ASJ CORPORATION and G.R. No.
158086 From January 13 to February 3, 1993, respondents had delivered to San
ANTONIO SAN JUAN,  
Petitioners,
- versus -
SPS. EFREN & MAURA EVANGELISTA,
Respondents.
Respondents, under the name and style of R.M. Sy Chicks, are engaged
in the large-scale business of buying broiler eggs, hatching them, and
selling their hatchlings (chicks) and egg by-products[4] in Bulacan and
Nueva Ecija. For the incubation and hatching of these eggs,
respondents availed of the hatchery services of ASJ Corp., a corporation
duly registered in the name of San Juan and his family.
Sometime in 1991, respondents delivered to petitioners various
quantities of eggs at an agreed service fee of 80 centavos per egg,
whether successfully hatched or not. Each delivery was reflected in a
Setting Report indicating the following: the number of eggs delivered;
the date of setting or the date the eggs were delivered and laid out in
the incubators; the date of candling or the date the eggs, through a
lighting system, were inspected and determined if viable or capable of
being hatched into chicks; and the date of hatching, which is also the
date respondents would pick-up the chicks and by-products. Initially,
the service fees were paid upon release of the eggs and by-products to
respondents. But as their business went along, respondents delays on
their payments were tolerated by San Juan, who just carried over the
balance, as there may be, into the next delivery, out of keeping
goodwill with respondents.
Juan a total of 101,3[50][5] eggs, detailed as follows:[6]
Date Set SR Number No. of eggs delivered Date hatched/Pick-
up date
1/13/1993 SR 108 32,566 eggs February 3, 1993
1/20/1993 SR 109 21,485 eggs February 10, 1993
1/22/1993 SR 110 7,213 eggs February 12, 1993
1/28/1993 SR 111 14,495 eggs February 18, 1993
1/30/1993 SR 112 15,346 eggs February 20, 1993
2/3/1993 SR 113 10,24[5][7] eggs February 24, 1993
TOTAL 101,350 eggs
On February 3, 1993, respondent Efren went to the hatchery to pick up
the chicks and by-products covered by Setting Report No. 108, but San
Juan refused to release the same due to respondents failure to settle
accrued service fees on several setting reports starting from Setting
Report No. 90. Nevertheless, San Juan accepted from Efren 10,245 eggs
covered by Setting Report No. 113 and P15,000.00[8] in cash as partial
payment for the accrued service fees.
On February 10, 1993, Efren returned to the hatchery to pick up the
chicks and by-products covered by Setting Report No. 109, but San
Juan again refused to release the same unless respondents fully settle
their accounts. In the afternoon of the same day, respondent Maura,
with her son Anselmo, tendered P15,000.00[9] to San Juan, and tried to
claim the chicks and by-products. She explained that she was unable to
pay their balance because she was hospitalized for an undisclosed
ailment. San Juan accepted the P15,000.00, but insisted on the full
settlement of respondents accounts before releasing the chicks and by-
products. Believing firmly that the total value of the eggs delivered was
more than sufficient to cover the outstanding balance, Maura promised
to settle their accounts only upon proper accounting by San Juan. San
Juan disliked the idea and threatened to impound their vehicle and
detain them at the hatchery compound if they should come back
unprepared to fully settle their accounts with him.
On February 11, 1993, respondents directed their errand boy, Allan
Blanco, to pick up the chicks and by-products covered by Setting Report
No. 110 and also to ascertain if San Juanwas still willing to settle
amicably their differences. Unfortunately, San Juan was firm in his
refusal and reiterated his threats on respondents. Fearing San Juans
threats, respondents never went back to the hatchery.
The parties tried to settle amicably their differences before
police authorities, but to no avail. Thus, respondents filed with the RTC
an action for damages based on petitioners retention of the chicks and
by-products covered by Setting Report Nos. 108 to 113.
On July 8, 1996, the RTC ruled in favor of respondents and
made the following findings: (1) as of Setting Report No. 107,
respondents owed petitioners P102,336.80;[10] (2) petitioners withheld
the release of the chicks and by-products covered by Setting Report
Nos. 108-113;[11] and (3) the retention of the chicks and by-products
was unjustified and accompanied by threats and intimidations on
respondents.[12] The RTC disregarded the corporate fiction of ASJ Corp.,
[13]
 and held it and San Juan solidarily liable to respondents
for P529,644.80 as actual damages, P100,000.00 as moral
damages, P50,000.00 as attorneys fees, plus interests and costs of
suit. The decretal portion of the decision reads:
WHEREFORE, based on the evidence on record
and the laws/jurisprudence applicable thereon,
judgment is hereby rendered ordering the defendants
to pay, jointly and severally, unto the plaintiffs the
amounts of P529,644.80, representing the value of the
hatched chicks and by-products which the plaintiffs on
the average expected to derive under Setting Reports
Nos. 108 to 113, inclusive, with legal interest thereon
from the date of this judgment until the same shall
have been fully paid, P100,000.00 as moral damages
and P50,000.00 as attorneys fees, plus the costs of suit.
SO ORDERED.[14]
Both parties appealed to the Court of Appeals. Respondents prayed for
an additional award of P76,139.00 as actual damages for the cost of
other unreturned by-products and P1,727,687.52 as unrealized profits,
while petitioners prayed for the reversal of the trial courts entire
decision.
On April 30, 2003, the Court of Appeals denied both appeals for lack of
merit and affirmed the trial courts decision, with the slight modification
of including an award of exemplary damages of P10,000.00 in favor of
respondents. The Court of Appeals, applying the doctrine of piercing
the veil of corporate fiction, considered ASJ Corp. and San Juan as one
entity, after finding that there was no bona fide intention to treat the
corporation as separate and distinct from San Juan and his wife
Iluminada. The fallo of the Court of Appeals decision reads:
WHEREFORE, in view of the foregoing, the Decision
appealed from is hereby AFFIRMED, with the slight
modification that exemplary damages in the amount
of P10,000.00 are awarded to plaintiffs. 
 Costs against defendants.
SO ORDERED.[15]
Hence, the instant petition, assigning the following errors:
I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN HOLDING, AS DID THE COURT A QUO, THAT
PETITIONERS WITHHELD/OR FAILED TO RELEASE THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING
REPORT NOS. 108 AND 109.
II.
THE HONORABLE COURT OF APPEALS ERRED IN
ADMITTING THE HEARSAY TESTIMONY OF MAURA
EVANGELISTA SUPPORTIVE OF ITS FINDINGS THAT
PETITIONERS WITHHELD/OR FAILED TO RELEASE THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING
REPORT NOS. 108 AND 109.
III.
THE HONORABLE COURT OF APPEALS, AS DID THE
COURT A QUO, ERRED IN NOT FINDING THAT
RESPONDENTS FAILED TO RETURN TO THE PLANT TO
GET THE CHICKS AND BY-PRODUCTS COVERED BY
SETTING REPORT NOS. 110, 111, 112 AND 113.
IV.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING, AS DID THE COURT A QUO, THAT THE
PIERCING OF THE VEIL OF CORPORATE ENTITY IS
JUSTIFIED, AND CONSEQUENTLY HOLDING PETITIONERS
JOINTLY AND SEVERALLY LIABLE TO PAY RESPONDENTS
THE SUM OF P529,644.[80].
V.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT PETITIONERS HAVE VIOLATED THE
PRINCIPLES ENUNCIATED IN ART. 19 OF THE NEW CIVIL
CODE AND CONSEQUENTLY IN AWARDING MORAL
DAMAGES, EXEMPLARY DAMAGES AND ATTORNEYS
FEES.
VI.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
AWARDING PETITIONERS COUNTERCLAIM.[16]
Plainly, the issues submitted for resolution
are: First, did the Court of Appeals err when (a) it ruled
that petitioners withheld or failed to release the chicks
and by-products covered by Setting Report Nos. 108
and 109; (b) it admitted the testimony of Maura; (c) it
did not find that it was respondents who failed to
return to the hatchery to pick up the chicks and by-
products covered by Setting Report Nos. 110 to 113;
and (d) it pierced the veil of corporate fiction and held
ASJ Corp. and Antonio San Juan as one
entity? Second, was it proper to hold petitioners
solidarily liable to respondents for the payment
of P529,644.80 and other damages?
In our view, there are two sets of issues that the petitioners
have raised.
The first set is factual. Petitioners seek to establish a set of facts
contrary to the factual findings of the trial and appellate
courts. However, as well established in our jurisprudence, only errors of
law are reviewable by this Court in a petition for review under Rule 45.
[17]
 The trial court, having had the opportunity to personally observe
and analyze the demeanor of the witnesses while testifying, is in a
better position to pass judgment on their credibility.[18] More
importantly, factual findings of the trial court, when amply supported
by evidence on record and affirmed by the appellate court, are binding
upon this Court and will not be disturbed on appeal.[19] While there are
exceptional circumstances[20] when these findings may be set aside,
none of them is present in this case.
Based on the records, as well as the parties own admissions,
the following facts were uncontroverted: (1) As of Setting Report No.
107, respondents were indebted to petitioners for P102,336.80 as
accrued service fees for Setting Report Nos. 90 to 107;[21] (2)
Petitioners, based on San Juans own admission,[22] did not release the
chicks and by-products covered by Setting Report Nos. 108 and 109 for
failure of respondents to fully settle their previous accounts; and (3)
Due to San Juans threats, respondents never returned to the hatchery
to pick up those covered by Setting Report Nos. 110 to 113.[23]
Furthermore, although no hard and fast rule can be accurately laid
down under which the juridical personality of a corporate entity may
be disregarded, the following probative factors of identity justify the
application of the doctrine of piercing the veil of corporate fiction[24] in
this case: (1) San Juan and his wife own the bulk of shares of ASJ Corp.;
(2) The lot where the hatchery plant is located is owned by the San
Juan spouses; (3) ASJ Corp. had no other properties or assets, except
for the hatchery plant and the lot where it is located; (4)San Juan is in
complete control of the corporation; (5) There is no bona fide intention
to treat ASJ Corp. as a different entity from San Juan; and (6) The
corporate fiction of ASJ Corp. was used by San Juan to insulate himself
from the legitimate claims of respondents, defeat public convenience,
justify wrong, defend crime, and evade a corporations subsidiary
liability for damages.[25] These findings, being purely one of fact,
[26]
 should be respected. We need not assess and evaluate the evidence
all over again where the findings of both courts on these matters
coincide.
On the second set of issues, petitioners contend that the retention was
justified and did not constitute an abuse of rights since it was
respondents who failed to comply with their obligation.
Respondents, for their part, aver that all the elements on abuse of rights
were present. They further state that despite their offer to partially
satisfy the accrued service fees, and the fact that the value of the chicks
and by-products was more than sufficient to cover their unpaid
obligations, petitioners still chose to withhold the delivery.
The crux of the controversy, in our considered view, is simple
enough. Was petitioners retention of the chicks and by-products on
account of respondents failure to pay the corresponding service fees
unjustified? While the trial and appellate courts had the same decisions
on the matter, suffice it to say that a modification is proper. Worth
stressing, petitioners act of withholding the chicks and by-products is
entirely different from petitioners unjustifiable acts of threatening
respondents. The retention had legal basis; the threats had none.
To begin with, petitioners obligation to deliver the chicks and
by-products corresponds to three dates: the date of hatching, the
delivery/pick-up date and the date of respondents payment. On several
setting reports, respondents made delays on their payments, but
petitioners tolerated such delay. When respondents accounts
accumulated because of their successive failure to pay on several
setting reports, petitioners opted to demand the full settlement of
respondents accounts as a condition precedent to the
delivery. However, respondents were unable to fully settle their
accounts.
Respondents offer to partially satisfy their accounts is not
enough to extinguish their obligation. Under Article 1248[27] of the Civil
Code, the creditor cannot be compelled to accept partial payments
from the debtor, unless there is an express stipulation to that
effect. More so, respondents cannot substitute or apply as their
payment the value of the chicks and by-products they expect to derive
because it is necessary that all the debts be for the same kind,
generally of a monetary character. Needless to say, there was no valid
application of payment in this case.
Furthermore, it was respondents who violated the very essence
of reciprocity in contracts, consequently giving rise to petitioners right
of retention. This case is clearly one among the species of non-
performance of a reciprocal obligation. Reciprocal obligations are those
which arise from the same cause, wherein each party is a debtor and a
creditor of the other, such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.[28] From the moment
one of the parties fulfills his obligation, delay by the other party begins.
[29]
Since respondents are guilty of delay in the performance of
their obligations, they are liable to pay petitioners actual damages
of P183,416.80, computed as follows: From respondents outstanding
balance of P102,336.80, as of Setting Report No. 107, we add the
corresponding services fees of P81,080.00[30] for Setting Report Nos. 108
to 113 which had remain unpaid.
Nonetheless, San Juans subsequent acts of threatening
respondents should not remain among those treated with
impunity. Under Article 19[31] of the Civil Code, an act constitutes an
abuse of right if the following elements are present: (a) the existence
of a legal right or duty; (b) which is exercised in bad faith; and (c) for
the sole intent of prejudicing or injuring another.[32] Here, while
petitioners had the right to withhold delivery, the high-handed and
oppressive acts of petitioners, as aptly found by the two courts below,
had no legal leg to stand on. We need not weigh the corresponding
pieces of evidence all over again because factual findings of the trial
court, when adopted and confirmed by the appellate court, are binding
and conclusive and will not be disturbed on appeal.[33]
Since it was established that respondents suffered some
pecuniary loss anchored on petitioners abuse of rights, although the
exact amount of actual damages cannot be ascertained, temperate
damages are recoverable. In arriving at a reasonable level of temperate
damages of P408,852.10, which is equivalent to the value of the chicks
and by-products, which respondents, on the average, are expected to
derive, this Court was guided by the following factors: (a) award of
temperate damages will cover only Setting Report Nos. 109 to 113 since
the threats started only on February 10 and 11, 1993, which are the
pick-up dates for Setting Report Nos. 109 and 110; the rates of (b) 41%
and (c) 17%, representing the average rates of conversion of broiler
eggs into hatched chicks and egg by-products as tabulated by the trial
court based on available statistical data which was unrebutted by
petitioners; (d)68,784 eggs,[34] or the total number of broiler eggs under
Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the b.     The award of actual damages of P529,644.80 in
then unit market price of the chicks and by-products, respectively. favor of respondents is hereby REDUCED
Thus, the temperate damages of P408,852.10 is computed as to P408,852.10, with legal interest of 12% from the
follows: date of finality of this judgment until fully paid.
[b X (d X e) + c X (d X f)] = Temperate Damages
41% X (68,784 eggs X P14) = P394,820.16 c.     The award of moral damages, exemplary damages
17% X (68,784 eggs X P1.20) = P 14,031.94 and attorneys fees
[P394,820.16 + P14,031.94] = P408,852.10
of P100,000.00, P10,000.00, P50,000.00,
At bottom, we agree that petitioners conduct flouts the norms
respectively, in favor of respondents is
of civil society and justifies the award of moral and exemplary
damages. As enshrined in civil law jurisprudence: Honeste vivere, non hereby AFFIRMED.
alterum laedere et jus suum cuique tribuere. To live virtuously, not to
injure others and to give everyone his due.[35] Since exemplary damages d.     All other claims are hereby DENIED. No
are awarded, attorneys fees are also proper. Article 2208 of the Civil pronouncement as to costs.
Code provides that: 
SO ORDERED.
In the absence of stipulation, attorneys fees
and expenses of litigation, other than judicial costs,
cannot be recovered, except:

(1) When exemplary damages are awarded;

xxxx

WHEREFORE, the petition is PARTLY GRANTED. The Decision

dated April 30, 2003 of the Court of Appeals in CA-G.R. CV No. 56082 is
hereby MODIFIED as follows:

a.      Respondents are ORDERED to pay

petitioners P183,416.80 as actual damages, with
interest of 6% from the date of filing of the
complaint until fully paid, plus legal interest of 12%
from the finality of this decision until fully paid. G.R. No. L-56170 January 31, 1984
HILARIO JARAVATA petitioner,  No pronouncement as to the civil liability it appearing that the
vs. money given to the accused was already refunded by him. (Id. pp, 16-
THE HON. SANDIGANBAYAN and THE PEOPLE OF THE 17.) 
PHILIPPINES, respondents.
The petition raises factual and legal issues but for obvious
That on or about the period from April 30, 1979 to May 25, reasons Our decision shall deal with the legal issue only. 
1979, in the Municipality of Tubao, Province of La Union, Philippines,
and within the jurisdiction of this Honorable Court, the abovenamed The Sandiganbayan states in its decision the following: 
accused, being then the Assistant Principal of the Leones Tubao, La
Union Barangay High School and with the use of his influence as such A perusal of the conflicting versions of the prosecution and the
public official and taking advantage of his moral and official ascendancy defense shows that there is no dispute that [complainants] Ramos,
over his classroom teachers, with deliberate intent did then and there Lloren, Lopez, Dacayanan, Dulay and Bautista are classroom teachers of
wilfully, unlawfully and feloniously made demand and actually received the Leones Barangay High School with accused as their assistant
payments from other classroom teachers, ROMEO DACAYANAN, principal and [Conrado Baltazar as the administrator; that on January 5,
DOMINGO LOPEZ, MARCELA BAUTISTA, and FRANCISCO DULAY various 1979, accused informed the classroom teachers of the approval of the
sums of money, namely: P118.00, P100.00, P50.00 and P70.00 out of release of their salary differentials for 1978 and to facilitate its payment
their salary differentials, in consideration of accused having officially accused and the classroom teachers agreed that accused follow-up the
intervened in the release of the salary differentials of the six classroom papers in Manila with the obligation on the part of the classroom
teachers, to the prejudice and damage of the said classroom teachers, teachers to reimburse the accused of his expenses; that accused
in the total amount of THREE HUNDRED THIRTY EIGHT (P338.00) PESOS, incurred expenses in the total amount of P220.00 and there being six
Philippine Currency. (Decision, p.1-2.)  classroom teachers, he divided said amount by six or at the rate of
P36.00 each; that the classroom teachers actually received their salary
After trial, the Sandiganbayan rendered the following differentials and pursuant to said agreement, they, with the exception
judgment:  of Lloren and Ramos, gave the accused varying amounts but as Baltazar
did not approve it, he ordered the accused to return the money given to
WHEREFORE, accused is hereby found guilty beyond reasonable him by Lopez, Dacayanan, Dulay and Bautista, and accused complied
doubt for Violation of Section 3(b), Republic Act No. 3019, as amended, (Pp. 7-8.) 
and he is hereby sentenced to suffer an indeterminate imprisonment
ranging from ONE (1) YEAR, is minimum, to FOUR (4) YEARS, as The decision also recites that "the evidence is overwhelming to
maximum, to further suffer perpetual special disqualification from show that accused received more than the rightful contribution of
public office and to pay the costs.  P36.00 from four classroom teachers, namely: Lopez, Dulay, Dacayanan
and Bautista. Lopez categorically declared that he gave the accused "elective and appointive officials and employees, permanent or
P100.00 (TSN, p. 5, August 21, 1980 hearing) after he received his salary temporary, whether in the classified or unclassified or exempt service
differential or an excess of P64.00. So with Dulay, that he gave P70.00 to receiving compensation, even normal from the government." It may
the accused (TSN, p. 16,  supra) or an excess of P34.00; Dacayanan, that also be said that any amount which Jaravata received in excess of
he gave to the accused P118.00 (TSN, p. 26, supra) or an excess of P36.00 from each of the complainants was in the concept of a gift or
P82.00, and Bautista, that he gave to the accused P50.00 (TSN, p. 38, benefit. The pivotal question, however, is whether Jaravata, an assistant
supra) or an excess of P14.00. In short, the total amount received by the principal of a high school in the boondocks of Tubao, La Union, "in his
accused in excess of the share of the classroom teachers in the official capacity has to intervene under the law" in the payment of the
reimbursement of his expenses is P194.00. " (P. 9.)  salary differentials for 1978 of the complainants. It should be noted that
the arrangement was "to facilitate its [salary differential] payment
Republic Act No. 3019, otherwise known as the Anti-Graft and accused and the classroom teachers agreed that accused follow-up the
Corrupt Practices Act provides, inter alia  the following:  papers in Manila with the obligation on the part of the classroom
teachers to reimburse the accused of his expenses. 
Sec. 3. Corrupt practices of public officers. — In addition to acts
or omissions of public officers already penalized by existing law, the In Our opinion, Sec. 3(b) of R.A. No. 3019, refers to a public
following shall constitute corrupt practices of any public officer and are officer whose official intervention is required by law in a contract or
hereby declared to be unlawful: transaction. 
xxx xxx xxx
(b) Directly or indirectly requesting or receiving any gift, There is no law which invests the petitioner with the power to
present, share, percentage, or benefit, for himself or for any other intervene in the payment of the salary differentials of the complainants
person in connection with any contract or transaction between the or anyone for that matter. Far from exercising any power, the petitioner
Government and any other party, wherein the public officer in his played the humble role of a supplicant whose mission was to expedite
official capacity has to intervene under the law.  payment of the salary differentials. In his official capacity as assistant
xxx xxx xxx principal he is not required by law to intervene in the payment of the
The legal issue is whether or not, under the facts stated, salary differentials. Accordingly, he cannot be said to have violated the
petitioner Jaravata violated the above-quoted provision of the statute.  law afore-cited although he exerted efforts to facilitate the payment of
A simple reading of the provision has to yield a negative the salary differentials. 
answer. 
WHEREFORE, the petition is hereby granted and the judgment
There is no question that Jaravata at the time material to the of the Sandiganbayan convicting the petitioner is set aside. Costs  de
case was a "public officer" as defined by Section 2 of R.A. No. 3019, i.e. oficio. 
 SO ORDERED.
G.R. No. L-1299          November 16, 1903
VICENTE PEREZ, plaintiff-appellee,  the plaintiff during this period held himself in readiness to render
vs.
EUGENIO POMAR, Agent of the Compañia General de
Tabacos, defendant-appellant.
In a decision dated February 9, 1903, the judge of the Sixth
Judicial District, deciding a case brought by the plaintiff against the
defendant for the recovery of wages due and unpaid, gave judgment
against the latter for the sum of $600 and the costs of suit, less the sum
of $50, Mexican.
On August 27, 1902, Don Vicente Perez filed in the Court of First
Instance of Laguna a complaint, which was amended on the 17th of
January of this year, asking that the court determine the amount due
the plaintiff, at the customary rate of compensation for interpreting in
these Islands, for services rendered in the Tabacalera Company, and
that, in view of the circumstances of the case, judgment be rendered in
his favor for such sum. The complaint also asked that the defendant be
condemned to the payment of damages in the sum of $3,200, gold,
together with the costs of suit. In this complaint it was alleged that Don
Eugenio Pomar, as general agent of the Compañia General de Tabacos
in the said province, verbally requested the plaintiff on the 8th of
December, 1901, to act as interpreter between himself and the military
authorities; that after the date mentioned the plaintiff continued to
render such services up to and including May 31, 1902; that he had
accompanied the defendant, Pomar, during that time at conferences
between the latter and the colonel commanding the local garrison, and
with various officers and doctors residing in the capital, and at
conferences with Captain Lemen in the town of Pilar, and with the
major in command at the town of Pagsanjan, concerning the shipment
of goods from Manila, and with respect to Pagsanjan to this city; that
services whenever required; that on this account his private business,
and especially a soap factory established in the capital, was entirely
abandoned; that to the end that such services might be punctually
rendered, the agent, Pomar, assured him that the Tabacalera Company
always generously repaid services rendered it, and that he therefore did
not trouble himself about his inability to devote the necessary amount
of time to his business, the defendant going so far as to make him
flattering promises of employment with the company, which he did not
accept; that these statements were made in the absence of witnesses
and that therefore his only proof as to the same was Mr. Pomar's word
as a gentleman; that the employees of the company did not understand
English, and by reason of the plaintiff's mediation between the agent,
and the military authorities large profits were obtained, as would
appear from the account and letterpress books of the agency
corresponding to those dates. In the amended complaint it was added
that the defendant, on behalf of the company, offered to renumerate
the plaintiff for the services rendered in the most advantageous manner
in which such services are compensated, in view of the circumstances
under which they were requested; and that the plaintiff, by rendering
the company such services, was obliged to abandon his own business,
the manufacture of soap, and thereby suffered damages in the sum of
$3,200, United States currency.
The defendant, on the 25th of September, 1902, filed an answer
asking for the dismissal of the complaint, with costs to the plaintiff. In
his answer the defendant denied the allegation in the first paragraph of
the complaint, stating that it was wholly untrue that the company, and
the defendant as its agent, had solicited the services of the plaintiff as
interpreter before the military authorities for the period stated, or for
any other period, or that the plaintiff had accompanied Pomar at the
conferences mentioned, concerning shipments from Manila and exports
from some of the towns of the province to this capital. He stated that he
especially denied paragraphs 2 of the complaint, as it was absolutely
untrue that the plaintiff had been at the disposal of the defendant for
the purpose of rendering such services; that he therefore had not been
obliged to abandon his occupation or his soap factory, and that the
statement that an offer of employment with the company had been
made to him was false. The defendant also denied that through the
mediation of the plaintiff the company and himself had obtained large
profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint
were also denied. The defendant stated that, on account of the friendly
relations which sprang up between the plaintiff and himself, the former
borrowed from him from time to time money amounting to $175 for the
purposes of his business, and that he had also delivered to the plaintiff
36 arrobas of oil worth $106, and three packages of resin for use in
coloring his soap; that the plaintiff accompanied the defendant to
Pagsanjan, Pilar, and other towns when the latter made business trips to
them for the purpose of extending his business and mercantile relations
therein; that on these excursions, as well as on private and official visits
which he had to make, the plaintiff occasionally accompanied him
through motives of friendship, and especially because of the free
transportation given him, and not on behalf of the company of which he
was never interpreter and for which he rendered no services; that the
plaintiff in these conferences acted as interpreter of his own free will,
without being requested to do so by the defendant and without any
offer of payment or compensation; that therefore there existed no legal
relation whatever between the company and the plaintiff, and that the
defendant, when accepting the spontaneous, voluntary and officious
services of the plaintiff, did so in his private capacity and not as agent of
the company, and that it was for this reason that he refused to enter
into negotiations with the plaintiff, he being in no way indebted to the
latter. The defendant concluded by saying that he answered in his
individual capacity.
A complaint having been filed against the Compañia General de
Tabacos and Don Eugenio Pomar, its agent in the Province of Laguna,
the latter, having been duly summoned, replied to the complaint, which
was subsequently amended, and stated that he made such reply in his
individual capacity and not as agent of the company, with which the
plaintiff had had no legal relations. The suit was instituted between the
plaintiff and Pomar, who, as such, accepted the issue and entered into
the controversy without objection, opposed the claim of the plaintiff,
and concluded by asking that the complaint be dismissed, with the costs
to the plaintiff. Under these circumstances and construing the statutes
liberally, we think it proper to decide the case pending between both
parties in accordance with law and the strict principles of justice.
From the oral testimony introduced at the trial, it appears that
the plaintiff, Perez, did on various occasions render Don Eugenio Pomar
services as interpreter of English; and that he obtained passes and
accompanied the defendant upon his journeys to some of the towns in
the Province of Laguna. It does not appear from the evidence, however,
that the plaintiff was constantly at the disposal of the defendant during
the period of six months, or that he rendered services as such
interpreter continuously and daily during that period of time.
It does not appear that any written contract was entered into
between the parties for the employment of the plaintiff as interpreter,
or that any other innominate contract was entered into; but whether
the plaintiff's services were solicited or whether they were offered to
the defendant for his assistance, inasmuch as these services were
accepted and made use of by the latter, we must consider that there
was a tacit and mutual consent as to the rendition of the services. This
gives rise to the obligation upon the person benefited by the services to
make compensation therefor, since the bilateral obligation to render
services as interpreter, on the one hand, and on the other to pay for the
services rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of
the Civil Code). The supreme court of Spain in its decision of February
12, 1889, holds, among other things, "that not only is there an express
and tacit consent which produces real contract but there is also a
presumptive consent which is the basis of quasi contracts, this giving
rise to the multiple juridical relations which result in obligations for the
delivery of a thing or the rendition of a service."
Notwithstanding the denial of that defendant, it is
unquestionable that it was with his consent that the plaintiff rendered
him services as interpreter, thus aiding him at a time when, owing to
the existence of an insurrection in the province, the most disturbed
conditions prevailed. It follows, hence, that there was consent on the
part of both in the rendition of such services as interpreter. Such service
not being contrary to law or to good custom, it was a perfectly licit
object of contract, and such a contract must necessarily have existed
between the parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)
The consideration for the contract is also evident, it being clear
that a mutual benefit was derived in consequence of the service
rendered. It is to be supposed that the defendant accepted these
services and that the plaintiff in turn rendered them with the
expectation that the benefit would be reciprocal. This shows the
concurrence of the three elements necessary under article 1261 of the
Civil Code to constitute a contract of lease of service, or other
innominate contract, from which an obligation has arisen and whose
fulfillment is now demanded.
Article 1254 of the Civil Code provides that a contract exists the
moment that one or more persons consent to be bound, with respect to
another or others, to deliver some thing or to render some service.
Article 1255 provides that the contracting parties may establish such
covenants, terms, and conditions as they deem convenient, provided
they are not contrary to law, morals or public policy. Whether the
service was solicited or offered, the fact remains that Perez rendered to
Pomar services as interpreter. As it does not appear that he did this
gratuitously, the duty is imposed upon the defendant, having accepted
the benefit of the service, to pay a just compensation therefor, by virtue
of the innominate contract of facio ut des implicitly established.
The obligations arising from this contract are reciprocal, and,
apart from the general provisions with respect to contracts and
obligations, the special provisions concerning contracts for lease of
services are applicable by analogy.
In this special contract, as determined by article 1544 of the
Civil Code, one of the parties undertakes to render the other a service
for a price certain. The tacit agreement and consent of both parties with
respect to the service rendered by the plaintiff, and the reciprocal
benefits accruing to each, are the best evidence of the fact that there
was an implied contract sufficient to create a legal bond, from which
arose enforceable rights and obligations of a bilateral
character.lawphi1.net
In contracts the will of the contracting parties is law, this being a
legal doctrine based upon the provisions of articles 1254, 1258, 1262,
1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact sufficiently
proven that the defendant, Pomar, on various occasions consented to
accept an interpreter's services, rendered in his behalf and not
gratuitously, it is but just that he should pay a reasonable remuneration
therefor, because it is a well-known principle of law that no one should
be permitted to enrich himself to the damage of another.
With respect to the value of the services rendered on different
occasions, the most important of which was the first, as it does not
appear that any salary was fixed upon by the parties at the time the
services were accepted, it devolves upon the court to determine, upon
the evidence presented, the value of such services, taking into
consideration the few occasions on which they were rendered. The fact
that no fixed or determined consideration for the rendition of the
services was agreed upon does not necessarily involve a violation of the
provisions of article 1544 of the Civil Code, because at the time of the
agreement this consideration was capable of being made certain. The
discretionary power of the court, conferred upon it by the law, is also
supported by the decisions of the supreme court of Spain, among which
may be cited that of October 18, 1899, which holds as follows: "That as
stated in the article of the Code cited, which follows the provisions of
law 1, title 8, of the fifth partida, the contract for lease of services is one
in which one of the parties undertakes to make some thing or to render
some service to the other for a certain price, the existence of such a
price being understood, as this court has held not only when the price
has been expressly agreed upon but also when it may be determined by
the custom and frequent use of the place in which such services were
rendered."
No exception was taken to the judgment below by the plaintiff
on account of the rejection of his claim for damages. The decision upon
this point is, furthermore, correct.
Upon the supposition that the recovery of the plaintiff should
not exceed 200 Mexican pesos, owing to the inconsiderable number of
times he acted as interpreter, it is evident that the contract thus
implicitly entered into was not required to be in writing and that
therefore it does not fall within article 1280 of the Civil Code; nor is it
included within the provisions of section 335 of the Code of Civil
Procedure, as this innominate contract is not covered by that section.
The contract of lease of services is not included in any of the cases
expressly designated by that section of the procedural law, as affirmed
by the appellant. The interpretation of the other articles of the Code
alleged to have been infringed has also been stated fully in this opinion.
For the reasons stated, we are of the opinion that judgment
should be rendered against Don Eugenio Pomar for the payment to the
plaintiff of the sum of 200 Mexican pesos, from which will be deducted
the sum of 50 pesos is made as to the costs of this instance. The
judgment below is accordingly affirmed in so far as it agrees with this
opinion, and reversed in so far as it may be in conflict therewith.
Judgment will be entered accordingly twenty days after this decision is
filed.

