by one of the coowners of a certain property,
one of whom was a minor, had been presented for registry. Registry
was refused for the reason, among others, the majority of the
coowners lacked authority to execute said contract of lease. It was
argued that the majority of the coowners, in their enjoyment of the
control of the management and administration of the thing, acted in a
representative or an administrative capacity in regard to the minority.
In determining the questions presented in this case, the court said:
That for the administration and better enjoyment of the thing,
the decision of the majority of the coowners is obligatory, and
that there is no majority, unless the decision is made by the
coowners, that represent the majority of the interests that
constitute the object of the community, are general rules laid
down in article 398 of the Civil Code, governing community of
property.
The contract of lease is by its nature and purpose one of the
means of enjoyment or development of nonfungible property,
and, in this concept, may be agreed upon by the coowners of
a thing, provided always that they represent a majority of the
interests of the community, the decision being obligatory for all
by virtue of the powers that are expressly conferred upon them
by virtue of said provisions.
If, indeed, the contract of lease of real property for a period
exceeding six years, or in which the rents are advanced for
more than three years, constitutes a real right inasmuch as it is
subject to registry, according to the decision of this court in
various resolutions, this principle of law, which has been
applied in the sense of not permitting the execution of such a
contract to those who administer the goods of others, and
especially to prevent agents from executing such a contract

without special authority for the same, in accordance with the
provisions of article 1713 of the said code, is not opposed to
the principle of law laid down in said article 398; taking into
consideration the legal character and peculiar attributes of
community of property, which makes it convenient and
necessary that those who have less interest therein should
submit to those who have a greater participation therein, in all
that refers to the exploitation and ordinary enjoyment of the
same, the rule is established that the enjoyment of the
common thing must be subject to the will of the majority,
without distinguishing and limiting the period or the form of the
enjoyment; therefore, the contract of lease being the same in
essence whatever the term for which it is constituted, such a
contract must be considered as an act of mere administration,
and subject to contract by the decision of the majority of
coowners, the other interested parties always having the right
to appeal to the court when the decision is gravely prejudicial
to them according to the provisions of the same article 398.
This doctrine was recognized by the supreme court in its
decision of June 30, 1897, and of the 8th of July, 1902, and by
this court in its resolution of May 29, 1906, considering as
included in the powers conferred in said article, leases
exceeding a period of six years, decided upon by a majority of
the coowners of a property possessed in common.
The contract of lease of the property referred to in these
proceedings, having been agreed upon by the coowners
representing the majority of the interests in the same, they
were possessed of sufficient legal capacity by virtue of what is
already said, and it is, therefore, subject to registry.
In the execution of the contract of lease under consideration, the
minor was, as we have said, represented by his judicial guardian, who
not only asked the court for and obtained authority to execute this
contract of lease on behalf of this ward, but his act, after the
execution, was approved by the court. The interest of the minor has
not been prejudiced by reason of the fact that this contract of lease
was executed for a term of more than six years. Under the doctrine
laid down by the supreme court of Spain, it would appear that this
contract of lease would be valid if the minor had not been represented
by his guardian. The minor having been represented by his duly
appointed guardian, there can be no question about the validity of this
contract of lease.
Page 63 of 93
The principal question is whether or not the appellees have violated
the terms of the contract of lease and thereby entitle appellants to
have said contract of lease rescinded.
Before considering the contract in question, it might be well to
examine the right of the lessee to make changes in the property
leased, if there were no express stipulation therefor in the contract.
Article 1573 of the Civil Code provides:
A lessee shall have, with regard to the useful and voluntary
improvements, the same rights which are granted the
usufructuary.
Article 487 of the same code reads:
The usufructuary may make on the property which is the
object of the usufruct any improvements, useful or for
recreation, which he may deem proper, provided he does not
change its form or substance; but he shall have no right to be
indemnified therefor. He may, however, remove said
improvements, should it be possible to do so without injury to
the property.
The result is that the lessee may make any improvements, useful or
for recreation, in the property leased that he may deem proper,
provided that he does not change its form or substance. The same
obligation is expressed in articles 487 and 489, and in so far as the
form of the thing is concerned, in article 1557. According to article 487
and 1557, the obligations of the lessee and the lessor are the same in
the absence of any agreement to the contrary, in so far as the
conservation of the form of the thing leased is concerned. This
question of conserving the form and substance of the thing leased or
the object of the usufruct has been passed upon at various times by
the courts.
In the case of the Manila Building and Loan Association and Peñalosa
(13 Phil. Rep., 575), this court said:
If the object leased were a house, it is evident that the lessee
might effect such improvements for use, recreation or comfort
as would not change its form or substance as he deemed fit;
he could build a tower or luxurious pavilion more expensive
than the house itself, to which, at the expiration of the lease,
the owner of the house would have no right whatever, unless
the lessee could not remove the same without injury to the
house to which it was attached as an improvement, excepting

of course the right to cause the same to be demolished so that
the house might be returned to him in the same condition that
the lessee received it; . . . .
The supreme court of Spain, in its judgment of June 24, 1905, volume
14 of the Jurisprudencia referente al Codigo Civil, page 38, had under
consideration the interpretation of this phrase in a case in which the
lessee asked for the rescission of the lease because the lessor had
altered the form of the thing leased. The facts were that the lessee
had leased the house for the period of ten years, and at the time of
the execution of the contract of lease, there was a vacant lot next to
the house and 13 windows of the house lease overlooked this lot.
Thereafter the owner of the adjacent lot constructed an edifice
thereon which gave rise to litigation between the lessor and the owner
of the adjacent lot, which litigation was settled by the lessor and the
owner of the said lot, the latter being permitted to cover the windows
of the leased property, and the former allowed to open in the partition
wall of the latter's garden two large and two small windows of
specified dimensions, under certain conditions. The construction was
continued, with the result that such construction effectually closed and
covered the 13 windows and the balcony, depriving the property
leased of the light previously received by the same. For the purpose
of obtaining better light, many changes were made and much work
done in the interior of the leased house, the final result being that
some of the rooms of the house were darkened completely, others
receiving poor and indirect ventilation. The court, in refusing to rescind
the contract of lease, said:
It does not appear that there is error committed by the trial court in its
decision as set out in the first assignment of error, because, even
though the noncompliance by the lessor of his obligations, among
which was that of maintaining the lessee in the peaceable enjoyment
of the lease during the period of the contract, and the prohibition to
change the form of the thing leased, confers upon the lessee the right
to ask for the rescission of the contract, such circumstances are not
found in the present case since the trial court says that the appellant
was not disturbed in the possession of the house, the object of the
lease, nor was he impeded from using the premises as a tavern, for
which use he had intended the same, and these findings of fact have
not been legally impugned.
The decision also states that the changes made in the property did
not change the form of the same in the sense and concept covered by
article 1557 of the Civil Code. Notwithstanding that the findings on the
Page 64 of 93
point contain legal reasoning now corresponding to this court, the
interpretation of this article can not be made in general and absolute
terms not defined by law, because as a circumstantial fact depending
in each case on the peculiar conditions of the thing leased, there
exists no reason in the case at bar upon which to base the conclusion
that the trial court erred, having in mind that the particular use of the
same as a tavern was not interfered with, as held in its decision, and
also the fact set out in its decision, and not contradicted in any
manner, namely, that the changes and alterations made were
beneficial, tolerated by Sabay, and consented to by the person to
whom Sabay transferred his rights under the contract of sublease.
The two last reasons given for the rescission of the contract
lack force and weight, because, in accordance with the sense
and concept of article 1561 of the said Civil Code, the property
must be returned at the expiration of the term of lease with the
changes made in the same, and these do not involve, as has
already been said, any variation or change of form or any
interruption of the peaceable enjoyment of the lease and
because it does not appear from the facts that the trial court
accepted as proven that the appellant suffered disturbance of
his rights for which he had been compelled to become
responsible to the lessor, and he, not having done so, there is
no legal reason to apply, as is attempted, the provisions of
article 1560 of the code referred to.
Manresa, in volume 10 of his commentaries on the Civil Code, pages
534, 535, [488, 489] says:
The question was discussed very energetically as to whether
the lessee of a city property leased for a stated industrial
purpose, could install machinery propelled by steam in
substitution for the utilities, implements, and contrivances
which were used before the general adoption of such
machinery. The installation of modern machinery and its
ordinary operation, at once caused a deterioration to the
estate much greater than the use of the former apparatus,
besides the accidents which might occur and which produce
very great damage to the thing leased. Therefore, based upon
this consideration, it was said that the lessee could not make
this substitution because it implied a bad and prejudicial use of
the thing and therefore very different from that diligence of a
good father in its use to which he had obligated himself.