G.R. No. 34840           September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee, 
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO
CORTEZ, defendants-appellants.
and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South
Road in the municipality of Las Piñas, Province of Rizal. The truck was
driven by the chauffeur Abelardo Velasco, and was owned by Saturnino
Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio's father and mother,
Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father
was not in the car, but the mother, together will several other
members of the Gutierrez family, seven in all, were accommodated
therein. A passenger in the autobus, by the name of Narciso Gutierrez,
was en route from San Pablo, Laguna, to Manila. The collision between
the bus and the automobile resulted in Narciso Gutierrez suffering a
fracture right leg which required medical attendance for a considerable
period of time, and which even at the date of the trial appears not to
have healed properly.
It is conceded that the collision was caused by negligence pure
and simple. The difference between the parties is that, while the
plaintiff blames both sets of defendants, the owner of the passenger
truck blames the automobile, and the owner of the automobile, in turn,
blames the truck. We have given close attention to these highly
debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions
of fact find sufficient support in the record, and so should be
maintained. With this general statement set down, we turn to consider
the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as
concerns the Gutierrez family, it may be explained that the youth
Bonifacio was in incompetent chauffeur, that he was driving at an
excessive rate of speed, and that, on approaching the bridge and the
truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was
granted a license to operate motor vehicles made the father
responsible for the acts of his son. Based on these facts, pursuant to
the provisions of article 1903 of the Civil Code, the father alone and not
the minor or the mother, would be liable for the damages caused by
the minor.
We are dealing with the civil law liability of parties for
obligations which arise from fault or negligence. At the same time, we
believe that, as has been done in other cases, we can take cognizance
of the common law rule on the same subject. In the United States, it is
uniformly held that the head of a house, the owner of an automobile,
who maintains it for the general use of his family is liable for its
negligent operation by one of his children, whom he designates or
permits to run it, where the car is occupied and being used at the time
of the injury for the pleasure of other members of the owner's family
than the child driving it. The theory of the law is that the running of the
machine by a child to carry other members of the family is within the
scope of the owner's business, so that he is liable for the negligence of
the child because of the relationship of master and servant. (Huddy On
Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.)
The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of
contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The
reason for this conclusion reaches to the findings of the trial court
concerning the position of the truck on the bridge, the speed in
operating the machine, and the lack of care employed by the chauffeur.
While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the
points emphasized by the trial judge. In its broader aspects, the case is
one of two drivers approaching a narrow bridge from opposite
directions, with neither being willing to slow up and give the right of
way to the other, with the inevitable result of a collision and an
accident.
The defendants Velasco and Cortez further contend that there
existed contributory negligence on the part of the plaintiff, consisting
principally of his keeping his foot outside the truck, which occasioned
his injury. In this connection, it is sufficient to state that, aside from the
fact that the defense of contributory negligence was not pleaded, the
evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the
award. The appellee suggests that the amount could justly be raised to
P16,517, but naturally is not serious in asking for this sum, since no
appeal was taken by him from the judgment. The other parties unite in
challenging the award of P10,000, as excessive. All facts considered,
including actual expenditures and damages for the injury to the leg of
the plaintiff, which may cause him permanent lameness, in connection
with other adjudications of this court, lead us to conclude that a total
sum for the plaintiff of P5,000 would be fair and reasonable. The
difficulty in approximating the damages by monetary compensation is
well elucidated by the divergence of opinion among the members of
the court, three of whom have inclined to the view that P3,000 would
be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment
appealed from will be modified, and the plaintiff will have judgment in
his favor against the defendants Manuel Gutierrez, Abelardo Velasco,
and Saturnino Cortez, jointly and severally, for the sum of P5,000, and
the costs of both instances.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez,
and Imperial, JJ., concur.
VILLA-REAL, J.:
I vote for an indemnity of P7,500.

G.R. No. L-6913            November 21, 1913
Shanghai Bank at Iloilo. Shortly thereafter and during the war of the
revolution, Father De la Peña was arrested by the military authorities as
a political prisoner, and while thus detained made an order on said
bank in favor of the United States Army officer under whose charge he
then was for the sum thus deposited in said bank. The arrest of Father
De la Peña and the confiscation of the funds in the bank were the result
of the claim of the military authorities that he was an insurgent and
that the funds thus deposited had been collected by him for
revolutionary purposes. The money was taken from the bank by the
military authorities by virtue of such order, was confiscated and turned
over to the Government. 

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,  While there is considerable dispute in the case over the
vs. question whether the P6,641 of trust funds was included in the P19,000
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin deposited as aforesaid, nevertheless, a careful examination of the case
de la Peña, defendant-appellant.  leads us to the conclusion that said trust funds were a part of the funds
deposited and which were removed and confiscated by the military
This is an appeal by the defendant from a judgment of the Court of authorities of the United States. 
First Instance of Iloilo, awarding to the plaintiff the sum of P6,641, with
interest at the legal rate from the beginning of the action.  That branch of the law known in England and America as the
law of trusts had no exact counterpart in the Roman law and has none
It is established in this case that the plaintiff is the trustee of a under the Spanish law. In this jurisdiction, therefore, Father De la
charitable bequest made for the construction of a leper hospital and Peña's liability is determined by those portions of the Civil Code which
that father Agustin de la Peña was the duly authorized representative relate to obligations. (Book 4, Title 1.) 
of the plaintiff to receive the legacy. The defendant is the administrator
of the estate of Father De la Peña.  Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence pertaining to
In the year 1898 the books Father De la Peña, as trustee, a good father of a family" (art. 1094), it also provides, following the
showed that he had on hand as such trustee the sum of P6,641, principle of the Roman law, major casus est, cui humana infirmitas
collected by him for the charitable purposes aforesaid. In the same year resistere non potest, that "no one shall be liable for events which could
he deposited in his personal account P19,000 in the Hongkong and not be foreseen, or which having been foreseen were inevitable, with
the exception of the cases expressly mentioned in the law or those in
which the obligation so declares." (Art. 1105.)  is the subject matter of this action was deposited by Father De la Peña
By placing the money in the bank and mixing it with his
personal funds De la Peña did not thereby assume an obligation
different from that under which he would have lain if such deposit had
not been made, nor did he thereby make himself liable to repay the
money at all hazards. If the had been forcibly taken from his pocket or
from his house by the military forces of one of the combatants during a
state of war, it is clear that under the provisions of the Civil Code he
would have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must
respond at all hazards. 
We do not enter into a discussion for the purpose of
determining whether he acted more or less negligently by depositing
the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his
personal account than he would have been if he had deposited it in a
separate account as trustee. We regard such discussion as substantially
fruitless, inasmuch as the precise question is not one of negligence.
There was no law prohibiting him from depositing it as he did and there
was no law which changed his responsibility be reason of the deposit.
While it may be true that one who is under obligation to do or give a
thing is in duty bound, when he sees events approaching the results of
which will be dangerous to his trust, to take all reasonable means and
measures to escape or, if unavoidable, to temper the effects of those
events, we do not feel constrained to hold that, in choosing between
two means equally legal, he is culpably negligent in selecting one
whereas he would not have been if he had selected the other. 
The court, therefore, finds and declares that the money which
in the Hongkong and Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed forces of the
United States during the war of the insurrection; and that said Father
De la Peña was not responsible for its loss. 
The judgment is therefore reversed, and it is decreed that the
plaintiff shall take nothing by his complaint. 
Arellano, C.J., Torres and Carson, JJ., concur. 
Separate Opinions
TRENT, J., dissenting: 
I dissent. Technically speaking, whether Father De la Peña was
a trustee or an agent of the plaintiff his books showed that in 1898 he
had in his possession as trustee or agent the sum of P6,641 belonging
to the plaintiff as the head of the church. This money was then clothed
with all the immunities and protection with which the law seeks to
invest trust funds. But when De la Peña mixed this trust fund with his
own and deposited the whole in the bank to hispersonal account or
credit, he by this act stamped on the said fund his own private marks
and unclothed it of all the protection it had. If this money had been
deposited in the name of De la Peña as trustee or agent of the plaintiff,
I think that it may be presumed that the military authorities would not
have confiscated it for the reason that they were looking for insurgent
funds only. Again, the plaintiff had no reason to suppose that De la
Peña would attempt to strip the fund of its identity, nor had he said or
done anything which tended to relieve De la Peña from the legal
reponsibility which pertains to the care and custody of trust funds.  becoming a debtor, there would have been no doubt as to the liability
The Supreme Court of the United States in the United State vs.
Thomas (82 U. S., 337), at page 343, said: "Trustees are only bound to
exercise the same care and solicitude with regard to the trust property
which they would exercise with regard to their own. Equity will not
exact more of them. They are not liable for a loss by theft without their
fault. But this exemption ceases when they mix the trust-money with
their own, whereby it loses its identity, and they become mere
debtors."  P18,970. These facts strongly indicate that De la Peña had as a matter
If this proposition is sound and is applicable to cases arising in
this jurisdiction, and I entertain no doubt on this point, the liability of
the estate of De la Peña cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Peña) placed the
trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must
respond at all hazards. . . . There was no law prohibiting him from
depositing it as he did, and there was no law which changed his
responsibility, by reason of the deposit." 
buying and selling of sugar or other products of the country, thereby
of his estate. Whether he used this money for that purpose the record
is silent, but it will be noted that a considerable length of time
intervened from the time of the deposit until the funds were
confiscated by the military authorities. In fact the record shows that De
la Peña deposited on June 27, 1898, P5,259, on June 28 of that year
P3,280, and on August 5 of the same year P6,000. The record also
shows that these funds were withdrawn and again deposited all
together on the 29th of May, 1900, this last deposit amounting to
of fact been using the money in violation of the trust imposed in
him. lawph!1.net
If the doctrine announced in the majority opinion be followed
in cases hereafter arising in this jurisdiction trust funds will be placed in
precarious condition. The position of the trustee will cease to be one of
trust.

I assume that the court in using the language which appears in

the latter part of the above quotation meant to say that there was no
statutory law regulating the question. Questions of this character are
not usually governed by statutory law. The law is to be found in the
very nature of the trust itself, and, as a general rule, the courts say
what facts are necessary to hold the trustee as a debtor. 

If De la Peña, after depositing the trust fund in his personal

account, had used this money for speculative purposes, such as the

G.R. No. L-12342            August 3, 1918
A. A. ADDISON, plaintiff-appellant,  of the first installment of P2,000, demandable in accordance with the
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.
dated June 11, 1914, the plaintiff sold to the defendant
Marciana Felix, with the consent of her husband, the defendant Balbino
Tioco, four parcels of land, described in the instrument. The defendant
Felix paid, at the time of the execution of the deed, the sum of P3,000
on account of the purchase price, and bound herself to pay the
remainder in installments, the first of P2,000 on July 15, 1914, and the
second of P5,000 thirty days after the issuance to her of a certificate of
title under the Land Registration Act, and further, within ten years from
the date of such title P10, for each coconut tree in bearing and P5 for
each such tree not in bearing, that might be growing on said four
parcels of land on the date of the issuance of title to her, with the
condition that the total price should not exceed P85,000. It was further
stipulated that the purchaser was to deliver to the vendor 25 per
centum of the value of the products that she might obtain from the
four parcels "from the moment she takes possession of them until the
Torrens certificate of title be issued in her favor." 
It was also covenanted that "within one year from the date of
the certificate of title in favor of Marciana Felix, this latter may rescind
the present contract of purchase and sale, in which case Marciana Felix
shall be obliged to return to me, A. A. Addison, the net value of all the
products of the four parcels sold, and I shall obliged to return to her,
Marciana Felix, all the sums that she may have paid me, together with
interest at the rate of 10 per cent per annum." 
In January, 1915, the vendor, A. A. Addison, filed suit in Court
of First Instance of Manila to compel Marciana Felix to make payment
terms of the contract of sale aforementioned, on July 15, 1914, and of
the interest in arrears, at the stipulated rate of 8 per cent per annum.
The defendant, jointly with her husband, answered the complaint and
alleged by way of special defense that the plaintiff had absolutely failed
to deliver to the defendant the lands that were the subject matter of
the sale, notwithstanding the demands made upon him for this
purpose. She therefore asked that she be absolved from the complaint,
and that, after a declaration of the rescission of the contract of the
purchase and sale of said lands, the plaintiff be ordered to refund the
P3,000 that had been paid to him on account, together with the
interest agreed upon, and to pay an indemnity for the losses and
damages which the defendant alleged she had suffered through the
plaintiff's non-fulfillment of the contract.
 The evidence adduced shows that after the execution of the
deed of the sale the plaintiff, at the request of the purchaser, went to
Lucena, accompanied by a representative of the latter, for the purpose
of designating and delivering the lands sold. He was able to designate
only two of the four parcels, and more than two-thirds of these two
were found to be in the possession of one Juan Villafuerte, who
claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain
possession of the land (sten. notes, record, p. 5). In August, 1914, the
surveyor Santamaria went to Lucena, at the request of the plaintiff and
accompanied by him, in order to survey the land sold to the defendant;
but he surveyed only two parcels, which are those occupied mainly by
the brothers Leon and Julio Villafuerte. He did not survey the other
parcels, as they were not designated to him by the plaintiff. In order to
make this survey it was necessary to obtain from the Land Court a writ
of injunction against the occupants, and for the purpose of the issuance
of this writ the defendant, in June, 1914, filed an application with the
Land Court for the registration in her name of four parcels of land
described in the deed of sale executed in her favor by the plaintiff. The
proceedings in the matter of this application were subsequently
dismissed, for failure to present the required plans within the period of
the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant,
holding the contract of sale to be rescinded and ordering the return to
the plaintiff the P3,000 paid on account of the price, together with
interest thereon at the rate of 10 per cent per annum. From this
judgment the plaintiff appealed.
In decreeing the rescission of the contract, the trial judge
rested his conclusion solely on the indisputable fact that up to that
time the lands sold had not been registered in accordance with the
Torrens system, and on the terms of the second paragraph of clause (h)
of the contract, whereby it is stipulated that ". . . within one year from
the date of the certificate of title in favor of Marciana Felix, this latter
may rescind the present contract of purchase and sale . . . ."
The appellant objects, and rightly, that the cross-complaint is
not founded on the hypothesis of the conventional rescission relied
upon by the court, but on the failure to deliver the land sold. He argues
that the right to rescind the contract by virtue of the special agreement
not only did not exist from the moment of the execution of the
contract up to one year after the registration of the land, but does not
accrue until the land is registered. The wording of the clause, in fact,
substantiates the contention. The one year's deliberation granted to
the purchaser was to be counted "from the date of the certificate of
title ... ." Therefore the right to elect to rescind the contract was
subject to a condition, namely, the issuance of the title. The record
show that up to the present time that condition has not been fulfilled;
consequently the defendant cannot be heard to invoke a right which
depends on the existence of that condition. If in the cross-complaint it
had been alleged that the fulfillment of the condition was impossible
for reasons imputable to the plaintiff, and if this allegation had been
proven, perhaps the condition would have been considered as fulfilled
(arts. 1117, 1118, and 1119, Civ. Code); but this issue was not
presented in the defendant's answer.
However, although we are not in agreement with the reasoning
found in the decision appealed from, we consider it to be correct in its
result. The record shows that the plaintiff did not deliver the thing sold.
With respect to two of the parcels of land, he was not even able to
show them to the purchaser; and as regards the other two, more than
two-thirds of their area was in the hostile and adverse possession of a
third person.
The Code imposes upon the vendor the obligation to deliver the
thing sold. The thing is considered to be delivered when it is placed "in
the hands and possession of the vendee." (Civ. Code, art. 1462.) It is
true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the
object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that, at the moment of the
sale, its material delivery could have been made. It is not enough to
confer upon the purchaser the ownership and the right of possession.
The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public instrument is sufficient. But
if, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and
make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another
will, then fiction yields to reality — the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his
commentaries on article 1604 of the French Civil code, "the word
"delivery" expresses a complex idea . . . the abandonment of the thing
by the person who makes the delivery and the taking control of it by
the person to whom the delivery is made."
The execution of a public instrument is sufficient for the
purposes of the abandonment made by the vendor; but it is not always
sufficient to permit of the apprehension of the thing by the purchaser.
The supreme court of Spain, interpreting article 1462 of the
Civil Code, held in its decision of November 10, 1903, (Civ. Rep., vol. 96,
p. 560) that this article "merely declares that when the sale is made
through the means of a public instrument, the execution of this latter is
equivalent to the delivery of the thing sold: which does not and cannot
mean that this fictitious tradition necessarily implies the real tradition
of the thing sold, for it is incontrovertible that, while its ownership still
pertains to the vendor (and with greater reason if it does not), a third
person may be in possession of the same thing; wherefore, though, as
a general rule, he who purchases by means of a public instrument
should be deemed . . . to be the possessor in fact, yet this presumption
gives way before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution
of the instrument was not a fulfillment of the vendors' obligation to
deliver the thing sold, and that from such non-fulfillment arises the
purchaser's right to demand, as she has demanded, the rescission of
the sale and the return of the price. (Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express
agreement of imposing upon the purchaser the obligation to take the
necessary steps to obtain the material possession of the thing sold, and
it were proven that she knew that the thing was in the possession of a
third person claiming to have property rights therein, such agreement
would be perfectly valid. But there is nothing in the instrument which
would indicate, even implicitly, that such was the agreement. It is true,
as the appellant argues, that the obligation was incumbent upon the
defendant Marciana Felix to apply for and obtain the registration of the
land in the new registry of property; but from this it cannot be
concluded that she had to await the final decision of the Court of Land
Registration, in order to be able to enjoy the property sold. On the
contrary, it was expressly stipulated in the contract that the purchaser
should deliver to the vendor one-fourth "of the products ... of the
aforesaid four parcels from the moment when she takes possession of
them until the Torrens certificate of title be issued in her favor." This
obviously shows that it was not forseen that the purchaser might be
deprived of her possession during the course of the registration
proceedings, but that the transaction rested on the assumption that
she was to have, during said period, the material possession and
enjoyment of the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions

of law and not by contractual agreement, it is not the conventional but
the legal interest that is demandable.

It is therefore held that the contract of purchase and sale

entered into by and between the plaintiff and the defendant on June
11, 1914, is rescinded, and the plaintiff is ordered to make restitution of
the sum of P3,000 received by him on account of the price of the sale,
together with interest thereon at the legal rate of 6 per annum from
the date of the filing of the complaint until payment, with the costs of
both instances against the appellant. So ordered. 