As Laurent says, there arise here two contrary interests and
two diverse tendencies. The owner has in view the stability of
the structure and fears every innovation which may
compromise its preservation. The manufacturer finds himself
obliged to keep abreast of the development of his industry, to
make changes, if he does not wish to perish, and his interests
demand that he put into practice the inventions which increase
his profits, even though the edifice may suffer. The owner
commences to resist, adds this writer, but competition forces
the manufacturer, and the owner ends by yielding, if he does
not wish to remain unproductive.
This is the essence of the policy pursued by foreign decisions,
where the question has been so much more important than in
our own country. Until the year 1860, judicial decisions were
inclined to favor the owner of the property. But from that year
the rights of industry have been recognized with ever
increasing clearness. It has been considered that from the
moment the lease is drawn up, in which is stated the industrial
use to which the lessee desires to put the thing leased, the
claims of the industry to which the object of the lease is to be
devoted have been determined, and the lessee can not be
condemned to a stagnation which would be uneconomical,
and, these facts admitted, the logical consequences must
necessarily follow: the lessor can not prevent the lessee from
adopting the improvements of his industry; the acts of the
parties in making the stipulations in the lease will do the rest.
The lessee may make on the property which is the object of the lease
any improvements, useful or for recreation, which may be deem
proper, provided he does not change its form or substance. He is
obligated to use the thing leased as a diligent father of a family would,
and to return the thing leased at the expiration of the lease in the
same condition in which he received it, except what may have been
destroyed or impaired by time or unavoidable reasons. (Arts. 1573,
487, 1555, and 1561, Civil Code.)
The supreme court of Spain recognizes the fact that no ironclad rules
for the interpretation of these articles can be laid down which would
govern all cases. These provisions must be applied according to the
facts and circumstances of each case. Manresa is inclined to the view
that industrial development should be taken into consideration in the
determination of questions involved in the application of said articles.
The provisions of these articles are general rules of law, and, like
Page 65 of 93
most general propositions, are not to be accepted without limitation or
reserve, under any and all circumstances. They must be interpreted in
the light of the growth of civilization and varying conditions. Certain
obligations are placed upon the lessee to prevent lawless acts which
would result in waste or destruction. The importance of these
obligations to the lessor cannot be denied. Especially are they
valuable and essential to the protection of a landlord who rents his
premises for a short time. Suppose he has fitted his premises for
certain uses and leases them for such uses for a short term. He would
then be entitled to receive them back at the end of the term still fitted
for those same uses, and he may well say that he does not choose to
have a different property returned to him from that which he leased,
even if it be found to be of greater value of reason of the change. But
suppose that a usufructuary who has a life interest in an estate should
receive as such a hemp hacienda, and that in a short time this
hacienda should become permanently unproductive through disease
or death of the plants, or by change of the market conditions, and the
land to have become far more valuable, by reason of new conditions,
as rice or sugar land. Is the usufructuary to be compelled to preserve
or renew the useless hemp fields and forego the advantages to be
derived from a different use? Or, suppose a life tenant should change
warehouses into dwelling houses on the ground that by change of
conditions the demand for warehouses had ceased and the property
had become worthless, whereas it would be very valuable when fitted
for dwelling houses. Would this be such a change in the form or
substance of the thing leased as to forfeit the interest of the tenant?
Again, a lessee for a long term received, during very prosperous
times, a hemp hacienda upon which were constructed large and
valuable storehouses in which were the old style hand-presses, but
new. Later, on account of a complete change in conditions due to the
market and the method of pressing hemp by steam, the lessee
allowed the buildings and presses, which had become useless, to fall
into decay rather than incur the expense of repair. Would a prudent
owner of the fee, if in possession, have done the same? These
questions naturally suggest their own answer. The radical and
permanent changes of surrounding conditions must always be an
important consideration in the determination of such questions. The
interpretation that "if the man is too long for the bed his head should
be chopped off rather than enlarge the old bed or purchase a new
one" should not be given those provisions of the Civil Code regarding
the obligations of lessees.

Let us now turn to the contract of lease and the evidence presented.
In this contract of lease there are two clauses which deserve careful
consideration.
Clause K:
All the expenditures for cleaning, painting, and repairs which
the building may require and all that is ordered done by the
Board of Health, will be at the expense of the lessee, A. S.
Watson and Company, Limited.
Clause M:
The lessee may make such works on the building as the
business which it has established therein requires, provided
always that neither the strength nor the value of the said
building is impaired.
It will be noted that the word "reparaciones" is used in Clause K, and
the word "obras" in Clause M. Counsel for the appellants insist that
the word "obras" as thus used means the same as "reparaciones."
The Encyclopedic Dictionary of the Castilian Language (Diccionario
Enciclopedico de la Lengua Castellana) defines these words as
follows:
OBRA:
1. A thing made or produce by an agent.
xxx xxx xxx
4. A building in course of construction.
REPARACION:
1. The action an effect of repair. (Reparar-verb: To mend, to
straighten, or correct the damage suffered by something.)
The New Dictionary of the Castilian Language (Nuevo Diccionario de
la Lengua Castellana) defines the same words as follows:
OBRA:
Anything made, created, or produced by the some power or
agent. Any construction of architecture, masonry, or carpentry,
applied especially to buildings in course of construction or
repair, as: "There are three jobs in Calle Hortaleza. Everything
in my house is disordered and topsy-turvy because of the
work."
REPARACION:
Page 66 of 93
The act or effect of repairing or of being repaired. The fact of
the repairing, in the sense of renewing or improving
something.
The only synonym given in this work for "obra" is produccion."
It may be that repairs are included in the definition of "obras."
Nevertheless, it cannot be denied that the word "obras," used in its
general sense, has a far more comprehensive meaning than just
simple repairs.
Sections 290 and 293 of the Code of Civil Procedure, provide:
SEC. 290. Terms of a writing presumed to be in their ordinary
sense. — The terms of a writing are presumed to have been
used in their primary and general acceptation, but evidence is
nevertheless admissible that they have a local, technical or
otherwise peculiar signification, and were so used and
understood in the particular instance, in which case the
agreement must be construed accordingly.
SEC. 293. Where intention of different parties to instrument
not the same. — When the terms of an agreement have been
intended in a different sense by the different parties to it, that
sense is to prevail against either party in which he supposed
the other understood it; and when different constructions of a
provision are otherwise equally proper, that is to be taken
which is the most favorable to the party in whose favor the
provision was made.
In the case at bar no proof has been presented tending to show that
the word "obras" was used in a technical or special sense, or that it
has a local signification, and therefore, it must be considered as used
in its ordinary and general sense. If there exist any ambiguity and if
the meaning that the appellants give to the word "obras" is proper, the
meaning given by the appellees is likewise proper, consequently, we
must apply the rule laid down in section 293, above quoted, for the
reason that the stipulation contained in Clause M of the contract is a
stipulation in the favor of the lessee.
Counsel for appellants insist that in order to define the meaning of the
word "obras" we should refer to the articles of the Civil Code that deal
with contracts of lease. This might be done in those cases where the
intention of the parties could not be ascertained from either the
contract itself or from the conduct of the parties in executing and
carrying out the same. In the case at bar, all that is necessary is to

give a fair and reasonable interpretation to the meaning of clause M of
the contract of lease. This clause contains certain limitations on the
exercise of the right to make alterations (obras): first, the alterations
(obras) proposed to be made must be required by the business;
second, such alterations must not injure the solidity of the building;
and third, the same must not prejudice the value of the building. But it
is insisted, as we have said, that the word "obras" in clause M must
be interpreted to mean "reparaciones" as used in Clause K. Clause K
imposes upon the lessee the obligation to make the repairs required
by the building for its conservation. If the words have exactly the same
meaning and were intended by the parties to mean the same thing,
then the insertion of clause M would only have had the effect of giving
to the lessee the right to keep the building in repair, when, as a matter
of fact, Clause K made it its duty to repair the building. As we
understand the contract, in Clause K a duty is imposed upon the
lessee, while in Clause M a right is given to it. In Clause K the word
"reparaciones" is used in connection with the duty, and in clause M
the word "obras" is used in connection with the right. If the contracting
parties had intended that the two words be used in the same sense
they would have so stated, or they would have eliminated Clause M
entirely as being useless, as it is meaningless to say that when a duty
is imposed upon a person it is necessary to expressly give him a right
to perform that duty. If he did not have the right to perform that duty,
the same would not have been imposed upon him. The stipulations in
Clause M are expressed as clearly and explicitly as they could have
been under the circumstances. At the time of the execution of this
contract of lease, it was impossible to know what would be the
requirements of the business during its term of eighteen years. It was
likewise impossible for the parties to have then agreed in detail as to
the changes that might be necessary. The lessee wished to reserve to
itself the right to make the changes in the property required by its
business, and none of the parties could anticipate what might be
required during this long period of time. This right was conferred upon
the lessee by the lessors, but the right, as we have said, had its
limitations: that is, the lessee could not prejudice the solidity or the
value of the building without breaking the contract.
The question was raised as to whether the conduct of the parties in
carrying out the terms of this lease has been such as to show or
indicate their intention or understanding of the meaning of the word
"obras" when they inserted this word in Clause M. Upon this point the
trial court said:
Page 67 of 93
That under and by virtue of the said contract of lease, the
defendant company entered into possession of the leased
premises, making therein alterations and repairs at a cost of
some P60,000, including the removal of the whole front of the
building facing upon the Escolta and replacing the same upon
the new street line, established by the city of Manila, with a
modern and a decorative commercial front; the removal of the
heavy tiled roof and the replacing of the same with a light
galvanized roof; the removal of various walls and replacing the
same with steel columns and girders; the tearing down and
rebuilding of a part of the building and the adding thereto of
a camarin upon the Pasig River; and the building of a river wall
and reclamation of a considerable amount of ground; and
which alteration included the removal of that part of the wall in
question which extended from point A to point G on the plan of
the premises introduced in evidence as defendant's Exhibit
No. 9, all of which repairs, alterations and improvements, were
made with final approval of the plaintiffs, although after much
controversy and many disagreements, and to which alterations
and improvements the plaintiffs contributed the sum of about
eighteen hundred pesos paid by the city of Manila for the
expropriation for street purposes of the small strip along the
front of the building heretofore mentioned.
These findings of fact are, we think, fully supported by the evidence.
The result is that these important and material changes, which include
the removal of a great portion of the very wall in question, were made
by virtue of the contract of lease itself. It is true that the owners
objected at first, but afterwards consented in accordance with the
provisions of Clause M, and not by reason of any subsequent specific
agreement. After all, that the defendants have the right under the law
and the provisions of Clause M of the contract of lease to remove the
wall in question, cannot be seriously doubted, provided always that
neither the solidity of the building nor its value be impaired.
Let us now determine whether or not a removal of the wall in question
(1) will prejudice either the solidity of the building or its value, and (2)
if it is required by the business of the defendants.
The walls which the defendants and interveners propose to remove
and substitute in lieu thereof other material is composed of two outer
shells of Guadalupe or Meycauayan stone, filled with lime, plaster and
rubber, the two shells being bound together by stones laid
transversely, the whole wall was so formed being about one meter