G.R. No. 129018      November 15, 2001
CARMELITA LEAÑO, assisted by her husband GREGORIO
CUACHON, petitioner,  paid with the corresponding interests up to that date, respondent
vs.
COURT OF APPEALS and HERMOGENES FERNANDO, respondents.
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and
Carmelita Leaño, as vendee executed a contract to sell involving a piece
of land, Lot No. 876-B, with an area of 431 square meters, located at
Sto. Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leaño bound herself to pay Hermogenes
Fernando the sum of one hundred seven thousand and seven hundred
and fifty pesos (P107,750.00) as the total purchase price of the lot. The
manner of paying the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE
(P10,775.00) PESOS, shall be paid at the signing of this contract as
DOWN PAYMENT, the balance of NINETY SIX THOUSAND NINE
HUNDRED SEVENTY FIVE PESOS (P96,975.00) shall be paid within a
period of TEN (10) years at a monthly amortization of P1,747.30 to
begin from December 7, 1985 with interest at eighteen per cent (18%)
per annum based on balances."4
The contract also provided for a grace period of one month within
which to make payments, together with the one corresponding to the
month of grace. Should the month of grace expire without the
installments for both months having been satisfied, an interest of 18%
per annum will be charged on the unpaid installments. 5
Should a period of ninety (90) days elapse from the expiration of the
grace period without the overdue and unpaid installments having been
Fernando, as vendor, was authorized to declare the contract cancelled
and to dispose of the parcel of land, as if the contract had not been
entered into. The payments made, together with all the improvements
made on the premises, shall be considered as rents paid for the use and
occupation of the premises and as liquidated damages. 6
After the execution of the contract, Carmelita Leaño made several
payments in lump sum.7 Thereafter, she constructed a house on the lot
valued at P800,000.00.8 The last payment that she made was on April 1,
1989.
On September 16, 1991, the trial court rendered a decision in an
ejectment case9 earlier filed by respondent Fernando ordering
petitioner Leaño to vacate the premises and to pay P250.00 per month
by way of compensation for the use and occupation of the property
from May 27, 1991 until she vacated the premises, attorney's fees and
costs of the suit.10 On August 24, 1993, the trial court issued a writ of
execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with the Regional Trial
Court of Malolos, Bulacan a complaint for specific performance with
preliminary injunction.11 Petitioner Leaño assailed the validity of the
judgment of the municipal trial court 12 for being violative of her right to
due process and for being contrary to the avowed intentions of Republic
Act No. 6552 regarding protection to buyers of lots on installments.
Petitioner Leaño deposited P18,000.00 with the clerk of court, Regional
Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B. 13
On November 4, 1993, after petitioner Leaño posted a cash bond of
P50,000.00,14 the trial court issued a writ of preliminary injunction 15 to
stay the enforcement of the decision of the municipal trial court. 16
On February 6, 1995, the trial court rendered a decision, the dispositive
portion of which reads:
"WHEREFORE, judgment is hereby rendered as follows:
"1. The preliminary injunction issued by this court per its order dated
November 4, 1993 is hereby made permanent;
"2. Ordering the plaintiff to pay to the defendant the sum of
P103,090.70 corresponding to her outstanding obligations under the
contract to sell (Exhibit "A" – Exhibit "B") consisting of the principal of
said obligation together with the interest and surcharges due thereon as
of February 28, 1994, plus interest thereon at the rate of 18% per
annum in accordance with the provision of said contract to be
computed from March 1, 1994, until the same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as
and by way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil
Case No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS 
Judge"17
On February 21, 1995, respondent Fernando filed a motion for
reconsideration18 and the supplement19 thereto. The trial court
increased the amount of P103,090.70 to P183,687.00 and ordered
petitioner Leaño ordered to pay attorney's fees. 20
According to the trial court, the transaction between the parties was an
absolute sale, making petitioner Leaño the owner of the lot upon actual
and constructive delivery thereof. Respondent Fernando, the seller, was
divested of ownership and cannot recover the same unless the contract
is rescinded pursuant to Article 1592 of the Civil Code which requires a
judicial or notarial demand. Since there had been no rescission,
petitioner Leaño, as the owner in possession of the property, cannot be
evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase price is
payable within a ten-year period, yet the same contract clearly specifies
that the purchase price shall be payable in monthly installments for
which the corresponding penalty shall be imposed in case of default.
The plaintiff certainly cannot ignore the binding effect of such
stipulation by merely asserting that the ten-year period for payment of
the whole purchase price has not yet lapsed. In other words, the
plaintiff has clearly defaulted in the payment of the amortizations due
under the contract as recited in the statement of account (Exhibit "2")
and she should be liable for the payment of interest and penalties in
accordance with the stipulations in the contract pertaining thereto." 21
The trial court disregarded petitioner Leaños claim that she made a
downpayment of P10,000.00, at the time of the execution of the
contract.
The trial court relied on the statement of account 22 and the
summary23 prepared by respondent Fernando to determine petitioner
Leaño's liability for the payment of interests and penalties.
The trial court held that the consignation made by petitioner Leaño in
the amount of P18,000.00 did not produce any legal effect as the same
was not done in accordance with Articles 1176, 1177 and 1178 of the
Civil Code.
In time, petitioner Leaño appealed the decision to the Court of
Appeals.24 On January 22, 1997, Court of Appeals promulgated a
decision affirming that of the Regional Trial Court in toto.25 On February
11, 1997, petitioner Leaño filed a motion for reconsideration. 26 On April
18, 1997, the Court of Appeals denied the motion. 27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are (1) whether the
transaction between the parties in an absolute sale or a conditional
sale; (2) whether there was a proper cancellation of the contract to sell;
and (3) whether petitioner was in delay in the payment of the monthly
amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction between the
parties was a conditional sale not an absolute sale. The intention of the
parties was to reserve the ownership of the land in the seller until the
buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and conveyance
"subject to conditions" set forth in the contract to sell. 29
Second, what was transferred was the possession of the property, not
ownership. The possession is even limited by the following: (1) that the
vendee may continue therewith "as long as the VENDEE complies with
all the terms and conditions mentioned, and (2) that the buyer may not
sell, cede, assign, transfer or mortgage or in any way encumber any
right, interest or equity that she may have or acquire in and to the said
parcel of land nor to lease or to sublease it or give possession to
another person without the written consent of the seller. 30
Finally, the ownership of the lot was not transferred to Carmelita Leaño.
As the land is covered by a torrens title, the act of registration of the
deed of sale was the operative act that could transfer ownership over
the lot.31 There is not even a deed that could be registered since the
contract provides that the seller will execute such a deed "upon
complete payment by the VENDEE of the total purchase price of the
property" with the stipulated interest. 32
In a contract to sell real property on installments, the full payment of
the purchase price is a positive suspensive condition, the failure of
which is not considered a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from
acquiring any obligatory force. 33 The transfer of ownership and title
would occur after full payment of the price. 34
In the case at bar, petitioner Leaño's non-payment of the installments
after April 1, 1989, prevented the obligation of respondent Fernando to
convey the property from arising. In fact, it brought into effect the
provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil Code
is inapplicable to the case at bar. 35 However, any attempt to cancel the
contract to sell would have to comply with the provisions of Republic
Act No. 6552, the "Realty Installment Buyer Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the
contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force. 36 The law also provides for the rights
of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law provides
that:
"If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty
percent of the total payments made and, after five years of installments,
an additional five percent every year but not to exceed ninety percent
of the total payment made:  Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract
by a notarial act and upon full payment of the cash surrender value to
the buyer." [Emphasis supplied]
The decision in the ejectment case 37 operated as the notice of
cancellation required by Sec. 3(b). As petitioner Leaño was not given
then cash surrender value of the payments that she made, there was
still no actual cancellation of the contract. Consequently, petitioner
Leaño may still reinstate the contract by updating the account during
the grace period and before actual cancellation. 38
Should petitioner Leaño wish to reinstate the contract, she would have
to update her accounts with respondent Fernando in accordance with
the statement of account39 which amount was P183,687.00.40
On the issue of whether petitioner Leaño was in delay in paying the
amortizations, we rule that while the contract provided that the total
purchase price was payable within a ten-year period, the same contract IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of
specified that the purchase price shall be paid in monthly installments the Court of Appeals44 in toto.
for which the corresponding penalty shall be imposed in case of default.
Petitioner Leaño cannot ignore the provision on the payment of No costs.
monthly installments by claiming that the ten-year period within which
to pay has not elapsed. SO ORDERED.

Article 1169 of the Civil Code provides that in reciprocal obligations,

neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other
begins.1âwphi1.nêt

In the case at bar, respondent Fernando performed his part of the

obligation by allowing petitioner Leaño to continue in possession and
use of the property. Clearly, when petitioner Leaño did not pay the
monthly amortizations in accordance with the terms of the contract, she
was in delay and liable for damages. 41 However, we agree with the trial
court that the default committed by petitioner Leaño in respect of the
obligation could be compensated by the interest and surcharges
imposed upon her under the contract in question. 42

It is a cardinal rule in the interpretation of contracts that 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.43 Thus, as there is no ambiguity in the language of the contract,
there is no room for construction, only compliance.

The Fallo

G.R. No. 127695            December 3, 2001
HEIRS OF LUIS BACUS, petitioners,  performance against the heirs of Luis Bacus with the Lupon
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO DURAY and
VICTORIANA DURAY, respondents.
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray
a parcel of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot
No. 3661-A-3-B-2, it had an area of 3,002 square meters, covered by
Transfer Certificate of Title No. 48866. The lease was for six years,
ending May 31, 1990. The contract contained an option to buy clause.
Under said option, the lessee had the exclusive and irrevocable right to
buy 2,000 square meters of the property within five years from a year
after the effectivity of the contract, at P200 per square meter. That rate
shall be proportionately adjusted depending on the peso rate against
the US dollar, which at the time of the execution of the contract was
fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died on October 10,
1989. Thereafter, on March 15, 1990, the Duray spouses informed
Roque Bacus, one of the heirs of Luis Bacus, that they were willing and
ready to purchase the property under the option to buy clause. They
requested Roque Bacus to prepare the necessary documents, such as a
Special Power of Attorney authorizing him to enter into a contract of
sale,2 on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the
property, Faustino Duray's adverse claim was annotated by the Register
of Deeds of Cebu, at the back of TCT No. 63269, covering the segregated
2,000 square meter portion of Lot No. 3661-A-3-B-2-A. 3
Subsequently, on April 5, 1990, Duray filed a complaint for specific
Tagapamayapa of Barangay Bulacao, asking that he be allowed to
purchase the lot specifically referred to in the lease contract with option
to buy. At the hearing, Duray presented a certification 4 from the
manager of Standard Chartered Bank, Cebu City, addressed to Luis
Bacus, stating that at the request of Mr. Lawrence Glauber, a bank
client, arrangements were being made to allow Faustino Duray to
borrow funds of approximately P700,000 to enable him to meet his
obligations under the contract with Luis Bacus. 5
Having failed to reach an agreement before the Lupon, on April 27,
1990, private respondents filed a complaint for specific performance
with damages against petitioners before the Regional Trial Court,
praying that the latter, (a) execute a deed of sale over the subject
property in favor of private respondents; (b) receive the payment of the
purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis Bacus' death,
private respondents conveyed to them the former's lack of interest to
exercise their option because of insufficiency of funds, but they were
surprised to learn of private respondents' demand. In turn, they
requested private respondents to pay the purchase price in full but the
latter refused. They further alleged that private respondents did not
deposit the money as required by the Lupon and instead presented a
bank certification which cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court that they
caused the issuance of a cashier's check in the amount of
P650,0006 payable to petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of private
respondents, the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and orders the
defendants to specifically perform their obligation in the option to buy
and to execute a document of sale over the property covered by
Transfer Certificate of Title # T-63269 upon payment by the plaintiffs to
them in the amount of Six Hundred Seventy-Five Thousand Six Hundred
Seventy-Five (P675,675.00) Pesos within a period of thirty (30) days
from the date this decision becomes final. 
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of Appeals
which denied the appeal on November 29, 1996, on the ground that the
private respondents exercised their option to buy the leased property
before the expiration of the contract of lease. It held:
. . . After a careful review of the entire records of this case, we are
convinced that the plaintiffs-appellees validly and effectively exercised
their option to buy the subject property. As opined by the lower court,
"the readiness and preparedness of the plaintiff on his part, is
manifested by his cautionary letters, the prepared bank certification
long before the date of May 31, 1990, the final day of the option, and
his filing of this suit before said date. If the plaintiff-appellee Francisco
Duray had no intention to purchase the property, he would not have
bothered to write those letters to the defendant-appellants (which were
all received by them) and neither would he be interested in having his
adverse claim annotated at the back of the T.C.T. of the subject
property, two (2) months before the expiration of the lease. Moreover,
he even went to the extent of seeking the help of the Lupon
Tagapamayapa to compel the defendants-appellants to recognize his
right to purchase the property and for them to perform their
corresponding obligation.8
xxx           xxx           xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby AFFIRMED. 9
Hence, this petition where petitioners aver that the Court of Appeals
gravely erred and abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC
PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS
THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY IN
QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF
P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION
BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW
AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL
COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED
THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE PRESENTATION OF
THE CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT IN
THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS
EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE OF THE OPTION
TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE
PRESENTATION OF A CASHER'S (SIC) CHECK BY THE RESPONDENTS IN
THE AMOUNT OF P625,000.00 EVEN AFTER THE TERMINATION OF THE
TRIAL ON THE MERITS WITH BOTH PARTIES ALREADY HAVING RESTED
THEIR CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION FOR
THE PRIVATE RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT
OF OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER OF
PAYMENT WITHIN THE AGREED PERIOD.10
Petitioners insist that they cannot be compelled to sell the disputed
property by virtue of the nonfulfillment of the obligation under the
option contract of the private respondents.
Private respondents first aver that petitioners are unclear if Rule 65 or
Rule 45 of the Rules of Court govern their petition, and that petitioners
only raised questions of facts which this Court cannot properly entertain
in a petition for review. They claim that even assuming that the instant
petition is one under Rule 45, the same must be denied for the Court of
Appeals has correctly determined that they had validly exercised their
option to buy the leased property before the contract expired. 
In response, petitioners state that private respondents erred in initially
classifying the instant petition as one under Rule 65 of the Rules of
Court. They argue that the petition is one under Rule 45 where errors of
the Court of Appeals, whether evidentiary or legal in nature, may be
reviewed.
We agree with private respondents that in a petition for review under
Rule 45, only questions of law may be raised. 11 However, a close reading
of petitioners' arguments reveal the following legal issues which may
properly be entertained in the instant petition:
a) When private respondents opted to buy the property covered by the
lease contract with option to buy, were they already required to deliver
the money or consign it in court before petitioner executes a deed of
transfer?
b) Did private respondents incur in delay when they did not deliver the
purchase price or consign it in court on or before the expiration of the
contract?
On the first issue, petitioners contend that private respondents failed to
comply with their obligation because there was neither actual delivery
to them nor consignation in court or with the Municipal, City or
Provincial Treasurer of the purchase price before the contract expired.
Private respondents' bank certificate stating that arrangements were
being made by the bank to release P700,000 as a loan to private
respondents cannot be considered as legal tender that may substitute
for delivery of payment to petitioners nor was it a consignation.
Obligations under an option to buy are reciprocal obligations. 12 The
performance of one obligation is conditioned on the simultaneous
fulfillment of the other obligation. 13 In other words, in an option to buy,
the payment of the purchase price by the creditor is contingent upon
the execution and delivery of a deed of sale by the debtor. In this case,
when private respondents opted to buy the property, their obligation
was to advise petitioners of their decision and their readiness to pay the
price. They were not yet obliged to make actual payment. Only upon
petitioners' actual execution and delivery of the deed of sale were they
required to pay. As earlier stated, the latter was contingent upon the
former. In Nietes vs. Court of Appeals, 46 SCRA 654 (1972), we held that
notice of the creditor's decision to exercise his option to buy need not
be coupled with actual payment of the price, so long as this is delivered
to the owner of the property upon performance of his part of the
agreement. Consequently, since the obligation was not yet due,
consignation in court of the purchase price was not yet required.
Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior tender of payment. In
instances, where no debt is due and owing, consignation is not
proper.14 Therefore, petitioners' contention that private respondents
failed to comply with their obligation under the option to buy because
they failed to actually deliver the purchase price or consign it in court
before the contract expired and before they execute a deed, has no leg
to stand on.
Corollary, private respondents did not incur in delay when they did not
yet deliver payment nor make a consignation before the expiration of
the contract. In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. Only from the moment one of the
parties fulfills his obligation, does delay by the other begin. 15
In this case, private respondents, as early as March 15, 1990,
communicated to petitioners their intention to buy the property and
they were at that time undertaking to meet their obligation before the
expiration of the contract on May 31, 1990. However, petitioners
refused to execute the deed of sale and it was their demand to private
respondents to first deliver the money before they would execute the
same which prompted private respondents to institute a case for
specific performance in the Lupong Tagapamayapa and then in the RTC.
On October 30, 1990, after the case had been submitted for decision
but before the trial court rendered its decision, private respondents
issued a cashier's check in petitioners' favor purportedly to bolster their
claim that they were ready to pay the purchase price. The trial court
considered this in private respondents' favor and we believe that it
rightly did so, because at the time the check was issued, petitioners had
not yet executed a deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what was incumbent
upon petitioners under the option to buy, private respondents had not
incurred in delay when the cashier's check was issued even after the
contract expired.
WHEREFORE, the instant petition is DENIED. The decision dated
November 29, 1996 of the Court of Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
Buy and Sell1 a 224 square-meter (more or less) condominium unit at a
pre-selling project, "The Salcedo Park," located along Senator Gil Puyat
Avenue, Makati City. 
The purchase price was ₱16,802,037.32, to be paid as follows: (1) 30%
less the reservation fee of ₱100,000, or ₱4,940,611.19, by postdated
check payable on July 14, 1995; (2) ₱9,241,120.50 through 30 equal
monthly installments of ₱308,037.35 from August 14, 1995 to January
14, 1998; and (3) the balance of ₱2,520,305.63 on October 31, 1998, the
stipulated delivery date of the unit; provided that if the construction is
completed earlier, Tanseco would pay the balance within seven days
from receipt of a notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction
schedule as follows:

4. CONSTRUCTION SCHEDULE – The construction of the Project and the

unit/s herein purchased shall be completed and delivered not later than
October 31, 1998 with additional grace period of six (6) months within
which to complete the Project and the unit/s, barring delays due to fire,
earthquakes, the elements, acts of God, war, civil disturbances, strikes
or other labor disturbances, government and economic controls making
it, among others, impossible or difficult to obtain the necessary
G.R. No. 181206               October 9, 2009 materials, acts of third person, or any other cause or conditions beyond
the control of the SELLER. In this event, the completion and delivery of
MEGAWORLD GLOBUS ASIA, INC., Petitioner,  the unit are deemed extended accordingly without liability on the part
vs. of the SELLER. The foregoing notwithstanding, the SELLER reserves the
MILA S. TANSECO, Respondent. right to withdraw from this transaction and refund to the BUYER
without interest the amounts received from him under this contract if
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) for any reason not attributable to SELLER, such as but not limited to fire,
and respondent Mila S. Tanseco (Tanseco) entered into a Contract to storms, floods, earthquakes, rebellion, insurrection, wars, coup de etat,
civil disturbances or for other reasons beyond its control, the Project
may not be completed or it can only be completed at a financial loss to
the SELLER. In any event, all construction on or of the Project shall
remain the property of the SELLER. (Underscoring supplied)
Tanseco paid all installments due up to January, 1998, leaving unpaid
the balance of ₱2,520,305.63 pending delivery of the unit. 2 Megaworld,
however, failed to deliver the unit within the stipulated period on
October 31, 1998 or April 30, 1999, the last day of the six-month grace
period.  ground of laches for failure to demand rescission when the right thereto
A few days shy of three years later, Megaworld, by notice dated April
23, 2002 (notice of turnover), informed Tanseco that the unit was ready
for inspection preparatory to delivery. 3 Tanseco replied through
counsel, by letter of May 6, 2002, that in view of Megaworld’s failure to
deliver the unit on time, she was demanding the return of
₱14,281,731.70 representing the total installment payment she had
made, with interest at 12% per annum from April 30, 1999, the
expiration of the six-month grace period. Tanseco pointed out that none
of the excepted causes of delay existed. 4
Her demand having been unheeded, Tanseco filed on June 5, 2002 with
the Housing and Land Use Regulatory Board’s (HLURB) Expanded
National Capital Region Field Office a complaint against Megaworld for
rescission of contract, refund of payment, and damages. 5
In its Answer, Megaworld attributed the delay to the 1997 Asian
financial crisis which was beyond its control; and argued that default
had not set in, Tanseco not having made any judicial or extrajudicial
demand for delivery before receipt of the notice of turnover. 6
By Decision of May 28, 2003,7 the HLURB Arbiter dismissed Tanseco’s
complaint for lack of cause of action, finding that Megaworld had
effected delivery by the notice of turnover before Tanseco made a
demand. Tanseco was thereupon ordered to pay Megaworld the
balance of the purchase price, plus ₱25,000 as moral damages, ₱25,000
as exemplary damages, and ₱25,000 as attorney’s fees. 
On appeal by Tanseco, the HLURB Board of Commissioners, by Decision
of November 28, 2003,8 sustained the HLURB Arbiter’s Decision on the
accrued. It deleted the award of damages, however. Tanseco’s Motion
for Reconsideration having been denied, 9 she appealed to the Office of
the President which dismissed the appeal by Decision of April 28,
200610 for failure to show that the findings of the HLURB were tainted
with grave abuse of discretion. Her Motion for Reconsideration having
been denied by Resolution dated August 30, 2006, 11 Tanseco filed a
Petition for Review under Rule 43 with the Court of Appeals. 12
By Decision of September 28, 2007, 13 the appellate court granted
Tanseco’s petition, disposing thus:
WHEREFORE, premises considered, petition is hereby GRANTED and the
assailed May 28, 2003 decision of the HLURB Field Office, the November
28, 2003 decision of the HLURB Board of Commissioners in HLURB Case
No. REM-A-030711-0162, the April 28, 2006 Decision and August 30,
2006 Resolution of the Office of the President in O.P. Case No. 05-I-318,
are hereby REVERSED and SET ASIDE and a new one entered:
(1) RESCINDING, as prayed for by TANSECO, the aggrieved party, the
contract to buy and sell; (2) DIRECTING MEGAWORLD TO
PAY TANSECO the amount she had paid totaling P14,281,731.70 with
Twelve (12%) Percent interest per annum from October 31, 1998;
(3) ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 by way of
exemplary damages; (4) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 as attorney’s fees; and
(5) ORDERING MEGAWORLD TO PAY TANSECO the cost of suit.
(Emphasis in the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no
judicial or extrajudicial demand is needed to put the obligor in default if
the contract, as in the herein parties’ contract, states the date when the
obligation should be performed; that time was of the essence because
Tanseco relied on Megaworld’s promise of timely delivery when she
agreed to part with her money; that the delay should be reckoned from
October 31, 1998, there being no force majeure to warrant the
application of the April 30, 1999 alternative date; and that specific
performance could not be ordered in lieu of rescission as the right to
choose the remedy belongs to the aggrieved party.  appears that the designation of the time when the thing is to be
The appellate court awarded Tanseco exemplary damages on a finding
of bad faith on the part of Megaworld in forcing her to accept its long-
delayed delivery; and attorney’s fees, she having been compelled to sue
to protect her rights.  beyond his power to perform.
Its Motion for Reconsideration having been denied by Resolution of
January 8, 2008,14 Megaworld filed the present Petition for Review on
Certiorari, echoing its position before the HLURB, adding that Tanseco
had not shown any basis for the award of damages and attorney’s
fees.15
Tanseco, on the other hand, maintained her position too, and citing
Megaworld’s bad faith which became evident when it insisted on
making the delivery despite the long delay, 16 insisted that she deserved
the award of damages and attorney’s fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation. 
However, the demand by the creditor shall not be necessary in order
that delay may exist: 
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal
obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of Megaworld,
and to pay the balance of the purchase price at or about the time of
delivery on the part of Tanseco. Compliance by Megaworld with its
obligation is determinative of compliance by Tanseco with her
obligation to pay the balance of the purchase price. Megaworld having
failed to comply with its obligation under the contract, it is liable
therefor.17
That Megaworld’s sending of a notice of turnover preceded Tanseco’s
demand for refund does not abate her cause. For demand would have
been useless, Megaworld admittedly having failed in its obligation to
deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.18
The Court cannot generalize the 1997 Asian financial crisis to be
unforeseeable and beyond the control of a business corporation. A real
estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency
movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday
occurrence, hence, not an instance of caso fortuito. 19 Megaworld’s
excuse for its delay does not thus lie.
As for Megaworld’s argument that Tanseco’s claim is considered barred
by laches on account of her belated demand, it does not lie too. Laches
is a creation of equity and its application is controlled by equitable
considerations.20 It bears noting that Tanseco religiously paid all the
installments due up to January, 1998, whereas Megaworld reneged on
its obligation to deliver within the stipulated period. A circumspect
weighing of equitable considerations thus tilts the scale of justice in
favor of Tanseco. 
Pursuant to Section 23 of Presidential Decree No. 957 21 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment made by
a buyer in a subdivision or condominium project for the lot or unit he
contracted to buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or developer, desists
from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the
approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid incl
uding amortizationinterests but excluding delinquency
interests, with interest thereon at the legal rate. (Emphasis and
underscoring supplied),
Tanseco is, as thus prayed for, entitled to be reimbursed the total
amount she paid Megaworld.
While the appellate court correctly awarded ₱14,281,731.70 then, the
interest rate should, however, be 6% per annum accruing from the date
of demand on May 6, 2002, and then 12% per annum from the time this
judgment becomes final and executory, conformably with Eastern
Shipping Lines, Inc. v. Court of Appeals. 22
The award of ₱200,000 attorney’s fees and of costs of suit is in order
too, the parties having stipulated in the Contract to Buy and Sell that
these shall be borne by the losing party in a suit based thereon, 23 not to ₱200,000 attorney’s fees, ₱100,000 exemplary damages, and costs of
mention that Tanseco was compelled to retain the services of counsel to suit.
protect her interest. And so is the award of exemplary damages. With
pre-selling ventures mushrooming in the metropolis, there is an Costs against petitioner. 
increasing need to correct the insidious practice of real estate
companies of proffering all sorts of empty promises to entice innocent SO ORDERED.
buyers and ensure the profitability of their projects. 

The Court finds the appellate court’s award of ₱200,000 as exemplary

damages excessive, however. Exemplary damages are imposed not to
enrich one party or impoverish another but to serve as a deterrent
against or as a negative incentive to curb socially deleterious
actions.24 The Court finds that ₱100,000 is reasonable in this case.

Finally, since Article 119125 of the Civil Code does not apply to a contract
to buy and sell, the suspensive condition of full payment of the
purchase price not having occurred to trigger the obligation to convey
title, cancellation, not rescission, of the contract is thus the correct
remedy in the premises.26

WHEREFORE, the challenged Decision of the Court of Appeals is, in light

of the foregoing, AFFIRMED with MODIFICATION. 

As modified, the dispositive portion of the Decision reads:

The July 7, 1995 Contract to Buy and Sell between the parties
is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed to pay
respondent, Mila S. Tanseco, the amount of ₱14,281,731.70, to bear 6%
interest per annum starting May 6, 2002 and 12% interest per annum
from the time the judgment becomes final and executory; and to pay

G.R. No. 193723               July 20, 2011
GENERAL MILLING CORPORATION, Petitioner, 
vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
On August 24, 1989, General Milling Corporation (GMC) entered into a
Growers Contract with spouses Librado and Remedios Ramos (Spouses
Ramos). Under the contract, GMC was to supply broiler chickens for the
spouses to raise on their land in Barangay Banaybanay, Lipa City,
Batangas.1 To guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece of real
property upon which their conjugal home was built. The spouses further
agreed to put up a surety bond at the rate of PhP 20,000 per 1,000
chicks delivered by GMC. The Deed of Real Estate Mortgage extended to
Spouses Ramos a maximum credit line of PhP 215,000 payable within an
indefinite period with an interest of twelve percent (12%) per annum. 2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and
secure the full and faithful compliance of [MORTGAGORS’] obligation/s
with the MORTGAGEE by a First Real Estate Mortgage in favor of the
MORTGAGEE, over a 1 parcel of land and the improvements existing
thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa
City, Province of Batangas, Philippines, his/her/their title/s thereto
being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of
Deeds for the Province of Batangas in the amount of TWO HUNDRED
FIFTEEN THOUSAND (P 215,000.00), Philippine Currency, which the
maximum credit line payable within a x x x day term and to secure the
payment of the same plus interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with
GMC. They alleged that they suffered business losses because of the
negligence of GMC and its violation of the Growers Contract. 3
On March 31, 1997, the counsel for GMC notified Spouses Ramos that
GMC would institute foreclosure proceedings on their mortgaged
property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of
Mortgage. On June 10, 1997, the property subject of the foreclosure
was subsequently sold by public auction to GMC after the required
posting and publication.5 It was foreclosed for PhP 935,882,075, an
amount representing the losses on chicks and feeds exclusive of interest
at 12% per annum and attorney’s fees.6 To complicate matters, on
October 27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations. 7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment
and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale with
Damages. They contended that the extrajudicial foreclosure sale on
June 10, 1997 was null and void, since there was no compliance with the
requirements of posting and publication of notices under Act No. 3135,
as amended, or An Act to Regulate the Sale of Property under Special
Powers Inserted in or Annexed to Real Estate Mortgages. They likewise
claimed that there was no sheriff’s affidavit to prove compliance with
the requirements on posting and publication of notices. It was further
alleged that the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorney’s fees was also
included in the complaint.8Librado Ramos alleged that, when the
property was foreclosed, GMC did not notify him at all of the
foreclosure.9
During the trial, the parties agreed to limit the issues to the following:
(1) the validity of the Deed of Real Estate Mortgage; (2) the validity of
the extrajudicial foreclosure; and (3) the party liable for damages. 10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos
of their liabilities under the Growers Contract. It argued that it was
compelled to foreclose the mortgage because of Spouses Ramos’ failure
to pay their obligation. GMC insisted that it had observed all the
requirements of posting and publication of notices under Act No.
3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of
Real Estate Mortgage was valid even if its term was not fixed. Since the
duration of the term was made to depend exclusively upon the will of
the debtors-spouses, the trial court cited jurisprudence and said that
"the obligation is not due and payable until an action is commenced by
the mortgagee against the mortgagor for the purpose of having the
court fix the date on and after which the instrument is payable and the
date of maturity is fixed in pursuance thereto." 12
The trial court held that the action of GMC in moving for the foreclosure
of the spouses’ properties was premature, because the latter’s
obligation under their contract was not yet due.
The trial court awarded attorney’s fees because of the premature action
taken by GMC in filing extrajudicial foreclosure proceedings before the
obligation of the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97
is hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal
for all intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay
Spouses Librado and Remedios Ramos attorney’s fees in the total
amount of P 57,000.00 representing acceptance fee of P30,000.00 and
P3,000.00 appearance fee for nine (9) trial dates or a total appearance
fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack of
merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the
extrajudicial foreclosure proceedings null and void; (2) ordering GMC to
pay Spouses Ramos attorney’s fees; and (3) not awarding damages in
favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling
on a different ground. Contrary to the findings of the trial court, the CA
ruled that the requirements of posting and publication of notices under
Act No. 3135 were complied with. The CA, however, still found that
GMC’s action against Spouses Ramos was premature, as they were not
in default when the action was filed on May 7, 1997. 14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that
defendant-appellant GMC made no demand to spouses Ramos for the
full payment of their obligation. While it was alleged in the Answer as
well as in the Affidavit constituting the direct testimony of Joseph
Dominise, the principal witness of defendant-appellant GMC, that
demands were sent to spouses Ramos, the documentary evidence
proves otherwise. A perusal of the letters presented and offered as
evidence by defendant-appellant GMC did not "demand" but only
request spouses Ramos to go to the office of GMC to "discuss" the
settlement of their account.15
According to the CA, however, the RTC erroneously awarded attorney’s
fees to Spouses Ramos, since the presumption of good faith on the part
of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision
of the Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is
hereby AFFIRMED with MODIFICATION by deleting the award of
attorney’s fees to plaintiffs-appellees spouses Librado Ramos and
Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND
DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE
PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN
ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE
NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF
THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31,
1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT
TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS. 17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter
was not raised in the trial court, the CA, by considering such issue,
violated the basic requirements of fair play, justice, and due process. 18
In their Comment,19 respondents-spouses aver that the CA has ample
authority to rule on matters not assigned as errors on appeal if these
are indispensable or necessary to the just resolution of the pleaded
issues.
In Diamonon v. Department of Labor and Employment, 20 We explained
that an appellate court has a broad discretionary power in waiving the
lack of assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the
court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain or
clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which
is necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of a justice or to avoid dispensing
piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the
trial court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or which the lower court
ignored;
(e) Matters not assigned as errors on appeal but closely related to an
error assigned;
(f) Matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a
just and complete resolution of the appeal if there is a ruling on
whether the Spouses Ramos were actually in default of their obligation
to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on
the part of the CA in finding that no demand was made on Spouses
Ramos to pay their obligation. On the contrary, it claims that its March
31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays
performance; and third, the creditor judicially or extrajudicially requires
the debtor’s performance.21
According to the CA, GMC did not make a demand on Spouses Ramos
but merely requested them to go to GMC’s office to discuss the
settlement of their account. In spite of the lack of demand made on the
spouses, however, GMC proceeded with the foreclosure proceedings.
Neither was there any provision in the Deed of Real Estate Mortgage
allowing GMC to extrajudicially foreclose the mortgage without need of
demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the
fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand
not being necessary for delay to exist, We agree with the appellate
court that GMC should have first made a demand on the spouses before
proceeding to foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the
instant case:
The issue of whether demand was made before the foreclosure was
effected is essential.1avvphi1 If demand was made and duly received by
the respondents and the latter still did not pay, then they were already
in default and foreclosure was proper. However, if demand was not
made, then the loans had not yet become due and demandable. This
meant that respondents had not defaulted in their payments and the
foreclosure by petitioner was premature. Foreclosure is valid only when
the debtor is in default in the payment of his obligation. 22
In turn, whether or not demand was made is a question of fact. 23 This
petition filed under Rule 45 of the Rules of Court shall raise only
questions of law. For a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the question
posed is one of fact.24 It need not be reiterated that this Court is not a
trier of facts.25 We will defer to the factual findings of the trial court,
because petitioner GMC has not shown any circumstances making this
case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C.
No. 85400 is AFFIRMED.
SO ORDERED.
G.R. No. 191431               March 13, 2013

RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners, 

vs.
ATTY. DELFIN GRUSPE, Respondent.

The claim arose from an accident that occurred on October 24, 1999,
when the mini bus owned and operated by Cruz and driven by one
Arturo Davin collided with the Toyota Corolla car of Gruspe; Gruspe’s
car was a total wreck. The next day, on October 25, 1999, Cruz, along
with Leonardo Q. Ibias went to Gruspe’s office, apologized for the
incident, and executed a Joint Affidavit of Undertaking promising jointly
and severally to replace the Gruspe’s damaged car in 20 days, or until
November 15, 1999, of the same model and of at least the same quality;
or, alternatively, they would pay the cost of Gruspe’s car amounting to
₱350,000.00, with interest at

12% per month for any delayed payment after November 15, 1999, until
fully paid.5 When Cruz and Leonardo failed to comply with their
undertaking, Gruspe filed a complaint for collection of sum of money
against them on November 19, 1999 before the RTC.

In their answer, Cruz and Leonardo denied Gruspe’s allegation, claiming

that Gruspe, a lawyer, prepared the Joint Affidavit of Undertaking and
forced them to affix their signatures thereon, without explaining and
informing them of its contents; Cruz affixed his signature so that his
mini bus could be released as it was his only means of income;
Leonardo, a barangay official, accompanied Cruz to Gruspe’s office for
the release of the mini bus, but was also deceived into signing the Joint
Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted by
his widow, Esperanza. Meanwhile, Gruspe sold the wrecked car for
₱130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of
Gruspe and ordered Cruz and Leonardo to pay ₱220,000.00, 6 plus 15%
per annum from November 15, 1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the interest
rate to 12% per annum pursuant to the Joint Affidavit of Undertaking. 7 It
declared that despite its title, the Joint Affidavit of Undertaking is a
contract, as it has all the essential elements of consent, object certain,
and consideration required under Article 1318 of the Civil
Code. The CA further said that Cruz and Leonardo failed to present
evidence to support their contention of vitiated consent. By signing the
Joint Affidavit of Undertaking, they voluntarily assumed the obligation
for the damage they caused to Gruspe’s car; Leonardo, who was not a
party to the incident, could have refused to sign the affidavit, but he did
not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza assail
the CA ruling, contending that the Joint Affidavit of Undertaking is not a
contract that can be the basis of an obligation to pay a sum of money in
favor of Gruspe. They consider an affidavit as different from a contract:
an affidavit’s purpose is simply to attest to facts that are within his
knowledge, while a contract requires that there be a meeting of the
minds between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a contract,
Cruz and Esperanza claim that it is invalid because Cruz and Leonardo’s
consent thereto was vitiated; the contract was prepared by Gruspe who
is a lawyer, and its contents were never explained to them. Moreover,
Cruz and Leonardo were simply forced to affix their signatures,
otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for sum of
money, Gruspe did not make any demand upon them. Hence, pursuant
to Article 1169 of the Civil Code, they could not be considered in
default. Without this demand, Cruz and Esperanza contend that Gruspe
could not yet take any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and accordingly modifies
the judgment of the CA.
Contracts are obligatory no matter what their forms may be, whenever
the essential requisites for their validity are present. In determining
whether a document is an affidavit or a contract, the Court looks
beyond the title of the document, since the denomination or title given
by the parties in their document is not conclusive of the nature of its
contents.8 In the construction or interpretation of an instrument, the
intention of the parties is primordial and is to be pursued. If the terms
of the document are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the parties’ evident intention, the
latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking
readily discloses that it contains stipulations characteristic of a contract.
As quoted in the CA decision,10 the Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo promised to replace
the damaged car of Gruspe, 20 days from October 25, 1999 or up to
November 15, 1999, of the same model and of at least the same quality.
In the event that they cannot replace the car within the same period,
they would pay the cost of Gruspe’s car in the total amount of
₱350,000.00, with interest at 12% per month for any delayed payment
after November 15, 1999, until fully paid. These, as read by the CA, are
very simple terms that both Cruz and Leonardo could easily understand.
There is also no merit to the argument of vitiated consent.1âwphi1 An
allegation of vitiated consent must be proven by preponderance of
evidence; Cruz and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to be onerous and
lopsided, this does not necessarily prove the alleged vitiation of
consent. They, in fact, admitted the genuineness and due execution of
the Joint Affidavit and Undertaking when they said that they signed the
same to secure possession of their vehicle. If they truly believed that the
vehicle had been illegally impounded, they could have refused to sign
the Joint Affidavit of Undertaking and filed a complaint, but they did
not. That the release of their mini bus was conditioned on their signing
the Joint Affidavit of Undertaking does not, by itself, indicate that their
consent was forced – they may have given it grudgingly, but it is not
indicative of a vitiated consent that is a ground for the annulment of a
contract.
Thus, on the issue of the validity and enforceability of the Joint Affidavit
of Undertaking, the CA did not commit any legal error that merits the
reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is material
in the computation of interest on the amount due. The RTC ordered
Cruz and Leonardo to pay Gruspe "₱350,000.00 as cost of the car xxx
plus fifteen percent (15%) per annum from November 15, 1999 until
fully paid."11 The 15% interest (later modified by the CA to be 12%) was
computed from November 15, 1999 – the date stipulated in the Joint
Affidavit of Undertaking for the payment of the value of Gruspe’s car. In
the absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a demand has been
made, Cruz and Leonardo could not be said to be in default. 12 "In order
that the debtor may be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays performance; and (3) that
the creditor requires the performance judicially and
13
extrajudicially."  Default generally begins from the moment the
creditor demands the performance of the obligation. In this case,
demand could be considered to have been made upon the filing of the
complaint on November 19, 1999, and it is only from this date that the
interest should be computed.
Although the CA upheld the Joint Affidavit of Undertaking, we note that
it imposed interest rate on a per annum basis, instead of the per month
basis that was stated in the Joint Affidavit of Undertaking without
explaining its reason for doing so. 14 Neither party, however, questioned
the change. Nonetheless, the Court affirms the change in the interest
rate from 12% per month to 12% per annum, as we find the interest
rate agreed upon in the Joint Affidavit of Undertaking excessive. 15

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the
resolution dated February 19, 2010 of the Court of Appeals in CA-G.R.
CV No. 86083, subject to the Modification that the twelve percent (12%)
per annum interest imposed on the amount due shall accrue only from G.R. No. 141968      February 12, 2001
November 19, 1999, when judicial demand was made.
THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE
SO ORDERED. PHILIPPINES), petitioner, 
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents. 

The respondent Gueco Spouses obtained a loan from petitioner

International Corporate Bank (now Union Bank of the Philippines) to
purchase a car - a Nissan Sentra 1600 4DR, 1989 Model. In consideration
thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as
security for the notes.1âwphi1.nêt

The Spouses defaulted in payment of installments. Consequently, the

Bank filed on August 7, 1995 a civil action docketed as Civil Case No.
658-95 for "Sum of Money with Prayer for a Writ of Replevin" 1 before
the Metropolitan Trial Court of Pasay City, Branch 45. 2 On August 25,
1995, Dr. Francis Gueco was served summons and was fetched by the
sheriff and representative of the bank for a meeting in the bank
premises. Desi Tomas, the Bank's Assistant Vice President demanded
payment of the amount of P184,000.00 which represents the unpaid
balance for the car loan. After some negotiations and computation, the
amount was lowered to P154,000.00, However, as a result of the non-
payment of the reduced amount on that date, the car was detained
inside the bank's compound.
On August 28, 1995, Dr. Gueco went to the bank and talked with its
Administrative Support, Auto Loans/Credit Card Collection Head,
Jefferson Rivera. The negotiations resulted in the further reduction of
the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a manager's check in amount
of P150,000.00 but the car was not released because of his refusal to
sign the Joint Motion to Dismiss. It is the contention of the Gueco
spouses and their counsel that Dr. Gueco need not sign the motion for
joint dismissal considering that they had not yet filed their Answer.
Petitioner, however, insisted that the joint motion to dismiss is standard
operating procedure in their bank to effect a compromise and to
preclude future filing of claims, counterclaims or suits for damages.
After several demand letters and meetings with bank representatives,
the respondents Gueco spouses initiated a civil action for damages
before the Metropolitan Trial Court of Quezon City, Branch 33. The
Metropolitan Trial Court dismissed the complaint for lack of merit. 3
On appeal to the Regional Trial Court, Branch 227 of Quezon City, the
decision of the Metropolitan Trial Court was reversed. In its decision,
the RTC held that there was a meeting of the minds between the parties
as to the reduction of the amount of indebtedness and the release of
the car but said agreement did not include the signing of the joint
motion to dismiss as a condition sine qua non  for the effectivity of the
compromise. The court further ordered the bank:
1. to return immediately the subject car to the appellants in good
working condition; Appellee may deposit the Manager's check - the
proceeds of which have long been under the control of the issuing bank
in favor of the appellee since its issuance, whereas the funds have long
been paid by appellants to .secure said Manager's Check, over which
appellants have no control;
2. to pay the appellants the sum of P50,000.00 as moral damages;
P25,000.00 as exemplary damages, and P25,000.00 as attorney's fees,
and
3. to pay the cost of suit.
In other respect, the decision of the Metropolitan Trial Court Branch 33
is hereby AFFIRMED.4
The case was elevated to the Court of Appeals, which on February 17,
2000, issued the assailed decision, the decretal portion of which reads:
WHEREFORE, premises considered, the petition for review on certiorari
is hereby DENIED and the Decision of the Regional Trial Court of Quezon
City, Branch 227, in Civil Case No. Q-97-31176, for lack of any reversible
error, is AFFIRMED in toto.  Costs against petitioner.
SO ORDERED.5
The Court of Appeals essentially relied on the respect accorded to the
finality of the findings of facts by the lower court and on the latter's
finding of the existence of fraud which constitutes the basis for the
award of damages.
The petitioner comes to this Court by way of petition for review
on certiorari  under Rule 45 of the Rules of Court, raising the following
assigned errors:
I prove his claim that the oral compromise entered into by the parties on
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION
TO DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.
II
THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.
III
THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER
RETURN THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING
ANY PROVISION FOR THE ISSUANCE OF THE NEW
MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN FAVOR OF THE
PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT ALREADY
BECAME STALE.6
As to the first issue, we find for the respondents. The issue as to what
constitutes the terms of the oral compromise or any subsequent
novation is a question of fact that was resolved by the Regional Trial
Court and the Court of Appeals in favor of respondents. It is well settled
that the findings of fact of the lower court, especially when affirmed by
the Court of Appeals, are binding upon this Court. 7 While there are
exceptions to this rule,8 the present case does not fall under anyone of
them, the petitioner's claim to the contrary, notwithstanding.
Being an affirmative allegation, petitioner has the burden of evidence to
August 28, 1995 included the stipulation that the parties would jointly
file a motion to dismiss. This petitioner failed to do. Notably, even the
Metropolitan Trial Court, while ruling in favor of the petitioner and
thereby dismissing the complaint, did not make a factual finding that
the compromise agreement included the condition of the signing of a
joint motion to dismiss.
The Court of Appeals made the factual findings in this wise:
In support of its claim, petitioner presented the testimony of Mr.
Jefferson Rivera who related that respondent Dr. Gueco was aware that
the signing of the draft of the Joint Motion to Dismiss was one of the
conditions set by the bank for the acceptance of the reduced amount of
indebtedness and the release of the car. (TSN, October 23, 1996, pp. 17-
21, Rollo, pp. 18, 5). Respondents, however, maintained that no such
condition was ever discussed during their meeting of August 28, 1995
(Rollo, p. 32).
The trial court, whose factual findings are entitled to respect since it has
the 'opportunity to directly observe the witnesses and to determine by
their demeanor on the stand the probative value of their testimonies'
(People vs. Yadao, et al. 216 SCRA 1, 7 [1992]), failed to make a
categorical finding on the issue. In dismissing the claim of damages of
the respondents, it merely observed that respondents are not entitled
to indemnity since it was their unjustified reluctance to sign of the Joint
Motion to Dismiss that delayed the release of the car. The trial court
opined, thus:
'As regards the third issue, plaintiffs' claim for damages is unavailing.
First, the plaintiffs could have avoided the renting of another car and
could have avoided this litigation had he signed the Joint Motion to
Dismiss. While it is true that herein defendant can unilaterally dismiss
the case for collection of sum of money with replevin, it is equally true
that there is nothing wrong for the plaintiff to affix his signature in the
Joint Motion to Dismiss, for after all, the dismissal of the case against
him is for his own good and benefit. In fact, the signing of the Joint
Motion to Dismiss gives the plaintiff three (3) advantages. First, he will
recover his car. Second, he will pay his obligation to the bank on its
reduced amount of P150,000.00 instead of its original claim of
P184,985.09. And third, the case against him will be dismissed.
Plaintiffs, likewise, are not entitled to the award of moral damages and
exemplary damages as there is no showing that the defendant bank
acted fraudulently or in bad faith.' (Rollo, p. 15)
The Court has noted, however, that the trial court, in its findings of
facts, clearly indicated that the agreement of the parties on August 28,
1995 was merely for the lowering of the price, hence -
'xxx On August 28, 1995, bank representative Jefferson Rivera and
plaintiff entered into an oral compromise agreement, whereby the
original claim of the bank of P184,985.09 was reduced to P150,000.00
and that upon payment of which, plaintiff was informed that the subject
motor vehicle would be released to him.' (Rollo, p. 12)
The lower court, on the other hand, expressly made a finding that
petitioner failed to include the aforesaid signing of the Joint Motion to
Dismiss as part of the agreement. In dismissing petitioner's claim, the
lower court declared, thus:
'If it is true, as the appellees allege, that the signing of the joint motion
was a condition sine qua non  for the reduction of the appellants'
obligation, it is only reasonable and logical to assume that the joint
motion should have been shown to Dr. Gueco in the August 28, 1995
meeting. Why Dr. Gueco was not given a copy of the joint motion that
day of August 28, 1995, for his family or legal counsel to see to be
brought signed, together with the P150,000.00 in manager's check form
to be submitted on the following day on August 29, 1995? (sic) [I]s a
question whereby the answer up to now eludes this Court's
comprehension. The appellees would like this Court to believe that Dr
Gueco was informed by Mr. Rivera Rivera of the bank requirement of
signing the joint motion on August 28, 1995 but he did not bother to
show a copy thereof to his family or legal counsel that day August 28,
1995. This part of the theory of appellee is too complicated for any
simple oral agreement. The idea of a Joint Motion to Dismiss being
signed as a condition to the pushing through a deal surfaced only on
August 29, 1995.
'This Court is not convinced by the appellees' posturing. Such claim rests
on too slender a frame, being inconsistent with human experience.
Considering the effect of the signing of the Joint Motion to Dismiss on
the appellants' substantive right, it is more in accord with human
experience to expect Dr. Gueco, upon being shown the Joint Motion to
Dismiss, to refuse to pay the Manager's Check and for the bank to
refuse to accept the manager's check. The only logical explanation for
this inaction is that Dr. Gueco was not shown the Joint Motion to
Dismiss in the meeting of August 28, 1995, bolstering his claim that its
signing was never put into consideration in reaching a compromise.'
xxx.9
We see no reason to reverse.
Anent the issue of award of damages, we find the claim of petitioner
meritorious. In finding the petitioner liable for damages, both .the
Regional Trial Court and the Court of Appeals ruled that there was fraud
on the part of the petitioner. The CA thus declared:
The lower court's finding of fraud which became the basis of the award
of damages was likewise sufficiently proven. Fraud under Article 1170 of
the Civil Code of the Philippines, as amended is the 'deliberate and
intentional evasion of the normal fulfillment of obligation' When
petitioner refused to release the car despite respondent's tender of
payment in the form of a manager's check, the former intentionally
evaded its obligation and thereby became liable for moral and
exemplary damages, as well as attorney's fees. 10
We disagree.
Fraud has been defined as the deliberate intention to cause damage or
prejudice. It is the voluntary execution of a wrongful act, or a willful
omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in
Article 1170 of the Civil Code is the deliberate and intentional evasion of
the normal fulfillment of obligation.11 We fail to see how the act of the
petitioner bank in requiring the respondent to sign the joint motion to
dismiss could constitute as fraud. True, petitioner may have been remiss
in informing Dr. Gueco that the signing of a joint motion to dismiss is a
standard operating procedure of petitioner bank. However, this can not
in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact
also for the benefit of Dr. Gueco, as the case filed by petitioner against it
before the lower court would be dismissed with prejudice. The whole
point of the parties entering into the compromise agreement was in
order that Dr. Gueco would pay his outstanding account and in return
petitioner would return the car and drop the case for money and
replevin before the Metropolitan Trial Court. The joint motion to
dismiss was but a natural consequence of the compromise agreement
and simply stated that Dr. Gueco had fully settled his obligation, hence,
the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign
the joint motion to dismiss can not be said to be a deliberate attempt on
the part of petitioner to renege on the compromise agreement of the
parties. It should, likewise, be noted that in cases of breach of contract,
moral damages may only be awarded when the breach was attended by
fraud or bad faith.12 The law presumes good faith. Dr. Gueco failed to
present an iota of evidence to overcome this presumption. In fact, the
act of petitioner bank in lowering the debt of Dr. Gueco from
P184,000.00 to P150,000.00 is indicative of its good faith and sincere
desire to settle the case. If respondent did suffer any damage, as a result
of the withholding of his car by petitioner, he has only himself to blame.
Necessarily, the claim for exemplary damages must fait. In no way, may
the conduct of petitioner be characterized as "wanton, fraudulent,
reckless, oppressive or malevolent."13
We, likewise, find for the petitioner with respect to the third assigned
error. In the meeting of August 29, 1995, respondent Dr. Gueco
delivered a manager's check representing the reduced amount of
P150,000.00. Said check was given to Mr. Rivera, a representative of
respondent bank. However, since Dr. Gueco refused to sign the joint
motion to dismiss, he was made to execute a statement to the effect
that he was withholding the payment of the check. 14 Subsequently, in a
letter addressed to Ms. Desi Tomas, vice president of the bank, dated
September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold
order" letter and demanded the immediate release of his car, 15 to which
the former replied that the condition of signing the joint motion to
dismiss must be satisfied and that they had kept the check which could
be claimed by Dr. Gueco anytime. 16 While there is controversy as to
whether the document evidencing the order to hold payment of the
check was formally offered as evidence by petitioners, 17it appears from
the pleadings that said check has not been encashed.
The decision of the Regional Trial Court, which was affirmed in toto  by
the Court of Appeals, orders the petitioner:
1. to return immediately the subject car to the appellants in good
working condition. Appellee may deposit the Manager's Check - the
proceeds of which have long been under the control of the issuing bank
in favor of the appellee since its issuance, whereas the funds have long
been paid by appellants to secure said Manager's Check over which
appellants have no control.18
Respondents would make us hold that petitioner should return the car
or its value and that the latter, because of its own negligence, should
suffer the loss occasioned by the fact that the check had become
stale.19 It is their position that delivery of the manager's check produced
the effect of payment20 and, thus, petitioner was negligent in opting not
to deposit or use said check. Rudimentary sense of justice and fair play
would not countenance respondents' position.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless and, therefore, should not
be paid. Under the negotiable instruments law, an instrument not
payable on demand must be presented for payment on the day it falls
due. When the instrument is payable on demand, presentment must be
made within a reasonable time after its issue. In the case of a bill of
exchange, presentment is sufficient if made within a reasonable time
after the last negotiation thereof.21
A check must be presented for payment within a reasonable time after
its issue,22 and in determining what is a "reasonable time," regard is to
be had to the nature of the instrument, the usage of trade or business
with respect to such instruments, and the facts of the particular
case.23 The test is whether the payee employed such diligence as a
prudent man exercises in his own affairs. 24 This is because the nature
and theory behind the use of a check points to its immediate use and
payability. In a case, a check payable on demand which was long
overdue by about two and a half (2-1/2) years was considered a stale
check.25 Failure of a payee to encash a check for more than ten (10)
years undoubtedly resulted in the check becoming stale. 26 Thus, even a
delay of one (1) week27 or two (2) days,28 under the specific
circumstances of the cited cases constituted unreasonable time as a
matter of law.
In the case at bar, however, the check involved is not an ordinary bill of
exchange but a manager's check. A manager's check is one drawn by the
bank's manager upon the bank itself. It is similar to a cashier's check
both as to effect and use. A cashier's check is a check of the bank's
cashier on his own or another check. In effect, it is a bill of exchange
drawn by the cashier of a bank upon the bank itself, and accepted in
advance by the act of its issuance. 29 It is really the bank's own check and
may be treated as a promissory note with the bank as a maker. 30The
check becomes the primary obligation of the bank which issues it and
constitutes its written promise to pay upon demand. The mere issuance
of it is considered an acceptance thereof. If treated as promissory note, SO ORDERED.
the drawer would be the maker and in which case the holder need not
prove presentment for payment or present the bill to the drawee for
acceptance.31

Even assuming that presentment is needed, failure to present for

payment within a reasonable time will result to the discharge of the
drawer only to the extent of the loss caused by the delay. 32 Failure to
present on time, thus, does not totally wipe out all liability. In fact, the
legal situation amounts to an acknowledgment of liability in the sum
stated in the check. In this case, the Gueco spouses have not alleged,
much less shown that they or the bank which issued the manager's
check has suffered damage or loss caused by the delay or non-
presentment. Definitely, the original obligation to pay certainly has not
been erased.