thick and extending from the front of the building a distance of about
38 meters toward the Pasig River. This wall is about four meters high,
extending from the ground floor to the second floor. The joists and
girders supporting the second floor are embedded in said wall. There
are two actual openings in this wall, with three doors and an arch,
which have been walled up. The wall is in good condition, except that
part removed by the defendants before the commencement of this
action, and said wall is one of the longitudinal walls, all being
approximately of the same thickness. The wall in question divides the
east half of the ground floor of the building approximately in its center
and sustains a part of the weight of the second floor of this east half,
together with a partition forming one of the divisions of the second
floor. But it does not sustain any of the weight of the roof, this weight
being distributed by means of trusses to the outer walls of the
building. About one-third of this wall, or that part nearest the Pasig
has already been removed, and the removal of the same was
approved by the owners. The interveners now propose to remove the
remaining two-thirds and substitute in lieu thereof other material,
using the material of the old wall for filing up certain openings in other
walls of the building. This old wall, according to the experts, offers
very little resistance to lateral shocks or motions. Practically all of the
resistance of lateral shocks or motions is furnished by the cross-walls.
Again, according to the opinion of the experts the building will be
greatly strengthened against earthquakes or unusual shocks or force,
and its durability increased by the removal of the remaining part of the
wall in question and the substitution in lieu thereof of reinforced
concrete posts or pillars and arches, taking the material and filing, as
the interveners propose to do, the openings in some of the other
walls. Such proposed removal, if carried out, will practically double the
floor space of the drug store and greatly increase its rental value, and
also greatly increase the actual value of the building. This extra floor
space is absolutely essential to the business carried on in this part of
the building. The foregoing are substantially the findings of the trial
court, based upon the testimony of expert witnesses, and an ocular
inspection of the premises. These facts show clearly and beyond a
question that the removal of the remainder of this old wall will not only
prejudice the solidity of the building, but greatly increase its solidity
and durability, as, according to the opinion of the experts, the
reinforced concrete posts and arches will offer greater resistance to
earthquakes or bagious than the old wall; that both the intrinsic and
rental value of the building will be increased; and that this removal is
required by the business.
Page 68 of 93
Lastly, counsel for the appellants say:
The plaintiffs contend that a contract is only binding on the
parties thereto as provided in article 1257 of the Civil Code
and that, although a sublessee is bound to the lessor as
provided in articles 1551 and 1552 yet this is not an obligation
arising out of contract but one founded in law and the relation
of the parties to property, and that the lessor has no obligation
towards the sublessee as such at all either legal or of contract
and that therefore even if by clause (m) of the lease of the
plaintiffs had the obligation to permit the defendant to take out
the wall to suit the convenience of its own business, that such
an obligation was purely personal between the parties to the
lease and since the contract of lease is not assignable this
right could not be transferred by the defendant or made use of
by the defendant for the benefit of other persons.
A lease may be of things, works, or services. (Art. 1542, Civil Code.)
In a lease of things, one of the parties thereto binds himself to give to
the other the enjoyment or use of a thing for a specified time and for a
fixed price. (Art. 1543, idem.)
Article 1550 of the Civil Code reads:
Should it not be expressly forbidden in the contract of the
lease of things, the lessee may sublet the whole or a part of
the things leased without prejudice to his liability for the
fulfillment of the contract executed with the lessor.
There is nothing in the contract of lease in the case at bar which even
tends to prohibit the lessee from subletting the whole or any part of
the leased premises. The lessee's right to do this cannot be
questioned, and his subtenant is not only obligated to carry out his
part of the contract with the sublessor, but he is also bound to the
lessors for all of the acts which refer to the use and preservation of
the premises, in the manner agreed upon between the lessors and the
lessee. The lessors can compel the subtenant to comply with these
conditions. This sets up the privity between the lessors and the
subtenant. But it is said that the contract of lease in question is not
assignable. This contract is an ordinary one, under which the lessee
as we have said, has a perfect right to sublet the whole of the
premises for the entire time. Should the lessee do this, would it not
amount to an assignment of the contract of the lease? The power of
assignment is incident to the state of every lessee of things, unless he
has been restrained by the terms of his lease. In the contract of lease

in question, the lessors, by Clause M, agree that the lessee may
make such changes as its business requires, provided that neither the
solidity nor the value of the building is prejudiced. This is a specific
right granted to the lessee. This right is a part of the lease itself and
affects directly the thing leased. It is not, therefore, a personal
obligation between the lessors and the lessee.
We are, therefore, of the opinion that the judgment appealed from
should be affirmed with costs against the appellant.
Johnson, Carson and Moreland, JJ., concur.
Arellano, C.J. and Mapa, J., dissent.
Separate Opinions
TORRES, J., dissenting:
Notwithstanding the respect the opinion of the majority deserves, I
regret that I can not agree with the foregoing decision in so far as it
follows the defendant, A. S. Watson & Co., or the intervener, The
Philippines Drug Company, to remove the wall in question on
condition that they replace it by pillars and arches of reinforced
concrete, with the remaining circumstance set forth.
In my opinion this point in the judgment appealed from should be
reversed by sustaining the injunction issued by the court and ordering
the destroyed wall to be restored to the form and condition it
previously had. The destruction of this wall amounts to a change in
form and an essential modification of the condition of solidity the
property had before it was removed. The best proof that it was not
expedient to remove the wall in question is the fact that immediately,
and as the wall was being torn down, the building was propped up
and another wall erected to replace the one taken out.
Article 1557 of the Civil Code prescribes:
The lessor can not change the form of the thing leased.
Article 1551 thereof says:
The lessee must return the estate at the expiration of the lease
in the same condition in which he receive it, except what may
have been destroyed or impaired by time or by unavoidabe
reasons.
In the contract of the lease appears the following Clause M:
Page 69 of 93
The leasing company may perform on the property the work
required by the business it has established therein, provided
that the solidity of the building is not damaged or its value
affected.
The defendants proceeded to tear down said wall in violation of the
provisions of law and the agreement in the contract of the lease, for
the clause quoted does not authorize them to destroy the central wall
of the building, even with the intention of replacing it by another wall of
concrete, and in doing so they changed in the form of the building and
performed work not authorized in the contract, and which essentially
affects the solidity of the building.
Even though said clause provides that the leasing company may
perform the work required by the business it has established therein,
yet the same clause says: provided that the solidity of the building is
not damaged or its value affected. By tearing down the wall in
question and changing its form as the central support of the whole
weight of the second story and of the framework of the roof, the
defendant company undoubtedly performed work which essentially
affects the solidity and value of the structure.
The convenience of the tenant, not admitted by the owner, is no legal
reason or cause whereby the former may alter the condition of the
property, and as there was no express stipulation that said wall might
be torn down, it is impossible to assert that the leasing company has
not violated the contract and the legal provision which protects the
rights of the owner, who should in no sense be at the mercy of the
caprice and convenience of the tenant, for that would give rise to a
genuine transgression upon the right property.
One of the obligations of the lease under Article 1555 is to used the
thing leased like a careful householder by applying it to the use
agreed upon, and, in default of agreement, to the use that may be
inferred from the nature of the thing leased according to the custom of
the land. There is no custom in this country whereby a tenant may
without permission of the owner tear down in this way a central wall
that upholds a building.
In a country like this, where the ground is frequently shaken by an
enormous internal force, causing violent earthquakes, it is customary
to build for the solidity of the structure walls of size and extent such as
that of the property in question, which was destroyed by the defendant
party by and for itself. In spite of the defects ascribed thereto, it is
sufficient to assert that said wall has withstood all the violent
 Page 70 of 93

earthquakes that have occurred during the latter half of the past
century, and yet it was arbitrarily torn down without the knowledge
and consent of the owners and in spite of an injunction of the court,
not because it was not solid but because it was thick and wide and
took up a good deal of space in the place which the defendant
company wished to use to its full extent. A concrete wall, with which
the destroyed stone was replaced, would be more convenient for the
interests of the defendant because it would take up less room, but the
solidity of concrete walls in this land of earthquakes has not yet
received the stamp of conclusive test in one of those violent
phenomena, happily not yet experienced since concrete buildings
have been erected here. But if the will of the parties is the law in
contracts not contrary to law, morality and public order, and in cases
not foreseen by the interested parties, the rules and provisions of law
that protect the reciprocal rights and duties of the contracting parties,
the leasing company unquestionably had no right to tear down the
wall in question and replace it by another of concrete without the
consent and against the express objection of the owners of the
property.
Therefore, I think that the first part of the judgment appealed from
should be affirmed and that the second part, referring to the
authorization therein conferred upon the defendant party to remove
the wall in question and replace it by another of concrete with the
conditions set forth, ought to be reserved and the defendant party
ordered to replace the destroyed wall in the form and condition it
formerly had, with the costs against the defendant party. Sec. 15. Written words control printed

EN BANC
G.R. No. L-32986 November 11, 1930
FRANCISCO JARQUE, plaintiff-appellee,
vs.
SMITH, BELL & CO., LTD., ET AL., defendants.
UNION FIRE INSURANCE CO., appellant.
Benj. S. Ohnick for appellant.
Vicente Pelaez for appellee.

OSTRAND, J.:

The plaintiff was the owner of the motorboat Pandan and held a
marine insurance policy for the sum of P45,000 on the boat, the policy
being issued by the National Union Fire Insurance Company and
according to the provisions of a "rider" attached to the policy, the
insurance was against the "absolute total loss of the vessel only." On
October 31, 1928, the ship ran into very heavy sea off the Islands of
Ticlin, and it became necessary to jettison a portion of the cargo. As a
result of the jettison, the National Union Fire Insurance Company was
assessed in the sum of P2,610.86 as its contribution to the general
average. The insurance company, insisting that its obligation did not
extend beyond the insurance of the "absolute total loss of the vessel
only, and to pay proportionate salvage of the declared value," refused
to contribute to the settlement of the general average. The present
action was thereupon instituted, and after trial the court below
rendered judgment in favor of the plaintiff and ordered the defendant
National Union Fire Insurance Company to pay the plaintiff the sum of
P2,610.86 as its part of the indemnity for the general average brought
about by the jettison of cargo. The insurance company appealed to
this court and assigns as errors (1) "that the lower court erred in
disregarding the typewritten clause endorsed upon the policy, Exhibit
A, expressly limiting insurer's liability thereunder of the total loss of the
wooden vessel Pandan and to proportionate salvage charges," and
(2) "that the lower court erred in concluding that defendant and
appellant, National Union Fire Insurance Company is liable to
contribute to the general average resulting from the jettison of a part
of said vessel's cargo."
I. As to the first assignment of error, little need be said. The insurance
contract, Exhibit A, is printed in the English common form of marine
policies. One of the clauses of the document originally read as
follows:
Touching the Adventures and Perils which the said National
Union Fire Insurance Company is content to bear, and to take
upon them in this Voyage; they are of the Seas, Men-of-War,
Fire, Pirates, Rovers, Thieves, Jettison, Letters of Mart and
Countermart, Surprisals, and Takings at Sea. Arrest, Restraint
and Detainments, of all Kings Princes and People of what
Nation, Condition or Quality so ever; Barratry of the Master
and Marines, and of all other Perils, Losses and Misfortunes,
that have or shall come to the Hurt, Detriment, or Damage of
the said Vessel or any part thereof; and in case of any Loss or
Misfortunes, it shall be lawful for the Assured, his or their
Page 71 of 93
Factors, Servants, or assigns, to sue, labour and travel for, in
and about the Defense. Safeguard, and recovery of the said
Vessel or any Charges whereof the said Company, will
contribute, according to the rate and quantity of the sum herein
assured shall be of as much force and Virtue as the surest
Writing or Policy of Insurance made in LONDON.
Attached to the policy over and above the said clause is a "rider"
containing typewritten provisions, among which appears in capitalized
type the following clause:
AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL
ONLY, AND TO PAY PROPORTIONATE SALVAGE
CHARGES OF TEH DECLARED VALUE.
At the bottom of the same rider following the type written provisions
therein set forth are the following words: "Attaching to and forming
part of the National Union Fire Insurance Co., Hull Policy No. 1055."
It is a well settled rule that in case repugnance exists between written
and printed portions of a policy, the written portion prevails, and there
can be no question that as far as any inconsistency exists, the above-
mentioned typed "rider" prevails over the printed clause it covers.
Section 291 of the Code of Civil Procedure provides that "when an
instrument consists partly of written words and partly of a printed form
and the two are inconsistent, the former controls the latter." (See
also Joyce on Insurance, 2d ed., sec. 224, page 600; Arnould on
Marine Insurance, 9th ed., sec. 73; Marine Equipment Corporation vs.
Automobile Insurance Co., 24 Fed. (2d), 600; and Marine Insurance
Company vs. McLahanan, 290 Fed., 685, 688.)
II. In the absence of positive legislation to the contrary, the liability of
the defendant insurance company on its policy would, perhaps, be
limited to "absolute loss of the vessel only, and to pay proportionate
salvage of the declared value." But the policy was executed in this
jurisdiction and "warranted to trade within the waters of the Philippine
Archipelago only." Here the liability for contribution in general average
is not based on the express terms of the policy, but rest upon the
theory that from the relation of the parties and for their benefit, a quasi
contract is implied by law. Article 859 of the Code of Commerce is still
in force and reads as follows:
ART. 859. The underwriters of the vessel, of the freight, and of
the cargo shall be obliged to pay for the indemnity of the gross
average in so far as is required of each one of these objects
respectively.