It has been held that, if the check had become stale, it becomes
imperative that the circumstances that caused its non-presentment be
determined.33 In the case at bar, there is no doubt that the petitioner
bank held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. We
see no bad faith or negligence in this position taken by the
Bank.1âwphi1.nêt
WHEREFORE, premises considered, the petition for review is given due
course. The decision of the Court of Appeals affirming the decision of
the Regional Trial Court is SET ASIDE. Respondents are further ordered
to pay the original obligation amounting to P150,000.00 to the
petitioner upon surrender or cancellation of the manager's check in the
latter's possession, afterwhich, petitioner is to return the subject motor
vehicle in good working condition.
G.R. No. L-12191             October 14, 1918
JOSE CANGCO, plaintiff-appellant, 
vs.
MANILA RAILROAD CO., defendant-appellee.
At the time of the occurrence which gave rise to this litigation the
plaintiff, Jose Cangco, was in the employment of Manila Railroad
Company in the capacity of clerk, with a monthly wage of P25. He lived
in the pueblo of San Mateo, in the province of Rizal, which is located
upon the line of the defendant railroad company; and in coming daily by
train to the company's office in the city of Manila where he worked, he
used a pass, supplied by the company, which entitled him to ride upon
the company's trains free of charge. Upon the occasion in question,
January 20, 1915, the plaintiff arose from his seat in the second class-car
where he was riding and, making, his exit through the door, took his
position upon the steps of the coach, seizing the upright guardrail with
his right hand for support.
On the side of the train where passengers alight at the San Mateo
station there is a cement platform which begins to rise with a moderate
gradient some distance away from the company's office and extends
along in front of said office for a distance sufficient to cover the length
of several coaches. As the train slowed down another passenger, named
Emilio Zuñiga, also an employee of the railroad company, got off the
same car, alighting safely at the point where the platform begins to rise
from the level of the ground. When the train had proceeded a little
farther the plaintiff Jose Cangco stepped off also, but one or both of his
feet came in contact with a sack of watermelons with the result that his
feet slipped from under him and he fell violently on the platform. His
body at once rolled from the platform and was drawn under the moving
car, where his right arm was badly crushed and lacerated. It appears
that after the plaintiff alighted from the train the car moved forward
possibly six meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night, and as
the railroad station was lighted dimly by a single light located some
distance away, objects on the platform where the accident occurred
were difficult to discern especially to a person emerging from a lighted
car.
The explanation of the presence of a sack of melons on the platform
where the plaintiff alighted is found in the fact that it was the customary
season for harvesting these melons and a large lot had been brought to
the station for the shipment to the market. They were contained in
numerous sacks which has been piled on the platform in a row one
upon another. The testimony shows that this row of sacks was so placed
of melons and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of these
melons at the moment he stepped upon the platform. His statement
that he failed to see these objects in the darkness is readily to be
credited.
The plaintiff was drawn from under the car in an unconscious condition,
and it appeared that the injuries which he had received were very
serious. He was therefore brought at once to a certain hospital in the
city of Manila where an examination was made and his arm was
amputated. The result of this operation was unsatisfactory, and the
plaintiff was then carried to another hospital where a second operation
was performed and the member was again amputated higher up near
the shoulder. It appears in evidence that the plaintiff expended the sum
of P790.25 in the form of medical and surgical fees and for other
expenses in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First
Instance of the city of Manila to recover damages of the defendant
company, founding his action upon the negligence of the servants and
employees of the defendant in placing the sacks of melons upon the
platform and leaving them so placed as to be a menace to the security
of passenger alighting from the company's trains. At the hearing in the
Court of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his conclusion to the
effect that, although negligence was attributable to the defendant by
reason of the fact that the sacks of melons were so placed as to obstruct
passengers passing to and from the cars, nevertheless, the plaintiff
himself had failed to use due caution in alighting from the coach and
was therefore precluded form recovering. Judgment was accordingly
entered in favor of the defendant company, and the plaintiff appealed.
It can not be doubted that the employees of the railroad company were
guilty of negligence in piling these sacks on the platform in the manner
above stated; that their presence caused the plaintiff to fall as he
alighted from the train; and that they therefore constituted an effective
legal cause of the injuries sustained by the plaintiff. It necessarily
follows that the defendant company is liable for the damage thereby
occasioned unless recovery is barred by the plaintiff's own contributory
negligence. In resolving this problem it is necessary that each of these
conceptions of liability, to-wit, the primary responsibility of the
defendant company and the contributory negligence of the plaintiff
should be separately examined.
It is important to note that the foundation of the legal liability of the
defendant is the contract of carriage, and that the obligation to respond
for the damage which plaintiff has suffered arises, if at all, from the
breach of that contract by reason of the failure of defendant to exercise
due care in its performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint from that
presumptive responsibility for the negligence of its servants, imposed by
article 1903 of the Civil Code, which can be rebutted by proof of the
exercise of due care in their selection and supervision. Article 1903 of
the Civil Code is not applicable to obligations arising ex contractu, but
only to extra-contractual obligations — or to use the technical form of
expression, that article relates only to culpa  aquiliana and not to culpa
contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104
of the Civil Code, clearly points out this distinction, which was also
recognized by this Court in its decision in the case of Rakes vs. Atlantic,
Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093
Manresa clearly points out the difference between "culpa, substantive
and independent, which of itself constitutes the source of an obligation
between persons not formerly connected by any legal tie"
and culpa  considered as an accident in the performance of an obligation
already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest
squarely upon the proposition that article 1903 of the Civil Code is not
applicable to acts of negligence which constitute the breach of a
contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are
applicable are understood to be those not growing out of pre-existing
duties of the parties to one another. But where relations already formed
give rise to duties, whether springing from contract or quasi-contract,
then breaches of those duties are subject to article 1101, 1103, and
1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil.
Rep., 359 at 365.)
This distinction is of the utmost importance. The liability, which, under
the Spanish law, is, in certain cases imposed upon employers with
respect to damages occasioned by the negligence of their employees to
persons to whom they are not bound by contract, is not based, as in the
English Common Law, upon the principle of respondeat superior —  if it
were, the master would be liable in every case and unconditionally —
but upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or negligence, do
injury to another, the obligation of making good the damage caused.
One who places a powerful automobile in the hands of a servant whom
he knows to be ignorant of the method of managing such a vehicle, is
himself guilty of an act of negligence which makes him liable for all the
consequences of his imprudence. The obligation to make good the
damage arises at the very instant that the unskillful servant, while acting
within the scope of his employment causes the injury. The liability of the
master is personal and direct. But, if the master has not been guilty of
any negligence whatever in the selection and direction of the servant,
he is not liable for the acts of the latter, whatever done within the scope
of his employment or not, if the damage done by the servant does not
amount to a breach of the contract between the master and the person
injured.
It is not accurate to say that proof of diligence and care in the selection
and control of the servant relieves the master from liability for the
latter's acts — on the contrary, that proof shows that the responsibility
has never existed. As Manresa says (vol. 8, p. 68) the liability arising
from extra-contractual culpa  is always based upon a voluntary act or
omission which, without willful intent, but by mere negligence or
inattention, has caused damage to another. A master who exercises all
possible care in the selection of his servant, taking into consideration
the qualifications they should possess for the discharge of the duties
which it is his purpose to confide to them, and directs them with equal
diligence, thereby performs his duty to third persons to whom he is
bound by no contractual ties, and he incurs no liability whatever if, by
reason of the negligence of his servants, even within the scope of their
employment, such third person suffer damage. True it is that under
article 1903 of the Civil Code the law creates a presumption that he has
been negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and diligence in
this respect.
The supreme court of Porto Rico, in interpreting identical provisions, as
found in the Porto Rico Code, has held that these articles are applicable
to cases of extra-contractual culpa  exclusively. (Carmona vs. Cuesta, 20
Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in
the case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was
an action brought upon the theory of the extra-contractual liability of
the defendant to respond for the damage caused by the carelessness of
his employee while acting within the scope of his employment. The
Court, after citing the last paragraph of article 1903 of the Civil Code,
said:
From this article two things are apparent: (1) That when an injury is
caused by the negligence of a servant or employee there instantly arises
a presumption of law that there was negligence on the part of the
master or employer either in selection of the servant or employee, or in
supervision over him after the selection, or both; and (2) that that
presumption is  juris tantum  and not  juris et de jure, and consequently,
may be rebutted. It follows necessarily that if the employer shows to
the satisfaction of the court that in selection and supervision he has
exercised the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.
This theory bases the responsibility of the master ultimately on
his own  negligence and not on that of his servant. This is the notable
peculiarity of the Spanish law of negligence. It is, of course, in striking
contrast to the American doctrine that, in relations with strangers, the
negligence of the servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of
extra-contractual culpa  based upon negligence, it is necessary that
there shall have been some fault attributable to the defendant
personally, and that the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in complete accord with the
authoritative opinion of Manresa, who says (vol. 12, p. 611) that the
liability created by article 1903 is imposed by reason of the breach of
the duties inherent in the special relations of authority or superiority
existing between the person called upon to repair the damage and the
one who, by his act or omission, was the cause of it.
On the other hand, the liability of masters and employers for the
negligent acts or omissions of their servants or agents, when such acts
or omissions cause damages which amount to the breach of a contact, is
not based upon a mere presumption of the master's negligence in their
selection or control, and proof of exercise of the utmost diligence and
care in this regard does not relieve the master of his liability for the
breach of his contract.
Every legal obligation must of necessity be extra-contractual or
contractual. Extra-contractual obligation has its source in the breach or
omission of those mutual duties which civilized society imposes upon it
members, or which arise from these relations, other than contractual, of
certain members of society to others, generally embraced in the
concept of status. The legal rights of each member of society constitute
the measure of the corresponding legal duties, mainly negative in
character, which the existence of those rights imposes upon all other
members of society. The breach of these general duties whether due to
willful intent or to mere inattention, if productive of injury, give rise to
an obligation to indemnify the injured party. The fundamental
distinction between obligations of this character and those which arise
from contract, rests upon the fact that in cases of non-contractual
obligation it is the wrongful or negligent act or omission itself which
creates the vinculum juris, whereas in contractual relations
the vinculum  exists independently of the breach of the voluntary duty
assumed by the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence,
whether of act or omission, it is competent for the legislature to elect —
and our Legislature has so elected — whom such an obligation is
imposed is morally culpable, or, on the contrary, for reasons of public
policy, to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of those
person who acts or mission are imputable, by a legal fiction, to others
who are in a position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has elected to limit
extra-contractual liability — with certain well-defined exceptions — to
cases in which moral culpability can be directly imputed to the persons
to be charged. This moral responsibility may consist in having failed to
exercise due care in the selection and control of one's agents or
servants, or in the control of persons who, by reason of their status,
occupy a position of dependency with respect to the person made liable
for their conduct.
The position of a natural or juridical person who has undertaken by
contract to render service to another, is wholly different from that to
which article 1903 relates. When the sources of the obligation upon
which plaintiff's cause of action depends is a negligent act or omission,
the burden of proof rests upon plaintiff to prove the negligence — if he
does not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged
that plaintiff has failed or refused to perform the contract, it is not
necessary for plaintiff to specify in his pleadings whether the breach of
the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its
nonperformance is sufficient  prima facie  to warrant a recovery.
As a general rule . . . it is logical that in case of extra-contractual culpa, a
suing creditor should assume the burden of proof of its existence, as the
only fact upon which his action is based; while on the contrary, in a case
of negligence which presupposes the existence of a contractual
obligation, if the creditor shows that it exists and that it has been
broken, it is not necessary for him to prove negligence. (Manresa, vol. 8,
p. 71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach of a
contract to show that the breach was due to the negligent conduct of
defendant or of his servants, even though such be in fact the actual
cause of the breach, it is obvious that proof on the part of defendant
that the negligence or omission of his servants or agents caused the
breach of the contract would not constitute a defense to the action. If
the negligence of servants or agents could be invoked as a means of
discharging the liability arising from contract, the anomalous result
would be that person acting through the medium of agents or servants
in the performance of their contracts, would be in a better position than
those acting in person. If one delivers a valuable watch to watchmaker
who contract to repair it, and the bailee, by a personal negligent act
causes its destruction, he is unquestionably liable. Would it be logical to
free him from his liability for the breach of his contract, which involves
the duty to exercise due care in the preservation of the watch, if he
shows that it was his servant whose negligence caused the injury? If
such a theory could be accepted, juridical persons would enjoy
practically complete immunity from damages arising from the breach of
their contracts if caused by negligent acts as such juridical persons can
of necessity only act through agents or servants, and it would no doubt
be true in most instances that reasonable care had been taken in
selection and direction of such servants. If one delivers securities to a
banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and
reasonable to permit the bank to relieve itself of liability for the breach
of its contract to return the collateral upon the payment of the debt by
proving that due care had been exercised in the selection and direction
of the clerk?
This distinction between culpa aquiliana, as the source  of an obligation,
and culpa contractual  as a mere incident to the performance of a
contract has frequently been recognized by the supreme court of Spain.
(Sentencias  of June 27, 1894; November 20, 1896; and December 13,
1896.) In the decisions of November 20, 1896, it appeared that
plaintiff's action arose ex contractu, but that defendant sought to avail
himself of the provisions of article 1902 of the Civil Code as a defense.
The Spanish Supreme Court rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing
obligation, by fault or negligence, such as those to which article 1902 of
the Civil Code relates, but of damages caused by the defendant's failure
to carry out the undertakings imposed by the contracts . . . .
A brief review of the earlier decision of this court involving the liability
of employers for damage done by the negligent acts of their servants
will show that in no case has the court ever decided that the negligence
of the defendant's servants has been held to constitute a defense to an
action for damages for breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that
the owner of a carriage was not liable for the damages caused by the
negligence of his driver. In that case the court commented on the fact
that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania Maritima (6
Phil. Rep., 215), the plaintiff sued the defendant for damages caused by
the loss of a barge belonging to plaintiff which was allowed to get adrift
by the negligence of defendant's servants in the course of the
performance of a contract of towage. The court held, citing Manresa
(vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a
contract made between it and the plaintiff . . . we do not think that the
provisions of articles 1902 and 1903 are applicable to the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff
sued the defendant to recover damages for the personal injuries caused
by the negligence of defendant's chauffeur while driving defendant's
automobile in which defendant was riding at the time. The court found
that the damages were caused by the negligence of the driver of the
automobile, but held that the master was not liable, although he was
present at the time, saying:
. . . unless the negligent acts of the driver are continued for a length of
time as to give the owner a reasonable opportunity to observe them
and to direct the driver to desist therefrom. . . . The act complained of
must be continued in the presence of the owner for such length of time
that the owner by his acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage &
Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its
conclusion as to the liability of the defendant upon article 1903,
although the facts disclosed that the injury complaint of by plaintiff
constituted a breach of the duty to him arising out of the contract of
transportation. The express ground of the decision in this case was that
article 1903, in dealing with the liability of a master for the negligent
acts of his servants "makes the distinction between private individuals
and public enterprise;" that as to the latter the law creates a rebuttable
presumption of negligence in the selection or direction of servants; and
that in the particular case the presumption of negligence had not been
overcome. 
It is evident, therefore that in its decision Yamada case, the court
treated plaintiff's action as though founded in tort rather than as based
upon the breach of the contract of carriage, and an examination of the
pleadings and of the briefs shows that the questions of law were in fact
discussed upon this theory. Viewed from the standpoint of the
defendant the practical result must have been the same in any event.
The proof disclosed beyond doubt that the defendant's servant was
grossly negligent and that his negligence was the proximate cause of
plaintiff's injury. It also affirmatively appeared that defendant had been
guilty of negligence in its failure to exercise proper discretion in the
direction of the servant. Defendant was, therefore, liable for the injury
suffered by plaintiff, whether the breach of the duty were to be
regarded as constituting culpa aquiliana  or culpa contractual. As
Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs an
incident in the course of the performance of a contractual undertaking
or its itself the source of an extra-contractual undertaking obligation, its
essential characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the part of
the defendant. Consequently, when the court holds that a defendant is
liable in damages for having failed to exercise due care, either directly,
or in failing to exercise proper care in the selection and direction of his
servants, the practical result is identical in either case. Therefore, it
follows that it is not to be inferred, because the court held in the
Yamada case that defendant was liable for the damages negligently
caused by its servants to a person to whom it was bound by contract,
and made reference to the fact that the defendant was negligent in the
selection and control of its servants, that in such a case the court would
have held that it would have been a good defense to the action, if
presented squarely upon the theory of the breach of the contract, for
defendant to have proved that it did in fact exercise care in the
selection and control of the servant.
The true explanation of such cases is to be found by directing the
attention to the relative spheres of contractual and extra-contractual
obligations. The field of non- contractual obligation is much more
broader than that of contractual obligations, comprising, as it does, the
whole extent of juridical human relations. These two fields, figuratively
speaking, concentric; that is to say, the mere fact that a person is bound
to another by contract does not relieve him from extra-contractual
liability to such person. When such a contractual relation exists the
obligor may break the contract under such conditions that the same act
which constitutes the source of an extra-contractual obligation had no
contract existed between the parties.
The contract of defendant to transport plaintiff carried with it, by
implication, the duty to carry him in safety and to provide safe means of
entering and leaving its trains (civil code, article 1258). That duty, being
contractual, was direct and immediate, and its non-performance could
not be excused by proof that the fault was morally imputable to
defendant's servants.
The railroad company's defense involves the assumption that even
granting that the negligent conduct of its servants in placing an
obstruction upon the platform was a breach of its contractual obligation
to maintain safe means of approaching and leaving its trains, the direct
and proximate cause of the injury suffered by plaintiff was his own
contributory negligence in failing to wait until the train had come to a
complete stop before alighting. Under the doctrine of comparative
negligence announced in the Rakes case (supra), if the accident was
caused by plaintiff's own negligence, no liability is imposed upon
defendant's negligence and plaintiff's negligence merely contributed to
his injury, the damages should be apportioned. It is, therefore,
important to ascertain if defendant was in fact guilty of negligence.
It may be admitted that had plaintiff waited until the train had come to
a full stop before alighting, the particular injury suffered by him could
not have occurred. Defendant contends, and cites many authorities in
support of the contention, that it is negligence  per se  for a passenger to
alight from a moving train. We are not disposed to subscribe to this
doctrine in its absolute form. We are of the opinion that this proposition
is too badly stated and is at variance with the experience of every-day
life. In this particular instance, that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that it came to stop
within six meters from the place where he stepped from it. Thousands
of person alight from trains under these conditions every day of the
year, and sustain no injury where the company has kept its platform
free from dangerous obstructions. There is no reason to believe that
plaintiff would have suffered any injury whatever in alighting as he did
had it not been for defendant's negligent failure to perform its duty to
provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this subject is
that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as
follows:
The test by which to determine whether the passenger has been guilty
of negligence in attempting to alight from a moving railway train, is that
of ordinary or reasonable care. It is to be considered whether an
ordinarily prudent person, of the age, sex and condition of the
passenger, would have acted as the passenger acted under the
circumstances disclosed by the evidence. This care has been defined to
be, not the care which may or should be used by the prudent man
generally, but the care which a man of ordinary prudence would use
under similar circumstances, to avoid injury." (Thompson,
Commentaries on Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this court in
Picart vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was
there anything in the circumstances surrounding the plaintiff at the time
he alighted from the train which would have admonished a person of
average prudence that to get off the train under the conditions then
existing was dangerous? If so, the plaintiff should have desisted from
alighting; and his failure so to desist was contributory
negligence.1awph!l.net
As the case now before us presents itself, the only fact from which a
conclusion can be drawn to the effect that plaintiff was guilty of
contributory negligence is that he stepped off the car without being
able to discern clearly the condition of the platform and while the train
was yet slowly moving. In considering the situation thus presented, it
should not be overlooked that the plaintiff was, as we find, ignorant of
the fact that the obstruction which was caused by the sacks of melons
piled on the platform existed; and as the defendant was bound by
reason of its duty as a public carrier to afford to its passengers facilities
for safe egress from its trains, the plaintiff had a right to assume, in the
absence of some circumstance to warn him to the contrary, that the
platform was clear. The place, as we have already stated, was dark, or
dimly lighted, and this also is proof of a failure upon the part of the
defendant in the performance of a duty owing by it to the plaintiff; for if
it were by any possibility concede that it had right to pile these sacks in
the path of alighting passengers, the placing of them adequately so that
their presence would be revealed.
As pertinent to the question of contributory negligence on the part of
the plaintiff in this case the following circumstances are to be noted:
The company's platform was constructed upon a level higher than that
of the roadbed and the surrounding ground. The distance from the
steps of the car to the spot where the alighting passenger would place
his feet on the platform was thus reduced, thereby decreasing the risk
incident to stepping off. The nature of the platform, constructed as it
was of cement material, also assured to the passenger a stable and even
surface on which to alight. Furthermore, the plaintiff was possessed of
the vigor and agility of young manhood, and it was by no means so risky
for him to get off while the train was yet moving as the same act would
have been in an aged or feeble person. In determining the question of
contributory negligence in performing such act — that is to say,
whether the passenger acted prudently or recklessly — the age, sex,
and physical condition of the passenger are circumstances necessarily
affecting the safety of the passenger, and should be considered.
Women, it has been observed, as a general rule are less capable than
men of alighting with safety under such conditions, as the nature of
their wearing apparel obstructs the free movement of the limbs. Again,
it may be noted that the place was perfectly familiar to the plaintiff as it
was his daily custom to get on and of the train at this station. There
could, therefore, be no uncertainty in his mind with regard either to the
length of the step which he was required to take or the character of the
platform where he was alighting. Our conclusion is that the conduct of
the plaintiff in undertaking to alight while the train was yet slightly
under way was not characterized by imprudence and that therefore he
was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was
earning P25 a month as a copyist clerk, and that the injuries he has
suffered have permanently disabled him from continuing that
employment. Defendant has not shown that any other gainful
occupation is open to plaintiff. His expectancy of life, according to the
standard mortality tables, is approximately thirty-three years. We are of
the opinion that a fair compensation for the damage suffered by him for
his permanent disability is the sum of P2,500, and that he is also entitled
to recover of defendant the additional sum of P790.25 for medical
attention, hospital services, and other incidental expenditures
connected with the treatment of his injuries.

The decision of lower court is reversed, and judgment is hereby

rendered plaintiff for the sum of P3,290.25, and for the costs of both
instances. So ordered.