The article is mandatory in its terms, and the insurers, whether for the
vessel or for the freight or for the cargo, are bound to contribute to the
indemnity of the general average. And there is nothing unfair in that
provisions; it simply places the insurer on the same footing as other
persons who have an interest in the vessel, or the cargo therein at the
time of the occurrence of the general average and who are compelled
to contribute (art. 812, Code of Commerce).
In the present case it is not disputed that the ship was in grave peril
and that the jettison of part of the cargo was necessary. If the cargo
was in peril to the extent of call for general average, the ship must
also have been in great danger, possibly sufficient to cause its
absolute loss. The jettison was therefore as much to the benefit of the
underwriter as to the owner of the cargo. The latter was compelled to
contribute to the indemnity; why should not the insurer be required to
do likewise? If no jettison had take place and if the ship by reason
thereof had foundered, the underwriter's loss would have been many
times as large as the contribution now demanded. lawphil.net
The appealed judgment is affirmed with the cost against the appellant.
So ordered.
Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
JOHNSON and STREET, JJ., dissenting:
In view of the fact that the policy of marine insurance which is the
subject of this action contained a provision to the effect that the risk
insured against was "the absolute total loss of the vessel only," the
undersigned are of the opinion that the defendant insurance company
is not liable to contribute to the gross average incident to the jettison
of some of the freight embarked on the vessel which was the subject
of insurance. It is true that article 859 of the Code of Commerce
declares that the underwriters of the vessel, of the freight, and of the
cargo shall be obliged to pay for the indemnity of the gross average in
so far as is required of each one of these objects respectively, but that
Page 72 of 93
provision evidently states a general rule to be applied where there are
no words in the contract in any wise qualifying the risk. This article, we
think, should not be interpreted as abridging the freedom of contract
between insurer and the insured; and where, as in the case before us,
the words defining the risk plainly show that the risk is limited so as to
exclude the obligation to contribute in case of jettison, the intention
expressed in the contract ought to be given effect. If the insurance
had been written upon the cargo, the case for the plaintiff would have
been stronger; but it is certainly anomalous that an insurer of "the
vessel only" should be held liable for the jettison of cargo, to which a
contract of insurance done not extend. The language used in the
policy of insurance in this case clearly limits the risk affirmatively to
the vessel only, and the contract should be given effect according to
the intention of the parties.
The opinion of the court appears to proceed in part at least upon the
idea that the insurer had a real interest in the vessel, and that the
insurance company was necessarily benefited by a jettison of cargo,
since the act may possibly have resulted in saving the vessel from
destruction. This idea appears to us to ignore the most fundamental
conception underlying the law of insurance, which is that the contract
of insurance is of an aleatory nature. By this is meant that the contract
is essentially a wager. It results that the insurer has no real interest
whatever in the thing insured; and the question of the liability of the
insurer limits itself to the question whether the contingency insured
may have been saved by jettison of the cargo is irrelevant to the risk.
We are of the opinion that the judgment appealed from should be
reversed and the defendant absolved from the complaint.
FIRST DIVISION
 Page 73 of 93

DR. CECILIA DE LOS SANTOS, G.R. No. 150931 Petitioner Cecilia de los Santos (Cecilia) and
Petitioner,
respondent Priscila Bautista Vibar (Priscila) were former co-workers in
Present:
the Medical Department of the Social Security System. They were
PUNO, C.J., Chairperson, close and trusted friends for 33 years.
CARPIO,
- versus - CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ. Sometime in 1994, Cecilia introduced Jose de Leon (de Leon)
to Priscila. De Leon needed money and
borrowed P100,000 from Priscila. De Leon issued a promissory note
DR. PRISCILA BAUTISTA Promulgated:
dated 2 June 1994 and bound himself to pay the loan three months
VIBAR,
Respondent. July 16, 2008 from date with a monthly interest rate of 3%.[4] Cecilia signed as a
guarantor of de Leons loan.

x-----------------------------------------------------------------------------------------x

On 28 June 1995, de Leon asked Priscila for another loan. Together

D E C I S I O N with Cecilia and Avelina Conte, de Leon went
to Priscilas house. Priscila and her sister, Atty. Josefina Bautista (Atty.
CARPIO, J.: Bautista), were present in the same gathering. After some discussion,
they all agreed that the outstanding P100,000 loan together with the
accrued interest would be deducted from the new loan of P500,000.[5]
The Case

De Leon signed a typewritten promissory note, which he brought with

Before the Court is a petition for review on certiorari[1] assailing the
him, acknowledging the debt of P500,000 payable within 12 months
Decision[2] dated 29 June 2001 and Resolution[3] dated 21 November
from 28 August 1995, at a fixed monthly interest rate of 3% and a
2001 of the Court of Appeals in CA-G.R. CV No. 66605.
penalty of 2% per month in case of default.[6] Then, Cecilia signed as
a witness under the phrase signed in the presence of. However, Atty.
The Facts Bautista brought up the need for Cecilia to sign as
guarantor. Thereupon, de Leon, in his own handwriting, inserted the
word guarantor besides Cecilias name, as Cecilia nodded her head to
what de Leon was doing. De Leon also added the phrase, as security

for this loan this TCT No. T-47375, Registry of Baguio City, is being
submitted by way of mortgage.
On maturity date, de Leon failed to pay any of the monthly
installments. Priscila made several verbal demands on de Leon for
payment but to no avail. Priscilas counsel then sent de Leon a
demand letter dated 17 July 1996 asking for payment of the principal
[7]
loan with interest and penalties. De Leon failed to respond. On 4
September 1996, Priscilascounsel again sent a demand letter not only
[8]
to de Leon as principal debtor, but also to Cecilia. Cecilia was being
made to answer for de Leons debt as the latters guarantor.Cecilia
then remitted to Priscila P15,000 to pay one months interest on the
[9]
loan. However, this was the only payment Cecilia
to Priscila as Cecilia claimed she had no money to pay the full amount
of the loan.
After several failed attempts to collect the loan, Priscila filed with the
Registry of Deeds of Baguio City an adverse claim on the property
registered under TCT No. T-47375.However, the Register of Deeds
[10]
denied the registration of Priscilas claim on several grounds:
(a) the issue involved is a money claim which does not fall
within Section 70 of Presidential Decree No. 1529;[11]
(b) the annexes were not marked;
(c) the family names of Jose and Evangeline, registered
owners, do not tally with those on the title;[12] and
(d) there is no statement that there is no other provision in the
Property Registration Decree for registering the same.
Page 74 of 93
On 20 November 1996, Priscila filed an action for recovery of money
with the Regional Trial Court of Quezon City, Branch 100, against de
Leon and Cecilia.[13] De Leon did not file an answer and the trial court
declared him in default. Cecilia, on the other hand, filed an answer
denying that she signed as guarantor of de Leons loan.
On 26 November 1999, the trial court ruled in favor of Cecilia and
dismissed the complaint for insufficiency of evidence.[14] On 12
January 2000, Priscila filed a Motion for Reconsideration on the
grounds that the trial court erred in (a) dismissing the complaint
against de Leon despite his being declared in default; and (b) finding
that Cecilia was not a guarantor of de Leons loan.
made
In an Order dated 8 February 2000,[15] the trial court modified its
decision and ruled that de Leon acted fraudulently or in bad faith in
refusing to pay his debt to Priscila.However, the trial court affirmed its
decision dismissing the complaint against Cecilia. The trial court ruled
that there was no express consent given by Cecilia binding her as
guarantor. The dispositive portion of the Order provides:
WHEREFORE, in view of the foregoing, the Decision of
the Court dated November 26, 1999, is hereby
amended as follows:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Dra. Priscila Vibar and against defendant Jose
de Leon, and hereby orders the latter to pay the
plaintiff the following amounts:
(1) P500,000.00 representing the total amount of
the loan extended with interest at 3% per month
and penalty of 2% per month (due to default)
 Page 75 of 93

from July 17, 1996 until the obligation is fully
paid;
(2) P30,000.00 representing moral damages;
(3) P20,000.00 representing attorney's fees; and
(4) costs of suit.
signifying approval, when defendant-appellee de Leon
placed the word guarantor after her signature on the
promissory note.
xxxx

Further, the Court hereby DISMISSES the instant In this factual milieu, if defendant-
complaint against defendant Dra. Cecilia appellee de los Santos intended only to sign as a
de los Santos for insufficiency of evidence. No witness, she should have reacted when the word
pronouncement as to costs. guarantor was written on the note in her presence. She
should have expressed her strong and firm objections
SO ORDERED. to such imposition of liability. But defendant-
appellee de los Santos kept mum. Such silence can
lead to no other conclusion that she has impliedly given
her consent to be the guarantor of de Leons loan.
Priscila filed an appeal with the Court of Appeals, docketed as CA-
G.R. CV No. 66605. Moreover, defendant-appellee de los Santos
is estopped from claiming
otherwise. Estoppel in pais arises x x x.