G.R. No. L-82619 September 15, 1993

PHILIPPINE AIRLINES, INC., petitioner,  respondent's demand explaining that the latter's predicament was not
vs.
COURT OF APPEALS and PEDRO ZAPATOS, respondents.
On 25 November 1976, private respondent filed a complaint for
damages for breach of contract of carriage2 against Philippine Airlines,
Inc. (PAL), before the then Court of First Instance, now Regional Trial
Court, of Misamis Occidental, at Ozamiz City. According to him, on 2
August 1976, he was among the twenty-one (21) passengers of PAL
Flight 477 that took off from Cebu bound for Ozamiz City. The routing
of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about
fifteen (15) minutes before landing at Ozamiz City, the pilot received a
radio message that the airport was closed due to heavy rains and
inclement weather and that he should proceed to Cotabato City
instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the
passengers of their options to return to Cebu on flight 560 of the same
day and thence to Ozamiz City on 4 August 1975, or take the next flight
to Cebu the following day, or remain at Cotabato and take the next
available flight to Ozamiz City on 5 August 1975.3 The Station Agent
likewise informed them that Flight 560 bound for Manila would make a
stop-over at Cebu to bring some of the diverted passengers; that there
were only six (6) seats available as there were already confirmed
passengers for Manila; and, that the basis for priority would be the
check-in sequence at Cebu.
Private respondent chose to return to Cebu but was not
accommodated because he checked-in as passenger No. 9 on Flight
477. He insisted on being given priority over the confirmed passengers
in the accommodation, but the Station Agent refused private
due to PAL's own doing but to be a force majeure.4
Private respondent tried to stop the departure of Flight 560 as his
personal belongings, including a package containing a camera which a
certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of
Gingoog City, were still on board. His plea fell on deaf ears. PAL then
issued to private respondent a free ticket to Iligan city, which the latter
received under protest.5 Private respondent was left at the airport and
could not even hitch a ride in the Ford Fiera loaded with PAL
personnel.6 PAL neither provided private respondent with
transportation from the airport to the city proper nor food and
accommodation for his stay in Cotabato City.
The following day, private respondent purchased a PAL ticket to Iligan
City. He informed PAL personnel that he would not use the free ticket
because he was filing a case against PAL.7 In Iligan City, private
respondent hired a car from the airport to Kolambugan, Lanao del
Norte, reaching Ozamiz City by crossing the bay in a launch.8 His
personal effects including the camera, which were valued at P2,000.00
were no longer recovered.
On 13 January 1977, PAL filed its answer denying that it unjustifiably
refused to accommodate private respondent.9It alleged that there was
simply no more seat for private respondent on Flight 560 since there
were only six (6) seats available and the priority of accommodation on
Flight 560 was based on the check-in sequence in Cebu; that the first
six (6) priority passengers on Flight 477 chose to take Flight 560; that its
Station Agent explained in a courteous and polite manner to all
passengers the reason for PAL's inability to transport all of them back
to Cebu; that the stranded passengers agreed to avail of the options
and had their respective tickets exchanged for their onward trips; that
it was  (P10,000.00) to set a precedent to the defendant airline that it shall
only the private respondent who insisted on being given priority in the
accommodation; that pieces of checked-in baggage and had carried
items of the Ozamiz City passengers were removed from the aircraft;
that the reason for their pilot's inability to land at Ozamis City airport
was because the runway was wet due to rains thus posing a threat to
the safety of both passengers and aircraft; and, that such reason
of force majeure was a valid justification for the pilot to bypass Ozamiz
City and proceed directly to Cotabato City.
On 4 June 1981, the trial court rendered its decision 10 the dispositive
portion of which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant Philippine AirLines, Inc. ordering the latter to
pay:
(1) As actual damages, the sum of Two Hundred Pesos (P200.00)
representing plaintiff's expenses for transportation, food and
accommodation during his stranded stay at Cotabato City; the sum of
Forty-Eight Pesos (P48.00) representing his flight fare from Cotabato
City to Iligan city; the sum of Five Hundred Pesos (P500.00)
representing plaintiff's transportation expenses from Iligan City to
Ozamiz City; and the sum of Five Thousand Pesos (P5,000.00) as loss of
business opportunities during his stranded stay in Cotabato City;
(2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00)
for plaintiff's hurt feelings, serious anxiety, mental anguish and unkind
and discourteous treatment perpetrated by defendant's employees
during his stay as stranded passenger in Cotabato City;
(3) As exemplary damages, the sum of Ten Thousand Pesos
provide means to give comfort and convenience to stranded
passengers;
(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;
(5) To pay the costs of this suit.
PAL appealed to the Court of Appeals which on 28 February 1985,
finding no reversible error, affirmed the judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a petition for review
on certiorari  12 upon the following issues: (1) Can the Court of Appeals
render a decision finding petitioner (then defendant-appellant in the
court below) negligent and, consequently, liable for damages on a
question of substance which was neither raised on a question nor
proved at the trial? (2) Can the Court of Appeals award actual and
moral damages contrary to the evidence and established
jurisprudence? 13
An assiduous examination of the records yields no valid reason for
reversal of the judgment on appeal; only a modification of its
disposition.
In its petition, PAL vigorously maintains that private respondent's
principal cause of action was its alleged denial of private respondent's
demand for priority over the confirmed passengers on Flight 560.
Likewise, PAL points out that the complaint did not impute to PAL
neglect in failing to attend to the needs of the diverted passengers;
and, that the question of negligence was not and never put in issue by
the pleadings or proved at the trial.
Contrary to the above arguments, private respondent's amended
complaint touched on PAL's indifference and inattention to his
predicament. The pertinent portion of the amended complaint 14 reads:
10. That by virtue of the refusal of the defendant through its agent in
Cotabato to accommodate (sic) and allow the plaintiff to take and
board the plane back to Cebu, and by accomodating (sic) and allowing
passengers from Cotabato for Cebu in his stead and place, thus forcing
the plaintiff against his will, to be left and stranded in Cotabato,
exposed to the peril and danger of muslim rebels plundering at the
time, the plaintiff, as a consequence, (have) suffered mental anguish,
mental torture, social humiliation, bismirched reputation and wounded
feeling, all amounting to a conservative amount of thirty thousand
(P30,000.00) Pesos.
15
To substantiate this aspect of apathy, private respondent testified  vehicle ready?
A I did not even notice that I was I think the last passenger or the last
person out of the PAL employees and army personnel that were left
there. I did not notice that when I was already outside of the building
after our conversation.
Q What did you do next?
A I banished (sic) because it seems that there was a war not far from
the airport. The sound of guns and the soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring me down to the
City of Cotabato.
Q Were you able to go there?
A I was at about 7:00 o'clock in the evening more or less and it was a
private jeep that I boarded. I was even questioned why I and who am
(sic) I then. Then I explained my side that I am (sic) stranded passenger.
Then they brought me downtown at Cotabato.
Q During your conversation with the Manager were you not offered any
vehicle or transportation to Cotabato airport downtown?
A In fact I told him (Manager) now I am by-passed passenger here
which is not my destination what can you offer me. Then they
answered, "it is not my fault. Let us forget that."
Q In other words when the Manager told you that offer was there a
A Not yet. Not long after that the Ford Fiera loaded with PAL personnel
was passing by going to the City of Cotabato and I stopped it to take
me a ride because there was no more available transportation but I
was not accommodated.
Significantly, PAL did not seem to mind the introduction of evidence
which focused on its alleged negligence in caring for its stranded
passengers. Well-settled is the rule in evidence that the protest or
objection against the admission of evidence should be presented at the
time the evidence is offered, and that the proper time to make protest
or objection to the admissibility of evidence is when the question is
presented to the witness or at the time the answer thereto is
given. 16 There being no objection, such evidence becomes property of
the case and all the parties are amenable to any favorable or
unfavorable effects resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony. In the
process, it failed to substantiate its counter allegation for want of
concrete proof 18 —
Atty. Rubin O. Rivera — PAL's counsel:
Q You said PAL refused to help you when you were in Cotabato, is that
right?
Private respondent:
A Yes.
Q Did you ask them to help you regarding any offer of transportation or
of any other matter asked of them?
A Yes, he (PAL PERSONNEL) said what is? It is not our fault.
Q Are you not aware that one fellow passenger even claimed that he
was given Hotel accommodation because they have no money?
x x x           x x x          x x x
A No, sir, that was never offered to me. I said, I tried to stop them but
they were already riding that PAL pick-up jeep, and I was not
accommodated.
Having joined in the issue over the alleged lack of care it exhibited
towards its passengers, PAL cannot now turn around and feign surprise
at the outcome of the case. When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. 19
With regard to the award of damages affirmed by the appellate court,
PAL argues that the same is unfounded. It asserts that it should not be
charged with the task of looking after the passengers' comfort and
convenience because the diversion of the flight was due to a fortuitous
event, and that if made liable, an added burden is given to PAL which is
over and beyond its duties under the contract of carriage. It submits
that granting arguendo that negligence exists, PAL cannot be liable in
damages in the absence of fraud or bad faith; that private respondent
failed to apprise PAL of the nature of his trip and possible business
losses; and, that private respondent himself is to be blamed for
unreasonably refusing to use the free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being imbued with public
interest, the law requires common carriers to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the
circumstances. 20 In Air France v. Carrascoso, 21 we held that —
A contract to transport passengers is quite different in kind and degree
from any other contractual relation. And this, because of the relation
which an air carrier sustains with the public. Its business is mainly with
the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty . . . . ( emphasis supplied).
The position taken by PAL in this case clearly illustrates its failure to
grasp the exacting standard required by law. Undisputably, PAL's
diversion of its flight due to inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the sole one to
operate in the country, PAL is deemed equipped to deal with situations
as in the case at bar. What we said in one case once again must be
stressed, i.e., the relation of carrier and passenger continues until the
latter has been landed at the port of destination and has left the
carrier's premises. 22 Hence, PAL necessarily would still have to exercise
extraordinary diligence in safeguarding the comfort, convenience and
safety of its stranded passengers until they have reached their final
destination. On this score, PAL grossly failed considering the then
ongoing battle between government forces and Muslim rebels in
Cotabato City and the fact that the private respondent was a stranger
to the place. As the appellate court correctly ruled —
While the failure of plaintiff in the first instance to reach his destination
at Ozamis City in accordance with the contract of carriage was due to
the closure of the airport on account of rain and inclement weather
which was radioed to defendant 15 minutes before landing, it has not
been disputed by defendant airline that Ozamis City has no all-weather
airport and has to cancel its flight to Ozamis City or by-pass it in the
event of inclement weather. Knowing this fact, it becomes the duty of
defendant to provide all means of comfort and convenience to its
passengers when they would have to be left in a strange place in case
of such by-passing. The steps taken by defendant airline company
towards this end has not been put in evidence, especially for those 7
others who were not accommodated in the return trip to Cebu, only 6
of the 21 having been so accommodated. It appears that plaintiff had
to leave on the next flight 2 days later. If the cause of non-fulfillment of
the contract is due to a fortuitous event, it has to be the sole and only
cause (Art. 1755 CC., Art. 1733 C.C.) Since part of the failure to comply
with the obligation of common carrier to deliver its passengers safely to
their destination lay in the defendant's failure to provide comfort and
convenience to its stranded passengers using extra-ordinary diligence,
the cause of non-fulfillment is not solely and exclusively due to
fortuitous event, but due to something which defendant airline could
have prevented, defendant becomes liable to plaintiff. 23
While we find PAL remiss in its duty of extending utmost care to private
respondent while being stranded in Cotabato City, there is no sufficient
basis to conclude that PAL failed to inform him about his non-
accommodation on Flight 560, or that it was inattentive to his queries
relative thereto.
On 3 August 1975, the Station Agent reported to his Branch Manager in
Cotabato City that —
3. Of the fifteen stranded passengers two pax elected to take F478 on
August 05, three pax opted to take F442 August 03. The remaining ten
(10) including subject requested that they be instead accommodated
(sic) on F446 CBO-IGN the following day where they intended to take
the surface transportation to OZC. Mr. Pedro Zapatos had by then been
very vocal and boiceterous (sic) at the counter and we tactfully
managed to steer him inside the Station Agent's office. Mr. Pedro
Zapatos then adamantly insisted that all the diverted passengers should
have been given priority over the originating passengers of F560
whether confirmed or otherwise. We explained our policies and after
awhile he seemed pacified and thereafter took his ticket (in-lieued (sic)
to CBO-IGN, COCON basis), at the counter in the presence of five other
passengers who were waiting for their tickets too. The rest of the
diverted pax had left earlier after being assured their tickets will be
ready the following day. 24
Aforesaid Report being an entry in the course of business is prima
facie evidence of the facts therein stated. Private respondent, apart
from his testimony, did not offer any controverting evidence. If indeed
PAL omitted to give information about the options available to its
diverted passengers, it would have been deluged with complaints. But,
only private respondent complained —
Atty. Rivera (for PAL)
Q I understand from you Mr. Zapatos that at the time you were waiting
at Cotabato Airport for the decision of PAL, you were not informed of
the decision until after the airplane left is that correct?
A Yes.
COURT:
Q What do you mean by "yes"? You meant you were not informed?
A Yes, I was not informed of their decision, that they will only
accommodate few passengers.
Q Aside from you there were many other stranded passengers?
A I believed, yes.
Q And you want us to believe that PAL did not explain (to) any of these
passengers about the decision regarding those who will board the
aircraft back to Cebu?
A No, Sir.
Q Despite these facts Mr. Zapatos did any of the other passengers
complained (sic) regarding that incident?
x x x           x x x          x x x
A There were plenty of argument and I was one of those talking about
my case.
Q Did you hear anybody complained (sic) that he has not been
informed of the decision before the plane left for Cebu?
A No. 25
Admittedly, private respondent's insistence on being given priority in
accommodation was unreasonable considering the fortuitous event and
that there was a sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of origin. His
intransigence in fact was the main cause for his having to stay at the
airport longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that according to your
testimony there were at least 16 passengers who were stranded there
in Cotabato airport according to your testimony, and later you said that
there were no other people left there at that time, is that correct?
A Yes, I did not see anyone there around. I think I was the only civilian
who was left there.
Q Why is it that it took you long time to leave that place?
A Because I was arguing with the PAL personnel. 26
Anent the plaint that PAL employees were disrespectful and inattentive
toward private respondent, the records are bereft of evidence to
support the same. Thus, the ruling of respondent Court of Appeals in
this regard is without basis. 27 On the contrary, private respondent was
attended to not only by the personnel of PAL but also by its
Manager." 28
In the light of these findings, we find the award of moral damages of
Fifty Thousand Pesos (P50,000.00) unreasonably excessive; hence, we
reduce the same to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also reduced to five
Thousand Pesos (5,000.00). Moral damages are not intended to enrich
the private respondent. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone by reason of the
defendant's culpable action. 29
With regard to the award of actual damages in the amount of
P5,000.00 representing private respondent's alleged business losses
occasioned by his stay at Cotabato City, we find the same unwarranted.
Private respondent's testimony that he had a scheduled business
"transaction of shark liver oil supposedly to have been consummated
on August 3, 1975 in the morning" and that "since (private respondent)
was out for nearly two weeks I missed to buy about 10 barrels of shark
liver oil,"30 are purely speculative. Actual or compensatory damages
cannot be presumed but must be duly proved with reasonable degree
of certainty. A court cannot rely on speculation, conjecture or
guesswork as to the fact and amount of damages, but must depend
upon competent proof that they have suffered and on evidence of the
actual amount thereof. 31
WHEREFORE the decision appealed from is AFFIRMED with modification
however that the award of moral damages of Fifty Thousand Pesos
(P50,000.00) is reduced to Ten Thousand Pesos (P10,000.00) while the
exemplary damages of Ten Thousand Pesos (P10,000.00) is also
reduced to Five Thousand Pesos (P5,000.00). The award of actual
damages in the amount Five Thousand Pesos (P5,000.00) representing
business losses occasioned by private respondent's being stranded in
Cotabato City is deleted.
SO ORDERED.