The Ruling of the Court of Appeals Moreover, one can imply from defendant-
appellee de los Santos letter dated May 5, 1996
addressed to the Register of Deeds, City of Baguio that
defendant-appellee de los Santos agreed to be bound
On 29 June 2001, the appellate court affirmed the trial courts ruling as guarantor x x x.
against de Leon but modified the same with respect to Cecilia.[16] The
It is significant to note that she made no statement
appellate court declared Cecilia as guarantor of de Leons loan. The therein repudiating her having signed the same in the
relevant portions of the Decision state: capacity of a guarantor, contrary to what she now
claims in her defense. Her failure to correct or refute
x x x The conduct of defendant- such statement reinforces the claim that indeed she
appellee de los Santos during the signing, however, guaranteed payment of the loan in question, and that
belies her intention to act merely as a witness. It cannot writing was to her interest considering her liabilities
be gainsaid that she did not react when she heard Atty. under the note as guarantor.
Bautistas protest about her signing the promissory note
in the capacity only of a witness and not as a x x x Thus, defendant-appellee de los Santos can be
guarantor. Neither did defendant- compelled to pay plaintiff-appellant Vibar the judgment
appellee de los Santos object when defendant- debt if it remains unsatisfied after execution is enforced
appellee de Leon got back the promissory note and against the properties of the principal debtor,
wrote the word guarantor after her signature in full view defendant-appellee Jose de Leon. x x x
of all those present, including defendant-
appellee de los Santos. In fact, said appelleenodded,

Cecilia filed a Motion for Reconsideration which the appellate court
[17]
denied in a Resolution dated 21 November 2001.
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as guarantor
of de Leons loan from Priscila.
Cecilia contends that she is not liable as guarantor. Her behavior, as
when she allegedly kept mum or nodded her head and smiled, was
not an implied consent as guarantor. She insists that the law is clear
that a guaranty is not presumed and that there must be a concrete
positive act of acceptance or consent to the guaranty. Thus, without
such knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of Cecilias
acts, she consented to be bound as guarantor of de Leons loan. Her
nod of approval and non-objection to the insertion of the word
guarantor at the signing of the second promissory note show that she
agreed to be a guarantor, just like in the first promissory note. Even
after discovering that the loan was unpaid and already overdue,
Page 76 of 93
Cecilia did not contest that she was a guarantor and even paid
partially to Priscila. Instead, Cecilia claimed she had no money to pay
the entire loan. It was only after the case was filed that Cecilia
challenged the insertions in the promissory
note. Hence, Priscila insists that Cecilia is estopped from denying that
she is a guarantor.
The Courts Ruling
The issue before us is a question of fact, the determination of which is
beyond this Courts power of review for it is not a trier of
facts.[18] However, there are instances when questions of fact may be
reviewed by this Court, as when the findings of the Court of Appeals
are contrary to those of the trial court.[19] In the present case, the trial
court and the Court of Appeals made conflicting findings of fact. Thus,
a review of such factual findings is in order.
Here, the controversy centers on whether there exists a contract of
guaranty to hold Cecilia liable for the loan of de Leon, the principal
debtor. The trial court found that Cecilia had no knowledge of, and did
not consent to, the guaranty. On the other hand, the appellate court
ruled that Cecilias conduct during the signing of the promissory note
and her non-objection to the insertion of the word guarantor show that
she acted as guarantor. Cecilias nodding of her head upon the
insertion of the word guarantor signified her consent to be a
guarantor.
We rule that Cecilia was a guarantor of de Leons loan.
 Page 77 of 93

guarantor. On the second promissory note, the word guarantor again

Cecilia denies that she had actual knowledge of the appears, admitted by both Cecilia and Priscila as an insertion made
guaranty. However, Priscila points to the promissory note by de Leon at the time of signing. The first loan of P100,000, which
and Cecilias actions as the best evidence to prove that Cecilia signed Cecilia guaranteed, was paid from the proceeds of the second
as guarantor. The promissory note indicates that Cecilia signed as a loan. As shown by the intervention of Atty. Bautista in bringing up the
witness, as manifested by the typewritten format. However, the word need for Cecilia to act as guarantor, Priscila would not have granted
guarantor as handwritten beside Cecilias name makes Cecilia a the second bigger loan of P500,000 without the guaranty of Cecilia. It
guarantor. From the records of the case and the evidence presented, was only natural for Priscila to commit to the second bigger loan
we are convinced that the insertion was made with the express subject at least to the same guarantee as the first smaller loan.
consent of Cecilia. Thirdly, Cecilia claimed ignorance of the guaranty only after this case
was filed. However, the records show that Cecilia had several
Firstly, Cecilias act of nodding her head signified her assent to the meetings with Priscila and the latters counsel before the demand
insertion of the word guarantor. The word guarantor could letters were sent.[20] In these meetings, Cecilia acknowledged her
have been inserted by Cecilia herself, or by someone authorized by liability as guarantor but simply claimed that she had no money to
Cecilia. In either case, Cecilia would be bound as guarantor. In this pay Priscila.[21] In fact, Cecilia made an initial payment of P15,000 as
case, Cecilia, by nodding her head, authorized de Leon, who partial compliance of her obligation as guarantor. This only shows that
prepared the promissory note, to insert the word guarantor. Since de Cecilia never denied her liability to Priscila as guarantor until this case
Leon made the insertion only after Atty. Bautista had raised the need was filed in court.
for Cecilia to be a guarantor, a positive or negative reaction was
expected from Cecilia, who responded by giving her nod of approval. Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City
Otherwise, Cecilia should have immediately expressed her objection inquiring on the status of the property mentioned in the promissory
to the insertion of the word guarantor. Cecilias act of nodding her note as a mortgage security for de Leons loan.[22] The letter states:
head showed her consent to be a guarantor.
May 5, 1996
The Register of Deeds
Secondly, Priscila would not have extended a loan to de Leon without
City of Baguio
the representations of Cecilia. Cecilia arranged for de Leon
and Priscila to meet so that de Leon could borrow money Sir:

from Priscila. Cecilia vouched for de Leons capacity to pay. As a This is relative to a Promissory Note dated June 28,
friend and common link between the borrower and lender, Cecilia took 1995 x x x.
active part in the first loan of P100,000 and even signed as

In the aforestated Promissory Note, the undersigned
appears to be a Guarantor and it is a condition therein
that as security for this loan this TCT No. 47375,
Registry of Baguio City, is being submitted, by way of
mortgage. However, information has been received that
said registered owners, individually or collectively, have
executed and filed with your Office an affidavit of loss
of said duplicate owners copy. If such information is
correct, may I request for a certification to said effect,
and possibly, a certified true copy of such document.
xxxx
Here, Cecilia clearly stated that she appears to be a guarantor in the
promissory note. This serves as a written admission that Cecilia knew
she was a guarantor. During the trial, Cecilia did not impugn the letter
or its contents. In fact, Cecilia submitted this letter
evidence.[23] Cecilia wrote the Register of Deeds to protect her
interest, hoping that the property covered by TCT No. T-47375 could
answer for de Leons loan and save her from personally paying as
guarantor. This explains Cecilias letter admitting that she appears as
a guarantor in the promissory note.
It is axiomatic that the written word guarantor prevails over the
typewritten word witness. In case of conflict, the written word prevails
over the printed word. Section 15 of Rule130 provides:
Sec. 15. Written words control printed. - When an
instrument consists partly of written words and partly of
a printed form, and the two are inconsistent, the former
controls the latter.
Page 78 of 93
The rationale for this rule is that the written words are the latest
expression of the will of the parties. Thus, in this case, the latest
expression of Cecilias will is that she signed the promissory note as
guarantor.
We agree with the Court of Appeals that estoppel in pais arose in this
case. Generally, estoppel is a doctrine that prevents a person from
adopting an inconsistent position, attitude, or action if it will result in
injury to another.[24] One who, by his acts, representations or
admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to
believe certain facts to exist and such other rightfully relies and acts
on such belief, can no longer deny the existence of such fact as it will
in prejudice the latter.[25]
Cecilias conduct in the course of the negotiations and contract signing
shows that she consented to be a guarantor of the loan as witnessed
by everyone present. Her act of nodding her head, and at the same
time even smiling, expressed her voluntary assent to the insertion of
the word guarantor after her signature. It is the same as saying that
she agreed to the insertion. Also, Cecilias acts of making the partial
payment of P15,000 and writing the letter to the Register of Deeds
sustain the ruling that Cecilia affirmed her obligation as de Leons
guarantor to the loan. Thus, Cecilia is now estopped from denying
that she is a guarantor.
WHEREFORE, we DENY the petition. We AFFIRM the 29 June
2001 Decision and 21 November 2001 Resolution of the Court of
Appeals in CA-G.R. CV No. 66605.
 Page 79 of 93

Associate Justice Associate Justice

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

TERESITA J. LEONARDO-DE CASTRO

WE CONCUR:
Associate Justice

REYNATO S. PUNO
CERTIFICATION
Chief Justice

Chairperson

Pursuant to Section 13, Article VIII of the Constitution, I certify that the

conclusions in the above Decision had been reached in consultation

before the case was assigned to the writer of the opinion of the Courts

Division.

RENATO C. CORONA ADOLFO S. AZCUNA

 Page 80 of 93

SANDOVAL-GUTIERREZ, J.:
REYNATO S. PUNO
Chief Justice

Before us is a petition for review on certiorari seeking to reverse the

Decision[1] of the Court of Appeals dated May 31, 2001 in CA-G.R. CV

No. 50330.

Sec. 17. Of two constructions, which preferred

The facts of this case are not in dispute.

T H I R D D I V I S I O N
Troika Commercial, Inc., (Troika), herein respondent, is the lessee of

MARTHA R. HORRIGAN, G.R. No. 148411 the entire ground floor of a two-story building located at 53-A
Petitioner,
Present: Annapolis St., San Juan, Metro Manila. Respondent then sub-let a

portion of the ground floor to Martha Horrigan, petitioner, to be used

PANGANIBAN, J., Chairman,
- versus - SANDOVAL-GUTIERREZ, for her restaurant Tia Maria. The contract of sub-lease dated April 20,
CORONA,
CARPIO MORALES, and 1983 between the parties was prepared by Marthas husband. It
GARCIA, JJ.
provides, among others, the following stipulations:
TROIKA COMMERCIAL,
INC., Promulgated: 2. In consideration thereof, Martha R. Horrigan
Respondent. undertakes, promises and guarantees payment to
November 29, 2005 Troika of the following:

x------------------------------------------------------------------------------------------- 2.1. P12,500 monthly starting March 15, 1983 and

--x every month thereafter until December 31, 1989
payable every ___day of the month.

2.2. In addition to the above (sub-par 2.1), P4,500

D E C I S I O N
monthly starting August 1, 1983 and every month
thereafter for seven (7) years until December 31, 1989

plus a guaranteed yearly increase equivalent to 10%
thereof.
The instant case stemmed from the parties different interpretations of
the phrase a guaranteed yearly increase equivalent to 10% thereof in
relation to sub-paragraphs 2.1 and 2.2 of their agreement.
Respondent construed the 10% guaranteed yearly increase to apply
to both the original monthly rental of P12,500.00 under sub-paragraph
2.1 and the P4,500.00 additional rental under sub-paragraph 2.2. For
her part, petitioner claimed that the 10% guaranteed yearly increase is
applicable only to the additional P4,500.00 rental contained in sub-
paragraph 2.2 of the sub-lease contract.
Respondent sent petitioner letters, together with its billing statements,
explaining the application of the 10% yearly increase of rental rates.
But petitioner ignored them. On May 3, 1991, respondent sent
petitioner a final demand letter asking her to pay P318,489.00
corresponding to the unpaid rental adjustments.
When petitioner refused to pay, respondent filed with the Regional
Trial Court, Branch 148, Makati City, a complaint for sum of money,
docketed as Civil Case No. 91-2410.
Page 81 of 93
In her answer, petitioner averred that the 10% yearly guaranteed
increase applies only to her additional rental of P4,500.00 starting
August 1, 1983 and that she has been paying the corresponding
amounts since 1984. She admitted that from June 1984, she has
been giving respondent P1,200.00 monthly ex-gratis in appreciation of
its efforts to improve her business. She denied, however, that these
sums are rental adjustments. She also claimed that even assuming
that she still owed respondent, under sub-paragraph 2.2, the amount
due is only P58,485.50. She stopped paying the yearly increase since
August 1986 because of respondents demand that she should also
pay the yearly increase equivalent to 10% of the original P12,500.00
monthly rental.
On May 18, 1995, the trial court rendered its Decision in favor of
respondent. It ordered petitioner to pay respondent her unpaid rental
adjustments in the sum of P318,489.00 with interest at 12% per
annum from September 2, 1991 until the obligation is fully paid.
On appeal, the Court of Appeals, in its assailed Decision, affirmed the
trial courts judgment in toto.
Hence, the instant petition for review on certiorari.

The sole issue for our resolution is whether the Court of Appeals erred
in ruling that the 10% guaranteed yearly increase of rental rates
applies to both the original monthly rental of P12,500.00 and the
additional monthly rental of P4,500.00.
Article 1377 of the Civil Code provides:
ART. 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity.
In a long line of cases,[2] we have consistently held that the party who
draws up the contract, in which obscure words or phrases appear,
bears the responsibility for causing the ambiguity or obscurity, and
hence, these must be construed against him. In this case, it was
petitioners spouse who prepared the sub-lease contract in question.
Consequently, the ambiguity must be construed against herein
petitioner as she is presumed to have confirmed the same.
There is also no question that the 10% guaranteed yearly increase of
rents provided for in sub-paragraph 2.2 of the sub-lease agreement is
for the benefit of respondent herein, being the sub-lessor of the
premises. As such, any doubt in its interpretation must be interpreted
Page 82 of 93
in its favor. This is in line with Section 17, Rule 130 of the Revised
Rules of Court which states:
SEC. 17. Of two constructions, which preferred. When
the terms of an agreement have been intended in a
different sense by the different parties to it, that sense is
to prevail against either party in which he supposed the
other understood it, and when different constructions
of a provision are otherwise equally proper, that is
to be taken which is the most favorable to the party
in whose favor the provision was made (stress
supplied).
WHEREFORE, the petition is DENIED. The challenged Decision of
the Court of Appeals in CA-G.R. CV No. 50330 is AFFIRMED IN
TOTO. Costs against the petitioner.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
 Page 83 of 93

ARTEMIO V. PANGANIBAN
Associate Justice Pursuant to Article VIII, Section 13 of the Constitution, and the
Chairman Division Chairman's Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Court.

RENATO C. CORONA CONCHITA CARPIO MORALES HILARIO G. DAVIDE, JR.

Associate Justice Associate Justice Chief Justice

CANCIO C. GARCIA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion
of the Court's Division.

ARTEMIO V.
PANGANIBAN
Associate Justice
Chairman, Third Division

CERTIFICATION
 Page 84 of 93

SYLLABUS

1. CONTRACT; OPTION TO CANCEL. — Upon the facts of record, it

is held that the appellant was given option to cancel the contract of
sale of molasses upon payment of P6,000.

2. ID.; INTERPRETATION. — Pursuant to section 293 of the Code of

Civil Procedure and article 1288 of the Civil Code, any ambiguity in
the contract as to the question at issue, the terms thereof being
susceptible of different interpretations, must be interpreted in favor of
the herein appellant, not only because the option to cancel was
created for its benefit but also because the appellee, through its
manager, was responsible for the ambiguity as to the security
required, which is sometimes treated as such security, sometimes as
indemnity for liquidated damages and sometimes as compensation in
case of cancellation.

3. ID.; ID.; AMENDMENT TO DISPOSITIVE PART OF DECISION. —

The dispositive part of the main decision rendered in this case was
amended so as to show that the cancellation of the contract in
question would take effect from November 18, 1932, on which date
the appellant consigned with the clerk of the lower court the sum of
P6,000, at the disposal of the appellee.

DECISION

IMPERIAL, J.:

EN BANC
[G.R. No. 36026A. November 16, 1932.] This is an appeal taken by the defendant, the Pure Cane Molasses
Co. (Philippine Islands), Inc., from the decision of the Court of First
ASTURIAS SUGAR CENTRAL, INC., Plaintiff-Appellee, v. THE Instance of Iloilo, the dispositive part of which reads as
PURE CANE MOLASSES CO., Defendant-Appellant. follows:jgc:chanrobles.com.ph

Greenbaum & Opisso for Appellant. "In view of the foregoing considerations let judgment be
entered:jgc:chanrobles.com.ph
Felipe Ysmael for Appellee.
"(a) Holding that the contract Exhibit A cannot be cancelled, and that
 Page 85 of 93

the sum of six thousand pesos therein mentioned is but a guaranty or produce, and you agree to deliver us all Molasses produced. You
bond, payment of which does not entitle the defendant to cancel the have, however, the right to reserve for your own use a quantity of
contract; Molasses not exceeding 15 per cent of the yearly production, either
for burning for fuel, fertilizing or experiments. It is understood that you
"(b) Holding likewise, with a view to avoiding further litigation, that do not sell any Molasses to third parties.
paragraphs II and III of the contract Exhibit A bind the plaintiff to sell
and the defendant to buy fifty per cent of all the molasses produced "Quality: The sellers oblige themselves to deliver the Molasses as
by the former besides the molasses pertaining to the planters under produced in the central, undiluted and in sound, merchantable
milling contracts, become the property of the Asturias Sugar Central condition.
Incorporated, and thus subject to its free disposal; and that the terms
of the contract Exhibit A express this, and nothing "Price: The price is P0.04 (Four Centavos) per gallon of Molasses
else:jgc:chanrobles.com.ph delivered into our tankcars in the yard of the central.

"(c) Without special pronouncement as to costs. "Payment: The payment takes place in cash on presentation of your
invoice.
"It is so ordered."cralaw virtua1aw library
"Delivery: Delivery will take place during and after each milling season
The plaintiff-appellee, the Asturias Sugar Central, Inc., brought this and must commence before the storage tank at the Central is filled to
action to amend paragraphs II and III of a contract for the sale of capacity, so that it is unavoidable to throw Molasses away, we bind
molasses entered into between it and the appellant, couched in the ourselves to pay any such quantity thrown away at full contract price
following terms:jgc:chanrobles.com.ph only.

"MANILA, 21st, March 1929 "In case the Central should stop its operations during the period of the
contract, we have no claim whatsoever against your company.
"ASTURIAS SUGAR CENTRAL, INC.
"The undersigned has the option to transfer this contract to the Pure
"San Juan, Dumalag, Capiz Cane Molasses Company (Philippine Islands), which firm probably will
be incorporated in the Philippines within a few months.
"Panay
"Yours faithfully,
"DEAR SIRS: I herewith confirm having bought from you on the
following conditions:jgc:chanrobles.com.ph "(Sgd.) T. NIELSEN

"The total production of Molasses from Central Asturias for the period "AGREED:jgc:chanrobles.com.ph
of 5 (five) consecutive milling seasons, beginning with the milling
season 1929-’30. "Provided that you deposit P6,000 or its equivalent in Bond to be
deposited in the Bank of P.I., as guarantee of proper fulfillment of this
"QUANTITY: The yearly quantity of Molasses is estimated at 200,000 contract.
Gallons to 400,000 Gallons. This estimate is, however, not binding for
any of the parties as we agree to receive any quantity you may "ASTURIAS SUGAR CENTRAL, INC.
 Page 86 of 93

But on January 14, 1931 the appellant filed a supplemental answer

"(Sgd.) MANUEL GARCIA alleging that the appellee had agreed to give it the option to cancel the
molasses contract upon payment of the sum of P6,000, which was the
"Treasurer and Acting Manager" bond required by said appellee, and the appellant prayed that the
contract be cancelled by the court and that the appellee be compelled
to accept the amount of P6,000 that had been deposited with the clerk
This document was marked Exhibit A for identification purposes. In its
of the court.
amended answer filed by way of cross-complaint, the appellant
alleged that it was agreeable to amend paragraphs II, III and VII of the
contract referred to, in the sense that only 50 per cent of the central’s The said supplemental answer was substituted for the amended
total output of molasses would be considered sold, and prayed that answer, the latter being incompatible with the former, and the remedy
judgment be entered, inserting the following in place of the said three prayed for being a new cross complaint which was likewise
paragraphs:jgc:chanrobles.com.ph substituted for that originally set up in the aforesaid amended answer.