[G.R. No. 126389. July 10, 1998]
SOUTHEASTERN COLLEGE, INC., petitioner, vs. COURT OF APPEALS,
JUANITA DE JESUS VDA. DE DIMAANO, EMERITA DIMAANO,
REMEDIOS DIMAANO, CONSOLACION DIMAANO and MILAGROS
DIMAANO, respondents.
Private respondents are owners of a house at 326 College Road, Pasay
City, while petitioner owns a four-storey school building along the same
College Road. On October 11, 1989, at about 6:30 in the morning, a
powerful typhoon Saling hit Metro Manila. Buffeted by very strong
winds, the roof of petitioners building was partly ripped off and blown
away, landing on and destroying portions of the roofing of private
respondents house. After the typhoon had passed, an ocular inspection
of the destroyed buildings was conducted by a team of engineers
headed by the city building official, Engr. Jesus L. Reyna. Pertinent
aspects of the latters Report[5] dated October 18, 1989 stated, as
follows:
5. One of the factors that may have led to this calamitous event is the
formation of the buildings in the area and the general direction of the
wind. Situated in the peripheral lot is an almost U-shaped formation of
4-storey building. Thus, with the strong winds having a westerly
direction, the general formation of the buildings becomes a big funnel-
like structure, the one situated along College Road, receiving the
heaviest impact of the strong winds. Hence, there are portions of the
roofing, those located on both ends of the building, which remained
intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging
of the roofings structural trusses is the improper anchorage of the said
trusses to the roof beams. The 1/2 diameter steel bars embedded on
the concrete roof beams which serve as truss anchorage are not bolted
nor nailed to the trusses. Still, there are other steel bars which were not
even bent to the trusses, thus, those trusses are not anchored at all to
the roof beams.
It then recommended that to avoid any further loss and damage to
lives, limbs and property of persons living in the vicinity, the fourth
floor of subject school building be declared as a structural hazard.
In their Complaint[6] before the Regional Trial Court of Pasay City,
Branch 117, for damages based on culpa aquiliana, private respondents
alleged that the damage to their house rendered the same
uninhabitable, forcing them to stay temporarily in others houses. And
so they sought to recover from petitioner P117,116.00, as actual
damages, P1,000,000.00, as moral damages, P300,000.00, as exemplary
damages and P100,000.00, for and as attorneys fees; plus costs.
In its Answer, petitioner averred that subject school building had
withstood several devastating typhoons and other calamities in the
past, without its roofing or any portion thereof giving way; that it has
not been remiss in its responsibility to see to it that said school
building, which houses school children, faculty members, and
employees, is in tip-top condition; and furthermore, typhoon
Saling was an act of God and therefore beyond human control such
that petitioner cannot be answerable for the damages wrought
thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the
effect that subject school building had a defective roofing structure,
found that, while typhoon Saling was accompanied by strong winds, the
damage to private respondents house could have been avoided if the
construction of the roof of [petitioners] building was not faulty. The
dispositive portion of the lower courts decision[7] reads thus:
WHEREFORE, in view of the foregoing, the Court renders judgment (sic)
in favor of the plaintiff (sic) and against the defendants, (sic) ordering
the latter to pay jointly and severally the former as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorneys fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the
defendants (sic) did not act in a wanton fraudulent, reckless, oppressive
or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as errors,
[8]
 that:
I receipts of actual damage, [sic] legally feasible or justified.
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON SALING, AS AN
ACT OF GOD, IS NOT THE SOLE AND ABSOLUTE REASON FOR THE
RIPPING-OFF OF THE SMALL PORTION OF THE ROOF OF
SOUTHEASTERNS FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT THE CONSTRUCTION OF
THE ROOF OF DEFENDANTS SCHOOL BUILDING WAS FAULTY
NOTWITHSTANDING THE ADMISSION THAT THERE WERE TYPHOONS
BEFORE BUT NOT AS GRAVE AS TYPHOON SALING WHICH IS THE
DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEYS FEES AND LITIGATION EXPENSES
AND COSTS OF SUIT TO DIMAANOS WHEN THEY HAVE NOT INCURRED
ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE ALREADY SOLD THEIR
PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS CASE MOOT
AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF
EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERNS APPEAL
WHEN THERE IS NO COMPELLING REASON FOR THE ISSUANCE
THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with
modification the trial courts disposition by reducing the award of moral
damages from P1,000,000.00 to P200,000.00. Hence, petitioners resort
to this Court, raising for resolution the issues of:
1. Whether or not the award of actual damage [sic] to respondent
Dimaanos on the basis of speculation or conjecture, without proof or
2. Whether or not the award of moral damages to respondent
Dimaanos, without the latter having suffered, actual damage has legal
basis.
3. Whether or not respondent Dimaanos who are no longer the owner
of the property, subject matter of the case, during its pendency, has
the right to pursue their complaint against petitioner when the case
was already rendered moot and academic by the sale of the property
to third party.
4. Whether or not the award of attorneys fees when the case was
already moot and academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others by
typhoon Saling being an act of God.
6. Whether or not the issuance of a writ of execution pending appeal,
ex-parte or without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is whether
the damage on the roof of the building of private respondents resulting
from the impact of the falling portions of the school buildings roof
ripped off by the strong winds of typhoon Saling, was, within legal
contemplation, due to fortuitous event? If so, petitioner cannot be held
liable for the damages suffered by the private respondents. This
conclusion finds support in Article 1174 of the Civil Code,
which provides:
Art 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
The antecedent of fortuitous event or caso fortuito is found in
the Partidas which defines it as an event which takes place by accident
and could not have been foreseen.[9] Escriche elaborates it as an
unexpected event or act of God which could neither be foreseen nor
resisted.[10] Civilist Arturo M. Tolentino adds that [f]ortuitous events
may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of
man, such as an armed invasion, attack by bandits, governmental
prohibitions, robbery, etc.[11]
In order that a fortuitous event may exempt a person from liability, it is
necessary that he be free from any previous negligence or misconduct
by reason of which the loss may have been occasioned.[12] An act of
God cannot be invoked for the protection of a person who has been
guilty of gross negligence in not trying to forestall its possible adverse
consequences. When a persons negligence concurs with an act of God
in producing damage or injury to another, such person is not exempt
from liability by showing that the immediate or proximate cause of the
damage or injury was a fortuitous event. When the effect is found to be
partly the result of the participation of man whether it be from active
intervention, or neglect, or failure to act the whole occurrence is
hereby humanized, and removed from the rules applicable to acts of
God.[13]
In the case under consideration, the lower court accorded full credence
to the finding of the investigating team that subject school buildings
roofing had no sufficient anchorage to hold it in position especially
when battered by strong winds. Based on such finding, the trial court
imputed negligence to petitioner and adjudged it liable for damages to
private respondents.
After a thorough study and evaluation of the evidence on record, this
Court believes otherwise, notwithstanding the general rule that factual
findings by the trial court, especially when affirmed by the appellate
court, are binding and conclusive upon this Court.[14] After a careful
scrutiny of the records and the pleadings submitted by the parties, we
find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a
natural occurrence which may be foreseen but is unavoidable despite
any amount of foresight, diligence or care.[15] In order to be exempt
from liability arising from any adverse consequence engendered
thereby, there should have been no human participation amounting to
a negligent act.[16] In other words, the person seeking exoneration from
liability must not be guilty of negligence. Negligence, as commonly
understood, is conduct which naturally or reasonably creates undue
risk or harm to others. It may be the failure to observe that degree of
care, precaution, and vigilance which the circumstances justly demand,
[17]
 or the omission to do something which a prudent and reasonable
man, guided by considerations which ordinarily regulate the conduct of
human affairs, would do.[18] From these premises, we proceed to
determine whether petitioner was negligent, such that if it were not,
the damage caused to private respondents house could have been
avoided?
At the outset, it bears emphasizing that a person claiming damages for
the negligence of another has the burden of proving the existence of
fault or negligence causative of his injury or loss. The facts constitutive
of negligence must be affirmatively established by competent evidence,
[19]
 not merely by presumptions and conclusions without basis in
fact.Private respondents, in establishing the culpability of petitioner,
merely relied on the aforementioned report submitted by a team which
made an ocular inspection of petitioners school building after the
typhoon. As the term imparts, an ocular inspection is one by means of
actual sight or viewing.[20] What is visual to the eye though, is not
always reflective of the real cause behind. For instance, one who hears
a gunshot and then sees a wounded person, cannot always definitely
conclude that a third person shot the victim. It could have been self-
inflicted or caused accidentally by a stray bullet. The relationship of
cause and effect must be clearly shown.
In the present case, other than the said ocular inspection, no
investigation was conducted to determine the real cause of the partial
unroofing of petitioners school building. Private respondents did
not even show that the plans, specifications and design of said school
building were deficient and defective. Neither did they prove any
substantial deviation from the approved plans and
specifications. Nor did they conclusively establish that the construction
of such building was basically flawed.[21]
On the other hand, petitioner elicited from one of the witnesses of
private respondents, city building official Jesus Reyna, that the original
plans and design of petitioners school building were approved prior to
its construction. Engr. Reyna admitted that it was a legal requirement
before the construction of any building to obtain a permit from the city
building official (city engineer, prior to the passage of the Building Act
of 1977). In like manner, after construction of the building, a
certification must be secured from the same official attesting to the
readiness for occupancy of the edifice.Having obtained both building
permit and certificate of occupancy, these are, at the very least, prima
facie evidence of the regular and proper construction of subject school
building.[22]
Furthermore, when part of its roof needed repairs of the damage
inflicted by typhoon Saling, the same city official gave the go-signal for
such repairs without any deviation from the original design and
subsequently, authorized the use of the entire fourth floor of the same
building. These only prove that subject building suffers from no
structural defect, contrary to the report that its U-shaped form was
structurally defective. Having given his unqualified imprimatur, the city
building official is presumed to have properly performed his duties[23] in
connection therewith.
In addition, petitioner presented its vice president for finance and
administration who testified that an annual maintenance inspection
and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its maintenance
supervisor to attest to the extent of such regular inspection but private
respondents agreed to dispense with his testimony and simply
stipulated that it would be corroborative of the vice presidents
narration.
Moreover, the city building official, who has been in the city
government service since 1974, admitted in open court that no
complaint regarding any defect on the same structure has ever been
lodged before his office prior to the institution of the case at bench. It
is a matter of judicial notice that typhoons are common occurrences in
this country. If subject school buildings roofing was not firmly anchored
to its trusses, obviously, it could not have withstood long years and
several typhoons even stronger than Saling.
In light of the foregoing, we find no clear and convincing evidence to
sustain the judgment of the appellate court. We thus hold that
petitioner has not been shown negligent or at fault regarding the
construction and maintenance of its school building in question and
that typhoon Saling was the proximate cause of the damage suffered
by private respondents house.
With this disposition on the pivotal issue, private respondents claim for
actual and moral damages as well as attorneys fees must fail.
[24]
 Petitioner cannot be made to answer for a purely fortuitous event.
[25]
 More so because no bad faith or willful act to cause damage was
alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent proof of
the pecuniary loss they actually incurred.[26] It is not enough that the
damage be capable of proof but must be actually proved with a
reasonable degree of certainty, pointing out specific facts that afford a
basis for measuring whatever compensatory damages are borne.
[27]
 Private respondents merely submitted an estimated amount needed
for the repair of the roof of their subject building. What is more,
whether the necessary repairs were caused ONLY by petitioners alleged
negligence in the maintenance of its school building, or included the
ordinary wear and tear of the house itself, is an essential question that
remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by
petitioner.
As regards the sixth issue, however, the writ of execution issued on
April 1, 1993 by the trial court is hereby nullified and set aside. Private
respondents are ordered to reimburse any amount or return to
petitioner any property which they may have received by virtue of the
enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is
REVERSED. The complaint of private respondents in Civil Case No. 7314
before the trial court a quo is ordered DISMISSED and the writ of
execution issued on April 1, 1993 in said case is SET ASIDE. Accordingly,
private respondents are ORDERED to return to petitioner any amount
or property received by them by virtue of said writ. Costs against the
private respondents.
[G.R. No. 147324. May 25, 2004]
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs. GLOBE TELECOM, INC. (formerly and Globe Mckay Cable and Radio
Corporation), respondents.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged in
the coordination of the provision of various communication facilities for
the military bases of the United States of America (US) in Clark Air
Base, Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed and
configured for the exclusive use of the US Defense Communications
Agency (USDCA), and for security reasons, were operated only by its
personnel or those of American companies contracted by it to operate
said facilities. The USDCA contracted with said American companies,
and the latter, in turn, contracted with Globe for the use of the
communication facilities. Globe, on the other hand, contracted with
local service providers such as the Philippine Communications Satellite
Corporation (Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement
whereby Philcomsat obligated itself to establish, operate and provide
an IBS Standard B earth station (earth station) within Cubi Point for the
exclusive use of the USDCA.[2] The term of the contract was for 60
months, or five (5) years.[3] In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.[4]
At the time of the execution of the Agreement, both parties knew that
the Military Bases Agreement between the Republic of the Philippines
and the US (RP-US Military Bases Agreement), which was the basis for
the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point,
was to expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which include
those located at the US Naval Facility in Cubi Point, shall not be allowed
in the Philippines unless a new treaty is duly concurred in by the Senate
and ratified by a majority of the votes cast by the people in a national
referendum when the Congress so requires, and such new treaty is
recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at
Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of
the use by the US of Subic Naval Base, among others.[5] The last two
paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the
continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To express its decision
not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements, at the
same time reaffirming its desire to continue friendly relations with the
government and people of the United States of America.[6]
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy, notifying it of
the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31 December 1992,
the withdrawal of all US military forces from Subic Naval Base should
be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military personnel
from Subic Naval Base after the termination of the RP-US Military Bases
Agreement. Globe invoked as basis for the letter of termination Section
8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any
failure to perform its obligation under this Agreement if such failure
results directly or indirectly from force majeure or fortuitous
event. Either party is thus precluded from performing its obligation
until such force majeure or fortuitous event shall terminate. For the
purpose of this paragraph, force majeure shall mean circumstances
beyond the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating
that we expect [Globe] to know its commitment to pay the stipulated
rentals for the remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station after November
08, 1992.[7] Philcomsat referred to Section 7 of the Agreement, stating
as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station
after it has been put into operation, a written notice shall be served to
PHILCOMSAT at least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth station, [Globe]
shall continue to pay PHILCOMSAT for the rental of the actual number
of T1 circuits in use, but in no case shall be less than the first two (2) T1
circuits, for the remaining life of the agreement. However, should
PHILCOMSAT make use or sell the earth station subject to this
agreement, the obligation of [Globe] to pay the rental for the
remaining life of the agreement shall be at such monthly rate as may
be agreed upon by the parties.[8]
After the US military forces left Subic Naval Base, Philcomsat sent Globe
a letter dated 24 November 1993 demanding payment of its
outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees. However, Globe
refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of
Makati a Complaint against Globe, praying that the latter be ordered to
pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorneys fees and costs of suit. The case was
raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the RP-US
Military Bases Agreement and the non-ratification by the Senate of the
Treaty of Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of
the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety
Two Thousand Two Hundred Thirty Eight US Dollars (US$92,238.00) or
its equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals
for the month of December 1992 with interest thereon at the legal rate
of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack of merit;
and
4. With costs against the defendant.
SO ORDERED.[9]
Both parties appealed the trial courts Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-
ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations
under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it
liable for payment of rent of the earth station for December 1992 and
of attorneys fees. It explained that it terminated Philcomsats services
on 08 November 1992; hence, it had no reason to pay for rentals
beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events constituting force
majeure under Section 8 the Agreement occurred and justified the
non-payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine Government of the
RP-US Military Bases Agreement effective 31 December 1991 as stated
in the Philippine Governments Note Verbale to the US Government, are
acts, directions, or requests of the Government of the Philippines which
constitute force majeure. In addition, there were circumstances beyond
the control of the parties, such as the issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the issuance of the letter notification
from ATT and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of the earth
station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to
terminate Philcomsats services by 08 November 1992, it is still liable to
pay rentals for the December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and personnel
completely withdrew from Cubi Point only on 31 December 1992.[10]
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,[11] petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO
AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE
REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF
SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL
COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.
[12]
Philcomsat argues that the termination of the RP-US Military Bases
Agreement cannot be considered a fortuitous event because the
happening thereof was foreseeable. Although the Agreement was
freely entered into by both parties, Section 8 should be deemed
ineffective because it is contrary to Article 1174 of the Civil
Code. Philcomsat posits the view that the validity of the parties
definition of force majeure in Section 8 of the Agreement as
circumstances beyond the control of the party involved including, but
not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties,
insurrection riots, national emergencies, war, acts of public enemies,
fire, floods, typhoons or other catastrophies or acts of God, should be
deemed subject to Article 1174 which defines fortuitous events as
events which could not be foreseen, or which, though foreseen, were
inevitable.[13]
Philcomsat further claims that the Court of Appeals erred in holding
that Globe is not liable to pay for the rental of the earth station for the
entire term of the Agreement because it runs counter to what was
plainly stipulated by the parties in Section 7 thereof. Moreover, said
ruling is inconsistent with the appellate courts pronouncement that
Globe is liable to pay rentals for December 1992 even though it
terminated Philcomsats services effective 08 November 1992, because
the US military and personnel completely withdrew from Cubi Point
only in December 1992. Philcomsat points out that it was Globe which
proposed the five-year term of the Agreement, and that the other
provisions of the Agreement, such as Section 4.1[14] thereof, evince the
intent of Globe to be bound to pay rentals for the entire five-year term.
[15]
Philcomsat also maintains that contrary to the appellate courts
findings, it is entitled to attorneys fees and exemplary damages.[16]
In its Comment to Philcomsats Petition, Globe asserts that Section 8 of
the Agreement is not contrary to Article 1174 of the Civil Code because
said provision does not prohibit parties to a contract from providing for
other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the
RP-US Military Bases Agreement constitutes force majeure and exempts
it from complying with its obligations under the Agreement.[17] On the
issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not entitled
thereto because in refusing to pay rentals for the remainder of the
term of the Agreement, Globe only acted in accordance with its rights.
[18]
In G.R. No. 147334,[19] Globe, the petitioner therein, contends that the
Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November 1992.[20]
In its Comment, Philcomsat claims that Globes petition should be
dismissed as it raises a factual issue which is not cognizable by the
Court in a petition for review on certiorari.[21]
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats Petition in G.R. No. 147324 and required the parties to
submit their respective memoranda.[22]
Similarly, on 20 August 2001, the Court issued a Resolution giving due
course to the Petition filed by Globe in G.R. No. 147334 and required
both parties to submit their memoranda.[23]
Philcomsat and Globe thereafter filed their respective Consolidated
Memoranda in the two cases, reiterating their arguments in their
respective petitions.
The Court is tasked to resolve the following issues: (1) whether the
termination of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security, and
the consequent withdrawal of US military forces and personnel from
Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with
Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether
Philcomsat is entitled to attorneys fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing
the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the
Agreement cannot be given effect because the enumeration of events
constituting force majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code and is therefore
invalid.
In support of its position, Philcomsat contends that under Article 1174
of the Civil Code, an event must be unforeseen in order to exempt a
party to a contract from complying with its obligations therein. It insists
that since the expiration of the RP-US Military Bases Agreement, the
non-ratification of the Treaty of Friendship, Cooperation and Security
and the withdrawal of US military forces and personnel from Cubi Point
were not unforeseeable, but were possibilities known to it and Globe at
the time they entered into the Agreement, such events cannot exempt
Globe from performing its obligation of paying rentals for the entire
five-year term thereof.
However, Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to events
that are unforeseeable, but also to those which are foreseeable, but
inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events
which, could not be foreseen, or which, though foreseen were
inevitable.
A fortuitous event under Article 1174 may either be an act of God, or
natural occurrences such as floods or typhoons,[24] or an act of man,
such as riots, strikes or wars.[25]
Philcomsat and Globe agreed in Section 8 of the Agreement that the
following events shall be deemed events constituting force majeure: 
1. Any law, order, regulation, direction or request of the Philippine
Government;
2. Strikes or other labor difficulties;
3. Insurrection; 
4. Riots; 
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but
beyond the control of the parties. There is nothing in the enumeration
that runs contrary to, or expands, the concept of a fortuitous event
under Article 1174.
Furthermore, under Article 1306[26] of the Civil Code, parties to a
contract may establish such stipulations, clauses, terms and conditions
as they may deem fit, as long as the same do not run counter to the
law, morals, good customs, public order or public policy.[27]
Article 1159 of the Civil Code also provides that [o]bligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith.[28] Courts cannot stipulate
for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy, for
to do so would be to alter the real intent of the parties, and would run
contrary to the function of the courts to give force and effect thereto.
[29]
Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and Globe
freely agreed upon has the force of law between them.[30]
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the
following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner;
and (3) the obligor must be free of participation in, or aggravation of,
the injury to the creditor.[31]
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat
and Globe had no control over the non-renewal of the term of the RP-
US Military Bases Agreement when the same expired in 1991, because
the prerogative to ratify the treaty extending the life thereof belonged
to the Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in
December 1992:
Obviously the non-ratification by the Senate of the RP-US Military
Bases Agreement (and its Supplemental Agreements) under its
Resolution No. 141. (Exhibit 2) on September 16, 1991 is beyond the
control of the parties. This resolution was followed by the sending on
December 31, 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine
Government to the US Government notifying the latter of the formers
termination of the RP-US Military Bases Agreement (as amended) on 31
December 1992 and that accordingly, the withdrawal of all U.S. military
forces from Subic Naval Base should be completed by said
date. Subsequently, defendant [Globe] received a formal order from
Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate the provision of
T1s services (via an IBS Standard B Earth Station) effective November
08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said
order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of
the Philippine Government to the US Government are acts, direction or
request of the Government of the Philippines and circumstances
beyond the control of the defendant. The formal order from Cdr.
Walter Corliss of the USN, the letter notification from ATT and the
complete withdrawal of all the military forces and personnel from Cubi
Point in the year-end 1992 are also acts and circumstances beyond the
control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-
narrated circumstances constitute force majeure or fortuitous event(s)
as defined under paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant is exempted
from paying the rentals for the facility for the remaining term of the
contract.
As a consequence of the termination of the RP-US Military Bases
Agreement (as amended) the continued stay of all US Military forces
and personnel from Subic Naval Base would no longer be allowed,
hence, plaintiff would no longer be in any position to render the service
it was obligated under the Agreement. To put it blantly (sic), since the
US military forces and personnel left or withdrew from Cubi Point in the
year end December 1992, there was no longer any necessity for the
plaintiff to continue maintaining the IBS facility. [32] (Emphasis in the
original.)  appellate courts ruling that Globe should pay the same.
The aforementioned events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part
of either party. The Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying
rentals even though Philcomsat cannot be compelled to perform its
corresponding obligation under the Agreement. As noted by the
appellate court:
We also point out the sheer inequity of PHILCOMSATs
position. PHILCOMSAT would like to charge GLOBE rentals for the
balance of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly unfair
and iniquitous to hold GLOBE liable for lease charges for a service that
was not and could not have been rendered due to an act of the
government which was clearly beyond GLOBEs control. The binding
effect of a contract on both parties is based on the principle that the
obligations arising from contracts have the force of law between the
contracting parties, and there must be mutuality between them based
essentially on their equality under which it is repugnant to have one
party bound by the contract while leaving the other party free
therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA
357).[33]
With respect to the issue of whether Globe is liable for payment of
rentals for the month of December 1992, the Court likewise affirms the
Although Globe alleged that it terminated the Agreement with
Philcomsat effective 08 November 1992 pursuant to the formal order
issued by Cdr. Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the Agreement was not
established during the trial.[34] However, the trial court found that the
US military forces and personnel completely withdrew from Cubi Point
only on 31 December 1992.[35] Thus, until that date, the USDCA
had control over the earth station and had the option of using the
same. Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after 31 December 1992
because Cubi Point was accessible only to US naval personnel up to
that time. Hence, the Court of Appeals did not err when it affirmed the
trial courts ruling that Globe is liable for payment of rentals until
December 1992.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and
must be supported by factual, legal and equitable justifications.[36] In
previously decided cases, the Court awarded attorneys fees where a
party acted in gross and evident bad faith in refusing to satisfy the
other partys claims and compelled the former to litigate to protect his
rights;[37] when the action filed is clearly unfounded,[38] or where moral
or exemplary damages are awarded.[39] However, in cases where both
parties have legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of both parties
were sustained in part, an award of attorneys fees would not be
warranted.[40]
Exemplary damages may be awarded in cases involving contracts or
quasi-contracts, if the erring party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.[41] In the present case, it
was not shown that Globe acted wantonly or oppressively in not
heeding Philcomsats demands for payment of rentals. It was
established during the trial of the case before the trial court that Globe
had valid grounds for refusing to comply with its contractual obligations
after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.
SO ORDERED.
G.R. No. 147839             June 8, 2006
GAISANO CAGAYAN, INC. Petitioner, 
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book
debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."2 The policies defined book debts
as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions: 
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in excess
of six (6) months from the date of the covering invoice or actual
delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all amount
shown in their books of accounts as unpaid and thus become receivable
item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On
February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro
City, owned by petitioner, was consumed by fire. Included in the items
lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.  price, the above-described merchandise remains the property of the
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their
claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made clothing materials
with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against petitioner; that
respondent made several demands for payment upon petitioner but
these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property covered
by the insurance policies were destroyed due to fortuities event or
force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the
loss was due to fire which it could not prevent or foresee; that IMC and
LSPI never communicated to it that they insured their properties; that it
never consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued. 
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely accidental; that
the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the debtor
of IMC and LSPI; that since the sales invoices state that "it is further
agreed that merely for purpose of securing the payment of purchase
vendor until the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the loss. 
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the
CA rendered its decision setting aside the decision of the RTC. The
dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss
of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article
1504 (1) of the Civil Code, to the general rule that if the thing is lost by
a fortuitous event, the risk is borne by the owner of the thing at the
time the loss under the principle of res perit domino; that petitioner's
obligation to IMC and LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements, what was insured
was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by the
CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the
following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN
THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN
FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an insurance
"on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire
and not because of the non-payment by petitioner of any obligation;
that, even if the insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior demands were
made by IMC and LSPI against petitioner for payment of the debt and
such demands came from respondent only after it had already paid IMC
and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when
they secured fire insurance policies over the goods. 
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to
the insurance contract or the payment between respondent and its
insured nor was its consent or approval ever secured; that this lack of
privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods safe
from fire.
For its part, respondent counters that while ownership over the ready-
made clothing materials was transferred upon delivery to petitioner,
IMC and LSPI have insurable interest over said goods as creditors who
stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 126516 of
the Civil Code; that the fire was caused through petitioner's negligence
in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack
of proper maintenance and supervision of the property; that petitioner
is guilty of gross and evident bad faith in refusing to pay respondent's
valid claim and should be liable to respondent for contracted lawyer's
fees, litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in
cases brought before it from the CA is limited to reviewing questions of
law which involves no examination of the probative value of the
evidence presented by the litigants or any of them.18 The Supreme
Court is not a trier of facts; it is not its function to analyze or weigh
evidence all over again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which
factual issues may be resolved by this Court, such as: (1) when the
findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; and (11) when
the CA manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present
petition.
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy
on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner. 
The Court disagrees with petitioner's stand. 
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction.22 In this case, the
questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold
or delivered to various customers and dealers of the Insured anywhere
in the Philippines."23 ; and defined book debts as the "unpaid account
still appearing in the Book of Account of the Insured 45 days after the
time of the loss covered under this Policy."24 Nowhere is it provided in
the questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the
insured. 
Indeed, when the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any alleged intention of
the parties, the terms are to be understood literally just as they appear
on the face of the contract.25 Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the
goods delivered. 
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices
that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is
fully paid."26
The Court is not persuaded. 
The present case clearly falls under paragraph (1), Article 1504 of the
Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
risk until the ownership therein is transferred to the buyer, but when
the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery; (Emphasis
supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer.27 Accordingly,
petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have
an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the
property.28
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a)
an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises. 
Therefore, an insurable interest in property does not necessarily imply
a property interest in, or a lien upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against
which it is insured.29 Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its
destruction.30Indeed, a vendor or seller retains an insurable interest in
the property sold so long as he has any interest therein, in other words,
so long as he would suffer by its destruction, as where he has a
vendor's lien.31 In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous
event under Article 117432 of the Civil Code is misplaced. As held
earlier, petitioner bears the loss under Article 1504 (1) of the Civil
Code.  been established that petitioner has outstanding accounts with IMC
Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI
that remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of
the debtor to make the payment even by reason of a fortuitous event
shall not relieve him of his liability.33 The rationale for this is that the
rule that an obligor should be held exempt from liability when the loss
occurs thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It does
not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does
not extinguish the obligation." If the obligation is generic in the sense
that the object thereof is designated merely by its class or genus
without any particular designation or physical segregation from all
others of the same class, the loss or destruction of anything of the
same kind even without the debtor's fault and before he has incurred
in delay will not have the effect of extinguishing the obligation.35 This
rule is based on the principle that the genus of a thing can never perish.
Genus nunquan perit.36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of
the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are
matters immaterial to this case. What is relevant here is whether it has
and LSPI. 
With respect to IMC, the respondent has adequately established its
claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding
account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit "F"40 is the
subrogation receipt executed by IMC in favor of respondent upon
receipt of the insurance proceeds. All these documents have been
properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also
the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x
x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed
petitioner's building on February 25, 1991.  G.R. No. 159617             August 8, 2007
Moreover, there is no proof of full settlement of the insurance claim of
LSPI; no subrogation receipt was offered in evidence. Thus, there is no
evidence that respondent has been subrogated to any right which LSPI
may have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner's case for recovery of the amount
of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the
Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.  Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry
No pronouncement as to costs.
SO ORDERED.
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, 
vs.
LULU V. JORGE and CESAR JORGE, respondents.
Before us is a Petition for Review on Certiorari filed by Roberto C.
Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1 of the Court of Appeals
dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA
G.R. CV No. 56633.
It appears that on different dates from September to October 1987,
with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes
Parañaque, Metro Manila, to secure a loan in the total amount
of P59,500.00. 
On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop
vault. The incident was entered in the police blotter of the Southern
Police District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the
office, two (2) male unidentified persons entered into the said office
with guns drawn. Suspects(sic) (1) went straight inside and poked his
gun toward Romeo Sicam and thereby tied him with an electric wire
while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita
Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects
asked forcibly the case and assorted pawned jewelries items mentioned
above.
Suspects after taking the money and jewelries fled on board a Marson
Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss of her jewelry due to the robbery incident in
the pawnshop. On November 2, 1987, respondent Lulu then wrote a
letter4 to petitioner Sicam expressing disbelief stating that when the
robbery happened, all jewelry pawned were deposited with Far East
Bank near the pawnshop since it had been the practice that before they
could withdraw, advance notice must be given to the pawnshop so it
could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for
withdrawal on November 6, 1987 but petitioner Sicam failed to return
the jewelry. 
On September 28, 1988, respondent Lulu joined by her husband, Cesar
Jorge, filed a complaint against petitioner Sicam with the Regional Trial
Court of Makati seeking indemnification for the loss of pawned jewelry
and payment of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987
and known as Agencia de R.C. Sicam, Inc; that petitioner corporation
had exercised due care and diligence in the safekeeping of the articles
pledged with it and could not be made liable for an event that is
fortuitous.
Respondents subsequently filed an Amended Complaint to include
petitioner corporation. 
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is
concerned considering that he is not the real party-in-interest.
Respondents opposed the same. The RTC denied the motion in an
Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated January
12, 1993, dismissing respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam could not be made
personally liable for a claim arising out of a corporate transaction; that
in the Amended Complaint of respondents, they asserted that "plaintiff
pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held
liable for the loss of the pawned jewelry since it had not been rebutted
by respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim from liability for
the loss, citing the case of Austria v. Court of Appeals;7 and that the
parties’ transaction was that of a pledgor and pledgee and under Art.
1174 of the Civil Code, the pawnshop as a pledgee is not responsible
for those events which could not be foreseen. 
Respondents appealed the RTC Decision to the CA. In a Decision dated
March 31, 2003, the CA reversed the RTC, the dispositive portion of
which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and
the Decision dated January 12, 1993,of the Regional Trial Court of
Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the
appellees to pay appellants the actual value of the lost jewelry
amounting to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation,
the CA applied the doctrine of piercing the veil of corporate entity
reasoning that respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam as all the
pawnshop tickets issued to them bear the words "Agencia de R.C.
Sicam"; and that there was no indication on the pawnshop tickets that
it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading
petitioner corporation.  OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING
The CA further held that the corresponding diligence required of a
pawnshop is that it should take steps to secure and protect the pledged
items and should take steps to insure itself against the loss of articles
which are entrusted to its custody as it derives earnings from the
pawnshop trade which petitioners failed to do; that Austria is not
applicable to this case since the robbery incident happened in 1961
when the criminality had not as yet reached the levels attained in the
present day; that they are at least guilty of contributory negligence and
should be held liable for the loss of jewelries; and that robberies and
hold-ups are foreseeable risks in that those engaged in the pawnshop
business are expected to foresee. 
The CA concluded that both petitioners should be jointly and severally
held liable to respondents for the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution
dated August 8, 2003. 
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF
TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS
MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE
RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s
finding that petitioner Sicam is personally liable for the loss of the
pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in
their Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended (3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-
Complaint that Agencia de R.C. Sicam, Inc. is the present owner of 46), the victim of robbery was exonerated from liability for the sum of
Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule money belonging to others and lost by him to robbers. 
against said conclusive assertion of respondents; 
Respondents filed their Comment and petitioners filed their Reply
(2) The issue resolved against petitioner Sicam was not among those thereto. The parties subsequently submitted their respective
raised and litigated in the trial court; and  Memoranda. 

(3) By reason of the above infirmities, it was error for the CA to have We find no merit in the petition.
pierced the corporate veil since a corporation has a personality distinct
and separate from its individual stockholders or members.  To begin with, although it is true that indeed the CA findings were
exact reproductions of the arguments raised in respondents’
Anent the second error, petitioners point out that the CA finding on (appellants’) brief filed with the CA, we find the same to be not fatally
their negligence is likewise an unedited reproduction of respondents’ infirmed. Upon examination of the Decision, we find that it expressed
brief which had the following defects:  clearly and distinctly the facts and the law on which it is based as
required by Section 8, Article VIII of the Constitution. The discretion to
(1) There were unrebutted evidence on record that petitioners had decide a case one way or another is broad enough to justify the
observed the diligence required of them, i.e, they wanted to open a adoption of the arguments put forth by one of the parties, as long as
vault with a nearby bank for purposes of safekeeping the pawned these are legally tenable and supported by law and the facts on
articles but was discouraged by the Central Bank (CB) since CB rules records.11
provide that they can only store the pawned articles in a vault inside
the pawnshop premises and no other place;  Our jurisdiction under Rule 45 of the Rules of Court is limited to the
review of errors of law committed by the appellate court. Generally,
(2) Petitioners were adjudged negligent as they did not take insurance the findings of fact of the appellate court are deemed conclusive and
against the loss of the pledged jelweries, but it is judicial notice that we are not duty-bound to analyze and calibrate all over again the
due to high incidence of crimes, insurance companies refused to cover evidence adduced by the parties in the court a quo.12 This rule,
pawnshops and banks because of high probability of losses due to however, is not without exceptions, such as where the factual findings
robberies;  of the Court of Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case. 
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.  verbal or written, made by a party in the course of the proceedings in
The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is
that the veil of corporate fiction may be pierced when made as a shield
to perpetrate fraud and/or confuse legitimate issues. 14 The theory of
corporate entity was not meant to promote unfair objectives or
otherwise to shield them.15
Notably, the evidence on record shows that at the time respondent
Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam
himself. As correctly observed by the CA, in all the pawnshop receipts
issued to respondent Lulu in September 1987, all bear the words
"Agencia de R. C. Sicam," notwithstanding that the pawnshop was
allegedly incorporated in April 1987. The receipts issued after such
alleged incorporation were still in the name of "Agencia de R. C.
Sicam," thus inevitably misleading, or at the very least, creating the
wrong impression to respondents and the public as well, that the
pawnshop was owned solely by petitioner Sicam and not by a
corporation. 
16
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter  dated
October 15, 1987 addressed to the Central Bank, expressly referred to
petitioner Sicam as the proprietor of the pawnshop notwithstanding
the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents
had alleged in their Amended Complaint that petitioner corporation is
the present owner of the pawnshop, the CA is bound to decide the case
on that basis. 
Section 4 Rule 129 of the Rules of Court provides that an admission,
the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable
mistake or that no such admission was made. 
Thus, the general rule that a judicial admission is conclusive upon the
party making it and does not require proof, admits of two exceptions,
to wit: (1) when it is shown that such admission was made through
palpable mistake, and (2) when it is shown that no such admission was
in fact made. The latter exception allows one to contradict an
admission by denying that he made such an admission.17
The Committee on the Revision of the Rules of Court explained the
second exception in this wise: 
x x x if a party invokes an "admission" by an adverse party, but cites the
admission "out of context," then the one making the "admission" may
show that he made no "such" admission, or that his admission was
taken out of context. 
x x x that the party can also show that he made no "such
admission", i.e., not in the sense in which the admission is made to
appear.
That is the reason for the modifier "such" because if the rule simply
states that the admission may be contradicted by showing that "no
admission was made," the rule would not really be providing for a
contradiction of the admission but just a denial.18 (Emphasis supplied). 
While it is true that respondents alleged in their Amended Complaint
that petitioner corporation is the present owner of the pawnshop, they
did so only because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not the real party-in-
interest as the pawnshop was incorporated in April 1987. Moreover, a
reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner
corporation where they (respondents) pawned their assorted pieces of
jewelry and ascribed to both the failure to observe due diligence
commensurate with the business which resulted in the loss of their
pawned jewelry.  Petitioner Sicam had alleged in his Answer filed with the trial court that
Markedly, respondents, in their Opposition to petitioners’ Motion to
Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:
Roberto C. Sicam was named the defendant in the original complaint
because the pawnshop tickets involved in this case did not show that
the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his
Answer, he admitted the allegations in paragraph 1 and 2 of the
Complaint. He merely added "that defendant is not now the real party
in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used
in the subject transactions in this case which was the cause of the
instant action. He cannot now ask for the dismissal of the complaint
against him simply on the mere allegation that his pawnshop business
is now incorporated. It is a matter of defense, the merit of which can
only be reached after consideration of the evidence to be presented in
due course.19
Unmistakably, the alleged admission made in respondents' Amended
Complaint was taken "out of context" by petitioner Sicam to suit his
own purpose. Ineluctably, the fact that petitioner Sicam continued to
issue pawnshop receipts under his name and not under the
corporation's name militates for the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in
piercing the veil of corporate fiction of petitioner corporation, as it was
not an issue raised and litigated before the RTC. 
he was not the real party-in-interest because since April 20, 1987, the
pawnshop business initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam,
he submitted that as far as he was concerned, the basic issue was
whether he is the real party in interest against whom the complaint
should be directed.20 In fact, he subsequently moved for the dismissal
of the complaint as to him but was not favorably acted upon by the
trial court. Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as
he is concerned for the reason that he cannot be made personally
liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam,
Jr. The amended complaint itself asserts that "plaintiff pawned assorted
jewelries in defendant's pawnshop." It has been held that " as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder,
nor is the stockholder's debt or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue
of whether petitioner Sicam is personally liable is inextricably
connected with the determination of the question whether the
doctrine of piercing the corporate veil should or should not apply to the
case.
The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous
event and they are not negligent at all.  one from liability, it is necessary that one has committed no negligence
We are not persuaded.
Article 1174 of the Civil Code provides:  person who has failed to take steps to forestall the possible adverse
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen or which, though foreseen,
were inevitable.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the
same. 22
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests
on him who invokes it.24 And, in order for a fortuitous event to exempt
or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a
consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation -- whether by active intervention, neglect or failure to act
-- the whole occurrence is humanized and removed from the rules
applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when
he started the pawnshop business in 1983, he thought of opening a
vault with the nearby bank for the purpose of safekeeping the
valuables but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted show that to them
the possibility of robbery was not only foreseeable, but actually
foreseen and anticipated. Petitioner Sicam’s testimony, in effect,
contradicts petitioners’ defense of fortuitous event.  negligence on the part of private respondent.28
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein
petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To
be considered as such, carnapping entails more than the mere
forceful taking of another's property. It must be proved and
established that the event was an act of God or was done solely by
third parties and that neither the claimant nor the person alleged to
be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous
event rests on him who invokes it — which in this case is the private
respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping. Neither does it
prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the possibility of fault or
Just like in Co, petitioners merely presented the police report of the
Parañaque Police Station on the robbery committed based on the
report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at
fault. 
On the contrary, by the very evidence of petitioners, the CA did not err
in finding that petitioners are guilty of concurrent or contributory
negligence as provided in Article 1170 of the Civil Code, to wit: 
Art. 1170. Those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops
and other establishments which are engaged in making loans secured
by pledges, the special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge, mortgage and
antichresis. 
The provision on pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must
take care of the pawns the way a prudent person would as to his own
property. 
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of time and of the
place. When negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required.  article in the pawnshop, so one of my employees allowed him to come
We expounded in Cruz v. Gangan30 that negligence is the omission to
do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do; or
the doing of something which a prudent and reasonable man would not
do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would
have used in the same situation. Petitioners were guilty of negligence in
the operation of their pawnshop business. Petitioner Sicam testified,
thus:  Q. It is clear now that at the time of the robbery the vault was open the
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises
when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact
that there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00
o'clock in the afternoon and it happened on a Saturday and everything
was quiet in the area BF Homes Parañaque they pretended to pawn an
in and it was only when it was announced that it was a hold up. 
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is
partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
reason why the robbers were able to get all the items pawned to you
inside the vault. 
A. Yes sir.32
revealing that there were no security measures adopted by petitioners
in the operation of the pawnshop. Evidently, no sufficient precaution
and vigilance were adopted by petitioners to protect the pawnshop
from unlawful intrusion. There was no clear showing that there was any
security guard at all. Or if there was one, that he had sufficient training
in securing a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals were
allowed to enter the premises. In fact, it is even doubtful that there
was a security guard, since it is quite impossible that he would not have
noticed that the robbers were armed with caliber .45 pistols each,
which were allegedly poked at the employees.33 Significantly, the
alleged security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners' employees who were
present during the robbery incident testified in court.  764 which took effect on October 1, 1980, to wit:
Furthermore, petitioner Sicam's admission that the vault was open at
the time of robbery is clearly a proof of petitioners' failure to observe
the care, precaution and vigilance that the circumstances justly
demanded. Petitioner Sicam testified that once the pawnshop was
open, the combination was already off. Considering petitioner Sicam's
testimony that the robbery took place on a Saturday afternoon and the
area in BF Homes Parañaque at that time was quiet, there was more
reason for petitioners to have exercised reasonable foresight and
diligence in protecting the pawned jewelries. Instead of taking the
precaution to protect them, they let open the vault, providing no
difficulty for the robbers to cart away the pawned articles.  petitioners to insure the pawned jewelry in which case it was error for
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss of the
pawned jewelries.  Nevertheless, the preponderance of evidence shows that petitioners
Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13, 1973, and
which was issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be insured, to
wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business
of a pawnshop and the pawns pledged to it must be insured against
fire and against burglary as well as for the latter(sic), by an insurance
company accredited by the Insurance Commissioner. 
However, this Section was subsequently amended by CB Circular No.
 