"Fifty per cent of the total of molasses produced by the Central Prior to the dates hereinafter mentioned, T. Nielsen, predecessor in
Asturias, which is the share of said Central, for the period of 5 (five) interest to the appellant, interviewed Manuel G. Garcia, treasurer and
consecutive milling seasons beginning with the milling season 1929 acting manager of the appellee, at the latter’s office in Dumalag,
and 1930. Capiz, and they agreed verbally that the Asturias Sugar Central, Inc.,
would sell to T. Nielsen the molasses produced by that central during
five consecutive milling seasons, beginning with that of 1929-1930, at
"QUANTITY. The yearly quantity of molasses is estimated at 200,000
the rate of P0.04 per gallon, and under other conditions which had
Gallons to 400,000 Gallons. This estimate is, however, not binding on
been stipulated.
either of the parties, as we agree to receive one-half of the total
quantity produced by your Central, as shown by its laboratory reports
and you likewise agree to deliver one half of the total quantity On February 12, 1929, Nielsen wrote the following letter, Exhibit 3, to
produced. You have, however, the right to reserve for your own use a the appellee:jgc:chanrobles.com.ph
quantity of Molasses not exceeding 15 per cent of the yearly
production, either for burning for fuel, fertilizing or experiments."cralaw "MANILA, 12th February 1929
virtua1aw library
"ASTURIAS SUGAR CENTRAL, INC.
"DELIVERY. Delivery will take place during and after each milling
season and must commence before the storage tank at the Central is "Dumalag, Capiz
filled to capacity. If the molasses storage tank is filled to capacity as a
result of the failure to take delivery of one-half of the total production "Panay
of molasses as the same is produced and an overflow occurs we bind
ourselves to pay for the quantity lost by such overflow at the "DEAR SIRS: I herewith beg to confirm my cable to the 8th inst.
contractual rate, in so far as such overflow does not exceed the reading as follows:jgc:chanrobles.com.ph
difference between one-half the total production at the time of such
overflow and the total quantity delivered at that time, provided that
"‘Offer firm one week total production Molasses
one-half the storage capacity of said tank is at all times reserved for
the Central’s share of the molasses as specified in paragraph two
hereof."cralaw virtua1aw library "‘5 years contract 4 centavos per Gallon ex Central’
 Page 87 of 93

and thank you for your reply:jgc:chanrobles.com.ph

"DEAR SIR: Yours of the 12th instant to hand, and with reference to
"‘Recibido telegrama queda aceptada su oferta the contract by telegram we would say that it is confirmed to the effect
that we shall sell you the molasses produced by the Central at four
"‘cuatro centimos galon melaza puesto vagon centavos per gallon placed in tank-cars at the Central, with the
understanding that if we need any molasses in case we run out of
"‘ferrocarril en central por cinco zafras bagasse we shall be free to use a certain amount; this only in case we
run out of bagasse and it should become necessary to use a small
amount of molasses.
"‘empezando proxima zafra previa garantia cumplimiento
"With regard to the surety to secure bond your performance of the
"‘a satisfaccion central conteste si acepta.’
contract relative to the purchase of our output of molasses, we require
a bond of P6,000 to answer for your failure to comply with the terms
to which I replied ’Accept’. thereof; in other words, in case you may later wish to have said
contract cancelled. This bond may be in cash, or on the undertaking
"Referring to the above I herewith have much pleasure to confirm to of a solvent firm.
have bought from you the total production of Molasses from your
Central during the period of 5 milling seasons, beginning with next "Upon delivery of the molasses you will make payment within 20 days
milling season, at the price of 4 (four) centavos per Gallon delivered after each shipment.
into our tankcars at the Central.
"With the understanding that this is what we have agreed upon, we
"I should be obliged to have your counter-confirmation in due course hereby confirm our contract at FOUR CENTAVOS A GALLON placed
and also to have your information what guarantee you wish us to give in tank- cars for five milling seasons beginning with the next, 1929-
you for the fulfillment of the contract. 1930, to be delivered at the rate of our production, and if for any
reason the Central ceases to operate, the contract shall be cancelled
"It is the intention to float a Company in the Philippine Islands, as a and the Central shall not be liable for breach of contract.
subsidiary Company of the United Molasses Co., Ltd., Bush House,
Aldwych, London. "Yours truly,

"Your faithfully, "ASTURIAS SUGAR CENTRAL, INC.

"(Sgd.) T. NIELSEN" "MANUEL GARCIA

The appellee replied to said letter, Exhibit 4, as "Treasurer and Acting Manager"
follows:jgc:chanrobles.com.ph
On March 12, 1929, the appellee’s manager wrote Nielsen the
"Feb. 15, 1929 following letter, Exhibit 5:jgc:chanrobles.com.ph

"Mr. D. T. NIELSEN "March 12, 1929

"Manila
 Page 88 of 93

"Mr. T. NIELSEN much pleasure to inform you that I have asked the Hongkong &
Shanghai Banking Corporation to open a credit in your name for an
"Representative Dunbar Molasses amount of P6,000, as a guarantee of our proper fulfillment of the
contract.
Corp., N.Y. and United Molasses
"Enclosed I beg to hand you a contract and in case you agree to this
Co. Ltd., London kindly sign and return the copy to me. In case there are any points
which you wish changed, kindly let me know.
"DEAR SIR: On the 15th of February of this year we sent you a letter,
a copy of which is enclosed, which you have not to this date "Furthermore I beg to state, that we agree to purchase from you any
answered, with reference to our proposed contract to sell you, in Molasses you have left over from the present milling season at the
behalf of those whom you represent, all our output of molasses, with same price, provided that our tank installation at Iloilo will be ready
the exception of what we may need for our own use, and in that letter before your next milling season starts.
we specified our conditions.
"I shall be obliged to have your information as to the quantity of
"We await your early reply in order to perfect the contract. Molasses you expect to produce next milling season and also when
this approximately will start.
"Yours truly,
"Yours very truly,
"ASTURIAS SUGAR CENTRAL, INC.
"T. NIELSEN
"MANUEL GARCIA
"979, Muelle de la Industria, Manila."cralaw virtua1aw library
"Treasurer and Acting Manager"
The appellee replied to the foregoing letter, marked Exhibit 7, as
follows:jgc:chanrobles.com.ph
On March 22nd of the same year, Nielsen addressed another letter,
copy of which is marked Exhibit 8, to the appellee, enclosing a written
contract of sale of the molasses, asking that the same be signed by its "March 26, 1929
manager. The letter reads as follows:jgc:chanrobles.com.ph
"Mr. D. T. NIELSEN
"MANILA, 22nd March 1929
"979, Muelle de la Industria
"ASTURIAS SUGAR CENTRAL, INC.
"Manila
"San Juan, Dumalag, Capiz
"DEAR SIR: We have received your letter of the 22nd instant together
"Panay with that of March 21st, which is the contract, and we find the latter
satisfactory, except that the amount of molasses which we reserve for
our own use would not exceed 15 per cent of our yearly production
"DEAR SIRS: Herewith I beg to thank you for your favour of the 12th
instead of 10 per cent as stated in the contract.
inst. with copy of your letter of the 15th of February and I now have
 Page 89 of 93

Corporation for the estimated yearly production, so that in case you

"We should like to insert in the contract that if you should wish to for example estimate that the next year’s Molasses production will be
cancel it before the expiration of the five year period, you would have 300,000 Gallons, we open an irrevocable credit for 15,000 pesos, and
to pay us P6,000 which is the bond we require, and that this bond payment takes place from this credit on your presentation of your
must be in force for five years, to answer for any damages which we invoice at the Bank. I wish to state that we, of course, also are willing
might incur arising from your failure to comply with the terms of the to give you the bond of 6,000 pesos as a guarantee of our proper
contract. Upon insertion of these conditions, we will immediately sign fulfillment of the contract.
the contract and send it to you by return mail.
"Kindly let me know, when do you expect to commence the following
"Yours truly, milling season.

"ASTURIAS SUGAR CENTRAL, INC. "Yours very truly,

"(Sgd.) MANUEL GARCIA "Encl. (Sgd.) T. NIELSEN"

"Treasurer and Acting Manager" The contract Exhibit A, dated March 21, 1929, does not show when it
was signed by Garcia or on what date he wrote the footnote thereof,
And finally, on April 1, 1929 Nielsen wrote the letter Exhibit J to the which reads as follows:jgc:chanrobles.com.ph
appellee enclosing the written contract as amended in accordance
with Garcia’s suggestion, and that is Exhibit A. The letter reads as "Provided that you deposit P6,000 or its equivalent in Bond to be
follows:jgc:chanrobles.com.ph deposited in the Bank of P.I. as guarantee of proper fulfillment of this
contract.
"MANILA, 1st April 1929
"ASTURIAS SUGAR CENTRAL, INC.
"ASTURIAS SUGAR CENTRAL, INC.
"(Sgd.) MANUEL GARCIA
"San Juan, Dumalag, Capiz
"Treasure and Acting Manager"
"Panay
But both things were presumably done after April 1, 1929, which is the
"DEAR SIRS: I am in receipt of your favor of the 26th inst. and now date appearing on the letter accompanying the contract, and after the
beg to return the contract, from which you will see that I have inserted latter had reached Garcia’s hands, which must have been 3 or 4 days
15 per cent instead of 10 per cent. after April first. The appellant assigns the following errors in its
brief:jgc:chanrobles.com.ph
"With regard to the guarantee of 6,000 Pesos I trust that you have
received information that the Hongkong & Shanghai Banking "I. In granting reformation of the contract Exhibit A.
Corporation guarantee this amount.
"II. In not finding that defendant had the right to cancel the contract
"In this connection I would suggest, that we — instead of this bond — Exhibit A upon payment of P6,000.
open a credit (irrevocable) by the Hongkong & Shanghai Banking

"III. In refusing to admit the testimony of the witness Burt that Manuel
Garcia spoke English well and could read and understand the contract
Exhibit A.
"IV. In refusing to admit Exhibit 9 as evidence."cralaw virtua1aw
library
We do not propose to consider all these assignments of error, but only
the second, which is decisive of the case upon its merits. If the
appellant is entitled to the rescission or cancellation of the contract,
upon payment of P6,000 to the appellee, it is obviously superfluous to
discuss the points raised in the other assignments of error.
To begin with there is no stipulation anywhere in Exhibit A regarding
the appellant’s alleged option or right to cancel the said contract of
sale of molasses. It must therefore be ascertained whether there is
such a stipulation in some other document, or if it has been
established by other evidence.
In Exhibit 4, manager Garcia, among other things, communicated to
Nielsen, the following:jgc:chanrobles.com.ph
"With regard to the surety bond to secure your performance of the
contract relative to the purchase of our output of molasses, we require
a bond of P6,000 to answer for your failure to comply with the terms
thereof; in other words, in case you may later wish to have said
contract cancelled. This bond may be in cash, or on the undertaking
of a solvent firm."cralaw virtua1aw library
He also made use of the following words in one of the paragraphs of
Exhibit 7:jgc:chanrobles.com.ph
"We should like to insert in the contract that if you should wish to
cancel it before the expiration of the five year period, you would have
to pay us P6,000 which is the bond we require, and that this bond
must be in force for five years, to answer for any damages which we
might incur arising from your failure to comply with the terms of the
contract. Upon insertion of these conditions, we will immediately sign
the contract and send it to you by return mail."cralaw virtua1aw library
And in Exhibit 9, he also expressed himself in the following
Page 90 of 93
terms:jgc:chanrobles.com.ph
"The bond which we require is not for the payment for the molasses to
be delivered to Mr. Nielsen; it is for the purpose of securing his
compliance for five years with the terms of the contract with this
Central, so that in case of his failure to comply therewith we could
take said sum of P6,000 by way of indemnity for damages."cralaw
virtua1aw library
The last document mentioned is the subject matter of the fourth
assignment of error, and although the trial court rejected it, it ought to
have been admitted at the reopening of the trial which was granted,
being material and competent.
In view of the foregoing quotations from letters written by the manager
of the appellee, there can be no doubt that the appellant was given
the option to cancel the contract upon payment of P6,000, which is
the amount fixed for the bond to guarantee the fulfillment of the
contract.
The intention of the parties was to consider this stipulation as an
integral part of the contract of sale, and we have no doubt in so
holding. It cannot be disputed that Nielsen and the appellant, his
successor in interest, understood it so, and believed they had the right
to cancel the contract at any time upon payment of the state sum of
money.
It is no obstacle to the right of cancellation that the bond of P6,000
constituted a guarantee for the fulfillment of the whole contract,
because as the correspondence between the parties shows, they,
particularly the manager Garcia, referred to it sometimes as a
guaranty or bond, and at other times as indemnity for damages in
case of breach of contract, thus making it understood that it might be
applied to indemnity the appellee for breach of contract, or to
compensate it in case the appellant chose to rescind the contract.
As we have said, it appears evident that the appellee granted the
appellant the right to cancel the contract upon payment of the
aforementioned sum of money, but if any doubt or obscurity existed
with regard to the intention of the parties upon this point, the following
legal provisions should govern:jgc:chanrobles.com.ph
 Page 91 of 93

MALCOLM, J., dissenting:chanrob1es virtual 1aw library

"SEC. 293. Where intention of different parties to instrument not the
same. — When the terms of an agreement have been intended in a My opinion in this case can be briefly stated. The contract Exhibit A is
different sense by the different parties to it, that sense is to prevail controlling. Under the terms of that contract, the plaintiff has made out
against either party in which he supposed the other understood it, and no case for its reformation. As a consequence, the complaint of the
when different constructions of a provision are otherwise equally plaintiff cannot prosper. For the same reason, the supplemental
proper, that is to be taken which is the most favorable to the party in answer of the defendant, asking that the plaintiff be ordered to accept
whose favor the provision was made." (Code of Civil Procedure.) the sum of P6,000, and thereupon the contract be cancelled, cannot
prosper. The words added to the contract, "Agreed provided that you
"ART. 1288. Obscure terms of a contract shall not be so construed as deposit the sum of P6,000, or its equivalent, to be deposited at the
to favor the party who occasioned the obscurity." (Civil Code.) Bank of the Philippine Islands, as a guaranty for the proper fulfillment
of this contract", furnish no basis for cancellation. The complaint and
According to these provisions any obscurity in the contract regarding the supplemental answer being out of the way, it would be proper to
the point in question, where the terms are susceptible of different give effect to the cross-complaint of the defendant, whereby the
interpretations, they should be interpreted in favor of the herein defendant expresses a willingness to have the contract modified so
appellant both because the right to cancel was established for its that the Asturias Sugar Central, Inc., will sell and the Pure Cane
benefit, and because it was the appellee, through its manager, that Molasses Co. will buy annually, for the term of the contract, only 50
gave rise to the ambiguity in considering the bond sometimes as a per cent of the output of molasses of the Asturias Sugar Central, Inc.,
guarantee, and at other times as indemnity for liquidated damages, in accordance with the allegations of plaintiff’s complaint. Accordingly,
and lastly as compensation in case of rescission. I can not agree with the majority when it holds that the contract may
be rescinded, and am of the opinion that the cross-complaint should
be given effect. By so doing, the controversy will be amicably and
Having arrived at the conclusion that the appellant is entitled to the
justly adjusted.
cancellation of the contract, we deem it unnecessary to consider and
resolve the other errors assigned by the Appellant.
ABAD SANTOS, J., dissenting:chanrob1es virtual 1aw library
The judgment appealed from is reversed and the contract of sale of
molasses entered into between the parties as set forth in Exhibit A is I dissent. In my opinion the judgment appealed from should be
declared cancelled, and it is ordered that the sum of P6,000 placed by reversed and both the complaint and the cross-complaint dismissed.
the appellant in the hands of the clerk of the lower court be delivered
to the appellee, with costs of this instance against the latter. So In legal contemplation, the terms of the contract involved in this case
ordered. are clear; and it is just as untenable to hold that the words "The total
production of Molasses from Central Asturias" really mean, as
Villamor, Ostrand, Villa-Real and Vickers, JJ., concur. contended by the plaintiff, "All the share of the Asturias Sugar Central,
Inc., in the total production of molasses which said Central can freely
Separate Opinions dispose", as to hold that the stipulation "Provided that you deposit
P6,000 or its equivalent in Bond to be deposited in the Bank of
Philippine Islands as guarantee of proper fulfillment of this contract",
means, as contended by the defendant, that the contract may be
AVANCEÑA, C.J. :chanrob1es virtual 1aw library cancelled at the option of the defendant upon payment of the sum of
P6,000. "Cuando la disposicion contractual no es obscura, ni
I vote for the confirmation of the appealed judgment. ambigua, ni equivoca, el significado natural de las palabras segun el
modo comun de entenderlas, determina la voluntad de las partes.
 Page 92 of 93

Quien ha pronunciado la formula clara de una promesa, pretenderia grounds:jgc:chanrobles.com.ph

en vano probar una voluntad distinta de la que significan las palabras:
Cum in verbis nulla ambigatas est, non es admittenda voluntatis
quaestio. Y con fundamento, puesto que al ser claro el sentido de las
palabras, no se puede, sin atentar contra la razon y la logica, recurrir
a conjeturas de voluntad que pueden cambiar su sentido comun o
general. Es una verdad que los romanos enunciaron solo en materia
de actos de ultima voluntad, pero su aplicacion aun a los contratos es
admitida de perfecto acuerdo por todos los tratadistas y de
jurisprudencia constante." (Giorgi, Teoria de las Obligaciones, vol. 4,
p. 192.)
In order to justify its decision that the contract should be reformed as
prayed in the plaintiff’s complaint, the lower court had to resort to the
negotiations leading to the formation of the subsequent written
contract in question, and this court rejected the view thus reached by
the lower court. But to justify its own inference that the stipulation as
to the filing of the guaranty bond gives the defendant the right to
cancel the contract, this court also resorted to the previous
negotiations between the parties. The resort to such previous
negotiations was just as unwarranted in the one case as it was in the
other. "All courts agree that if the parties have integrated their
agreement into a single written memorial, all prior negotiations and
agreements in regard to the same subject matter are excluded from
consideration whether they were oral or written." (Williston on
Contracts, vol. II, p. 1224.)
Contracts are made not to be evaded and broken at the convenience
of one or the other of the parties thereto, but to be faithfully
performed. The parties in this case should be made to live up to the
plain terms of their agreement.
DECISION UPON MOTION FOR RECONSIDERATION
December 31, 1932 - Hull, J., concur.
IMPERIAL, J.:
"I. There was no valid and sufficient tender to herein plaintiff and
appellee of the sum of P6,000, and likewise this sum of P6,000 was
not consigned in court as the law requires as conditions precedent
before the alleged right of cancellation can be exercised.
"II. The proviso found in the contract Exhibit A as to the deposit of
P6,000 ’as guarantee of proper fulfillment’ of the contract did not give
defendant-appellant the right to cancel the same.
"III. The contract, Exhibit A, should be reformed for it does not
express the real intention of the parties thereto."cralaw virtua1aw
library
We are convinced, under the first ground, that the appellee
misinterpreted the conclusions we had arrived at, sustaining the
cancellation of the contract. The view has been taken that said
cancellation was based solely on the tender of payment or
consignation of the amount of P6,000, which at the same time
constituted the appellant’s bond. This was not the real ground of the
rescission of the contract. Our holding that the appellant was entitled
to cancel the contract is based principally on the fact that the
appellant was given such option, as may be gathered from the
correspondence between the parties which is reproduced literally in
the decision. Said conclusion was not made to rest on the note
appearing at the foot of the contract because, as plainly stated in the
decision, said note does not contain any express stipulation relative to
the option to cancel.
From what has been stated it follows the little or no importance should
be attached to the erroneous statement in the decision that the
consideration for the option was consigned to the clerk of court, for all
that was really made was a tender of payment of the same amount by
the appellant. The cancellation of the contract, or the right thereto, not
being thus entirely dependent on the tender of payment or
consignation, it is evident that the confusion of the issues will not avail
to render ineffective the decision heretofore promulgated.

The plaintiff and appellee moved for the reconsideration of the We agree that the cancellation of the contract should take effect upon
decision rendered in this case on the following payment by the defendant-appellant to the plaintiff-appellee of the
 Page 93 of 93

stipulated amount, and the same view was embodied in the

dispositive part of the decision to the effect that the contract stands
cancelled upon payment of the aforesaid amount of money. We
believe, however, that for a clearer understanding of the decision the
same should be amended as prayed for.

The above disposes of the first two grounds of the motion.

The last ground is likewise untenable. We cannot interpret the

contract in any other sense than that already stated in the decision.
Having ordered the cancellation of the contract, we see no reason to
modify the same so as to give it further force and effect in accordance
with the express terms of the appealed judgment.

For the foregoing reasons, the motion for reconsideration is denied,

and the dispositive part of our decision is amended in the sense that
the cancellation of the aforesaid contract shall take effect from
November 18, 1932, the date when the sum of P6,000 was consigned
by the appellant to the clerk of the trial court at the disposal of the
appellee.

Villamor, Ostrand, Villa-Real and Vickers, JJ., concur.

Avanceña, C.J. and Hull, J., dissent.

Malcolm and Abad Santos, JJ., maintain their dissents.