Sec. 17 Insurance of Office Building and Pawns – The office
building/premises and pawns of a pawnshop must be insured against
fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted.
Obviously, the Central Bank considered it not feasible to require
insurance of pawned articles against burglary. 
The robbery in the pawnshop happened in 1987, and considering the
above-quoted amendment, there is no statutory duty imposed on
the CA to consider it as a factor in concluding that petitioners were
negligent. 
failed to exercise the diligence required of them under the Civil Code. 
The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is
placed and the importance of the act which he is to perform.34 Thus,
the cases of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated from liability,
find no application to the present case.  years previously; i.e., 1961, when criminality had not reached the level
In Austria, Maria Abad received from Guillermo Austria a pendant with
diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in 1961.
The incident became the subject of a criminal case filed against several
persons. Austria filed an action against Abad and her husband (Abads)
for recovery of the pendant or its value, but the Abads set up the
defense that the robbery extinguished their obligation. The RTC ruled in
favor of Austria, as the Abads failed to prove robbery; or, if committed,
that Maria Abad was guilty of negligence. The CA, however, reversed
the RTC decision holding that the fact of robbery was duly established
and declared the Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the Abads to be relieved
from the civil liability of returning the pendant under Art. 1174 of the
Civil Code, it would only be sufficient that the unforeseen event, the
robbery, took place without any concurrent fault on the debtor’s part,
and this can be done by preponderance of evidence; that to be free
from liability for reason of fortuitous event, the debtor must, in
addition to the casus itself, be free of any concurrent or contributory
fault or negligence.38
We found in Austria that under the circumstances prevailing at the
time the Decision was promulgated in 1971, the City of Manila and its
suburbs had a high incidence of crimes against persons and property
that rendered travel after nightfall a matter to be sedulously avoided
without suitable precaution and protection; that the conduct of Maria
Abad in returning alone to her house in the evening carrying jewelry of
considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did
not hold Abad liable for negligence since, the robbery happened ten
of incidence obtaining in 1971. 
In contrast, the robbery in this case took place in 1987 when robbery
was already prevalent and petitioners in fact had already foreseen it as
they wanted to deposit the pawn with a nearby bank for safekeeping.
Moreover, unlike in Austria, where no negligence was committed, we
found petitioners negligent in securing their pawnshop as earlier
discussed. 
In Hernandez, Teodoro Hernandez was the OIC and special disbursing
officer of the Ternate Beach Project of the Philippine Tourism in Cavite.
In the morning of July 1, 1983, a Friday, he went to Manila to encash
two checks covering the wages of the employees and the operating
expenses of the project. However for some reason, the processing of
the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project
employees would be waiting for their pay the following day; otherwise,
the workers would have to wait until July 5, the earliest time, when the
main office would open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early evening; or (2)
take the money with him to his house in Marilao, Bulacan, spend the
night there, and leave for Ternate the following day. He chose the
second option, thinking it was the safer one. Thus, a little past 3 p.m.,
he took a passenger jeep bound for Bulacan. While the jeep was on
Epifanio de los Santos Avenue, the jeep was held up and the money
kept by Hernandez was taken, and the robbers jumped out of the jeep
and ran. Hernandez chased the robbers and caught up with one robber
who was subsequently charged with robbery and pleaded guilty. The
other robber who held the stolen money escaped. The Commission on
Audit found Hernandez negligent because he had not brought the cash
proceeds of the checks to his office in Ternate, Cavite for safekeeping,
which is the normal procedure in the handling of funds. We held that
Hernandez was not negligent in deciding to encash the check and
bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to
the lateness of the hour for the following reasons: (1) he was moved by
unselfish motive for his co-employees to collect their wages and
salaries the following day, a Saturday, a non-working, because to
encash the check on July 5, the next working day after July 1, would
have caused discomfort to laborers who were dependent on their
wages for sustenance; and (2) that choosing Marilao as a safer
destination, being nearer, and in view of the comparative hazards in
the trips to the two places, said decision seemed logical at that time.
We further held that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and in the presence
of other passengers could not be said to be a result of his imprudence
and negligence.  boarding the LRT coach as Cruz did considering that whether she rode a
Unlike in Hernandez where the robbery happened in a public utility, the
robbery in this case took place in the pawnshop which is under the
control of petitioners. Petitioners had the means to screen the persons
who were allowed entrance to the premises and to protect itself from
unlawful intrusion. Petitioners had failed to exercise precautionary
measures in ensuring that the robbers were prevented from entering
the pawnshop and for keeping the vault open for the day, which paved
the way for the robbers to easily cart away the pawned articles. 
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological
Education and Skills Development Authority (TESDA), boarded the Light
Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her
handbag was slashed and the contents were stolen by an unidentified
person. Among those stolen were her wallet and the government-
issued cellular phone. She then reported the incident to the police
authorities; however, the thief was not located, and the cellphone was
not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for the
cellphone. The Resident Auditor denied her request on the ground that
she lacked the diligence required in the custody of government
property and was ordered to pay the purchase value in the total
amount of P4,238.00. The COA found no sufficient justification to grant
the request for relief from accountability. We reversed the ruling and
found that riding the LRT cannot per se be denounced as a negligent
act more so because Cruz’s mode of transit was influenced by time and
money considerations; that she boarded the LRT to be able to arrive in
Caloocan in time for her 3 pm meeting; that any prudent and rational
person under similar circumstance can reasonably be expected to do
the same; that possession of a cellphone should not hinder one from
jeep or bus, the risk of theft would have also been present; that
because of her relatively low position and pay, she was not expected to
have her own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the cellphone in a bag away
from covetous eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the LRT; that the
records did not show any specific act of negligence on her part and
negligence can never be presumed. 
Unlike in the Cruz case, the robbery in this case happened in
petitioners' pawnshop and they were negligent in not exercising the
precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court
of Appeals dated March 31, 2003 and its Resolution dated August 8,
2003, are AFFIRMED. 

Costs against petitioners.

SO ORDERED.

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO

FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R.
GONZALES and DANILO G. GONZALES, JR., doing lending business
under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.

"WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby ordered to pay the plaintiff: the sum
of P500,000.00, plus 5.5% per month interest and 2% service charge
per annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 23,
1986, until the entire amount is fully paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition,
[4]
 which was filed on April 3, 1998,[5] and the petitioners to reply
thereto, which was filed on May 29, 1998.[6] We now resolve to give
due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision,
which are considered binding and conclusive on the parties herein, as
the appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter
Servando and Leticia) obtained a loan from Veronica R. Gonzales
(hereafter Veronica), who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount
of P50,000.00, payable in two months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servado and Leticia executed
a promissory note for P50,000.00, to evidence the loan, payable on
January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica
another loan in the amount of P90,000.00, payable in two months, at
6% interest per month. They executed a promissory note to evidence
the loan, maturing on January 19, 1986. They received only P84,000.00,
out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay
the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still
another loan in the amount of P300,000.00, maturing in one month,
secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor
of Leticia Medel, authorizing her to execute the mortgage. Servando
and Leticia executed a promissory note in favor of Veronica to pay the
sum of P300,000.00, after a month, or on July 11, 1986. However, only
the sum of P275,000.00, was given to them out of the proceeds of the
loan.
Like the previous loans, Servando and Medel failed to pay the third
loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr.
Rafael Medel, consolidated all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. The executed a promissory
note, reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE
HUNDRED THOUSAND ..... (P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month p
lus 2% service charge per annum from date hereofuntil fully paid
according to the amortization schedule contained
herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due,
all the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent(1%) per month of the  On maturity of the loan, the borrowers failed to pay the indebtedness
amount due and demandable as penalty charges in the form of liquidat
ed damages until fully paid; and the
further sum of TWENTY FIVE PER CENT (25%) thereon in full, without
deductions as Attorney's Fee whether actually incurred or not, of the
total amount due and demandable, exclusive of costs and judicial or
extra judicial expenses.(Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on
loan is increased by law or the Central Bank of the Philippines, the
holder shall have the option to apply and collect the increased interest
charges without notice although the original interest have already been
collected wholly or partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein
agree that the amount of peso-obligation under this agreement is
based on the present value of peso, and if there be any change in the
value thereof, due to extraordinary inflation or deflation, or any other
cause or reason, then the peso-obligation herein contracted shall be
adjusted in accordance with the value of the peso then prevailing at the
time of the complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this
note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the
debtors waive all his/their rights under the provisions of Section 12,
Rule 39, of the Revised Rules of Court."
of P500,000.00, plus interests and penalties, evidenced by the above-
quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband
Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan,
Branch 16, at Malolos, Bulacan, a complaint for collection of the full
amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990,
defendant Servando alleged that he did not obtain any loan from the
plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually
received the amount and benefited therefrom; that the loan was
secured by a real estate mortgage executed in favor of the plaintiffs,
and that he (Servando Franco) signed the promissory note only as a
witness.
In their separate answer filed on April 10,1990, defendants Leticia and
Rafael Medel alleged that the loan was the transaction of Leticia
Yaptinchay, who executed a mortgage in favor of the plaintiffs over a
parcel of real estate situated in San Juan, Batangas; that the interest
rate is excessive at 5.5% per month with additional service charge of
2% per annum, and penalty charge of 1% per month; that the
stipulation for attorney's fees of 25% ofthe amount due is
unconscionable, illegal and excessive, and that substantialpayments
made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and
genuineness of the four promissory notes had been duly proved, and
ruled that although the Usury Law had been repealed, the interest
charged by the plaintiffs on the loans was unconscionable and
"revolting to the conscience". Hence, the trial court applied "the
provision of the New [Civil] Code" that the "legal rate of interest for
loan or forbearance of money, goods or credit is 12% per annum."[7]
Accordingly, on December 9, 1991, the trial court rendered judgment,
the dispositive portion of which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as
follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly
and severally, to pay plaintiffs the amount of P47,000.00 plus 12%
interest per annum from November 7, 1985 and 1% per month as
penalty, until the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12%
interest per annum and 1% per cent per month as penalty from
November 19,1985 until the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally,
the amount of P285,000.00 plus 12% interest per annum and 1% per
month as penalty from July 11, 1986, until the whole amount is fully
paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the
amount of P50,000.00 as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."[8]
In due time, both plaintiffs and defendants appealed to the Court of
Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note,
which consolidated all the unpaid loans of the defendants, is the law
that governs the parties. They further argued that Circular No. 416 of
the Central Bank prescribing the rate of interest for loans or
forbearance of money, goods or credit at 12% per annum, applies only
in the absence of a stipulation on interest rate, but not when the
parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It
ruled that "the Usury Law having become 'legally inexistent' with the
promulgation by the Central Bank in 1982 of Circular No. 905, the
lender and borrower could agree on any interest that may be charged
on the loan".[9] The Court of Appeals further held that "the imposition
of 'an additional amount equivalent to 1% per month of the amount
due and demandable as penalty charges in the form of liquidated
damages until fully paid' was allowed by law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it
decision reversing that of the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum
of P500,000.00, plus 5.5% per month interest and 2% service charge
per annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 24,
1986, until the entire amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for
reconsideration of the said decision. By resolution dated November 25,
1997, the Court of Appeals denied the motion.[12]
Hence, defendants interposed the present recourse via petition for
review on certiorari.[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate
stipulated upon. Thus, the question presented is whether or not the
stipulated rate of interest at 5.5% per month on the loan in the sum
of P500,000.00, that plaintiffs extended to the defendants is
usurious. In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on December 22,
1982, pursuant to its powers under P.D. No. 116, as amended by P.D.
No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5%
per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant.13 However, we can not consider the
rate "usurious" because this Court has consistently held that Circulr No.
905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law[14] and that
the Usury Law is now "legally inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61[16] the Court held that CB Circular No. 905 "did not repeal nor
in anyway amend the Usury Law but simply suspended the latter's
effectivity." Indeed, we have held that "a Central Bank Circular can not
repeal a law. Only a law can repeal another law."[17] In the recent case
of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that
"by virtue of CB Circular 905, the Usury Law has been rendered
ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may
agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per
annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and, hence, contrary to morals ("contra
bonos mores"), if not against the law.[20] The stipulation is void.[21] The
courts shall reduce equitably liquidated damages, whether intended as
an indemnity or a penalty if they are iniquitous or unconscionable.[22]
Consequently, the Court of Appeals erred in upholding the stipulation
of the parties. Rather, we agree with the trial court that, under the
circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision
of the Court of Appeals promulgated on March 21, 1997, and its
resolution dated November 25, 1997. Instead, we render judgment
REVIVING and AFFIRMING the decision dated December 9, 1991, of the
Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil
Case No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance

SO ORDERED.

G.R. No. 80645 August 3, 1993

MARCELINO GALANG, GUADALUPE GALANG, petitioners, 

vs.
COURT OF APPEALS, RAMON R. BUENAVENTURA, ANGELES
BUENAVENTURA, CORAZON BUENAVENTURA, and MA. LUISA
BUENAVENTURA, respondents.

On July 16, 1976, Ramon Buenaventura on his own behalf and as

attorney-in-fact of Angeles, Corazon, Amparo, and Maria Luisa, all
surnamed Buenaventura, sold to Guadalupe Galang and Marcelino
Galang two (2) parcels of land situated in Tagaytay City. The agreement
was embodied in a Deed of Sale which stated the following:
I, RAMON R. BUENAVENTURA, Filipino, of legal age, married, and
residing at 2111 M. Adriatico, Malate, Manila, in his own behalf and as
attorney in fact of Angeles, Corazon, Amparo and Maria Luisa, all
surnamed Buenaventura as per the special powers of attorney already
registered and annotated at the back of the certificate of title, for and
in consideration of the sum of One Hundred Ninety Two Thousand
Seven Hundred Ninety Five (P192,795.00) Pesos, Philippine Currency,
hereby SELL, TRANSFER AND CONVEY UNTO MARCELINO GALANG and
GUADALUPE GALANG, Filipino, of legal age, spouses and residents of 72
4th St., New Manila, Quezon City those parcels of land situated at
Tagaytay City, inherited by us from our parents and our exclusive
paraphernal property, of which we are the absolute owners, our title
thereto being evidenced by TCT No. T-3603 of Tagaytay City Register of
Deeds, more particularly desccribed as follows:
xxx xxx xxx
Under the following terms:
(a) 25% of the purchase price upon signing of this instrument;
(b) 25% within three months, or upon removal of the "encargado"
from the premises, with the delivery of the owner's duplicate certificate
of title;
(c) 50% balance within one (1) year from date hereof upon which the
title will be transferred to the buyers but 12% interest per annum will
be charged after said one year in the event full payment is not made.3
Marcelino and Guadalupe Galang, herein petitioners ppaid to the
sellers the first 25% of the purchase ppprice as stated in the deed.
Thereafter, they allegedly demanded from private respondents failed to
do so despite the willingness of petitioners to pay the second 25% of
the purchase price. Consequently, Marcelino and Guadalupe Galang
filed on March 18, 1977 a complaint for specific performance with
damages where they alleged among others, that:
5. The period fixed within the defendants should remove the
"encargado' from the premises and to deliver the owner's duplicate
certificate of title had lapsed without the defendants complying with
their obligations thus preventing the plaintiffs from taking ppossession
of the property sold and from developing and improving the same.
6. On several occasions, the plaintiffs demanded from the defendants,
both orally and in writing, the removal of the latter's "encargado" from
the premises sold and for them to deliver the owner's duplicate
certificate of title to the plaintiffs but said defendants failed and
refused and still fail and refuse to do so, the demands
notwithstanding.4
Defendants, herein private respondents, denied the allegations and
stated that the contract did not state the true intention of the parties
and that it was not their fault that the "encargado" refused to leave.
Furthermore, they filed on July 21, 1978, a third-party complaint
against the "encargado" for subrogation and reimbursement in case of
an adverse judgment against third-party plaintiff. Upon the
"encargado's" motion, the complaint was dismissed on the ground that
it did not state a cause of action for the ejectment of the tenant — the
"encargado."
After trial, the lower court rendered a decision, the dispositive portion
of which is hereby quoted, to wit:
PREMISES CONSIDERED, the Court hereby orders the defendants to pay
jointly and severally, the plaintiffs P50,000.00 with interest at 12% per
annum from July 16, 1976; P5,000.00 by way of nominal damages; and
P3,000.00 as attorney fees and the costs.5
In rendering the decision, the trial court reasoned that:
There is no question that, because the defendants had not complied
with their obligation to remove the "encargado," the plaintiffs, as
injured parties, may choose between the fulfillment of the contract of
sale and its rescission, in accordance and (sic) Article 1191 of the Civil
Code. They chose enforcement of the contract which, however is
legally impossible. The lands sold to the plaintiff are agricultural,
planted to coffee, among other plants, not only by the "encargado" but
also by his deceased parents. The law prohibits, under pain of damages,
fine and imprisonment, and landlord from dispossessing his agricultural
tenant without the court's approval and on grounds fixed by the law,
not one of which is shown to exist in respect defendants' "encargado."
(Section 31 and 36, The Agricultural Land Reform Code, RA 3844 as
amended).
Impossible conditions, those contrary to good customs or public policy
and those prohibited by law shall annul the obligation which depends
upon them. (Article 1183, Civil Code). Since the consummation of the
sale between the parties is dependent upon the ouster of an
agricultural lessee, which cannot be done because it is against good
custom, public policy and the law, the sale is a nullity. . . .6
Agreeing that the "encargado" was an agricultural tenant who could
not be ejected without cause, the Court of Appeals affirmed the
decision.
Hence, this petition.
In their petition, Marcelino and Guadalupe Galang argued that
respondent Court erred in ordering; the rescission instead of specific
performance of the contract of sale on the ground that the ejectment
of the "encargado" -tenant was a legally impossible condition that
prevented the fulfillment of the contract. Contrary to the reason
advanced by the Court of Appeals and the trial court, petitioners
averred that the removal of the "encargado" was not a condition
precedent to the fulfillment of the contract as paragraph two (2)
thereof provides for an alternative period within which petitioners
would have to pay the second 25% of the purchase price and
concomitantly, private respondents would deliver the owner's duplicate
certificate of title. Thus, whether or not the "encargado" was removed,
the amount would still be due and private respondents would still have
to deliver the duplicate title.
We are now confronted with the question: Was the removal of the
"encargado" a condition precedent to the fulfillment of the contract of
sale such that finding that it was a legally impossible condition would
entitle the buyers to the rescission of the contract?
We answer in the negative.
The trial court and the Court of Appeals based their decision on Art.
1183 of the Civil Code which provides, thus:
Art. 1183. Impossible conditions, those contrary to good customs or
public policy and those prohibited by law shall annul the obligation
which depends upon them. . . .
Both courts declared the "encargado" a tenant. This being the case, it
follows that he may not be removed from the subject land without just
cause, as provided by Presidential Decree No. 1038. Since the Galangs,
then plaintiffs demanded the removal of the "encargado" which, being
legally impossible, could not be met, the contract of sale was rescinded
by the courts.
We disagree with the conclusion arrived at by the respondent court.
Reviewing the terms of the Deed of Sale quoted earlier, it is clear that
the parties had reached the stage of perfection of the contract of sale,
there being already "a meeting of the minds upon the thing which is
the object of the contract and upon the price,"7 and on the basis of
which both parties had the personal right to reciprocally demand from
the other the fulfillment of their respective obligations. But contracts of
sale may either be absolute or conditional.8 One form of conditional
sales, is what is now popularly termed as a "Contract to Sell," where
ownership or title is retained until the fulfillment of a positive
condition, normally the payment of the purchase price in the manner
agreed upon. The breach of that condition can prevent the obligation
to convey title from acquiring a binding force.9 Where the condition is
imposed, instead, upon the perfection of the contract, the failure of
such condition would prevent such perfection. 10 What we have here is
a contract to sell for it is the transfer of ownership, not the perfection
of the contract that was subjected to a condition. Ownership was not
to vest in the buyers until full payment of the purchase price and the
transfer of the title to the buyers. Apart from full payment of the
purchase price, we find no other condition which would affect the
obligations of the parties, i.e., to pay, on the part of the buyer and to
convey ownership, on the part of the seller.
The alleged condition precedent, the removal of the "encargado," was
simply an alternative period for payment of the second 25% of the
purchase price given by the seller to the buyer. Assuming that the
removal of the "encargado" could not be brought about, the buyers,
petitioners herein, could have nonetheless demanded the delivery of
the owner's duplicate certificate of title by paying the second 25% of
the sale price within three months. In this case, the filing of the
complaint for specific performance of the seller's obligation was the
root of the errors committed first, by the trial court and later, by the
Court of Appeals. Both courts overlooked the obvious fact that only the
time for paying the second 25% of the purchase price was qualified and
that the entire paragraph reads: "25% within three months or upon
removal of the "encargado" from the premises . . ." and not simply 25%
upon removal of the "encargado."
The case before us could have been resolved by the lower courts
without ruling on whether the "encargado" was a tenant or not.
Granting that it was necessary to rule on the legal status of the
"encargado," we find that the courts had been quite precipitate in
holding that the "encargado" was a tenant. There was no sufficient
evidence to support that conclusion apart from the affidavits of the
"encargado" and his neighbor. The conclusion of the Court of Appeals
regarding this matter rested on surmises. It held:
We discern no reversible error in the finding and conclusion of the trial
court that the unnamed "encargado" on the lands in question is
actually a tenant or agricultural lessee. The bases of this ineluctable
conclusion are not hard to see. As succinctly pointed out by the court a
quo, the "encargado" is staying in his own existing house thereon, and
subject agricultural land is planted to coffee and other plants not only
by the "encargado" but also his deceased parents. Indeed, if the
"encargado's" parents were not tenants or agricultural lessees, the
present "encargado" could not have continued occupying and working
thereon, without facing ejectment proceedings; considering that one of
the landowners, defendants-appellees here, is a lawyer himself. In fact,
as can be gleaned from the decision under scrutiny, defendants-
appellees filed a third-party complaint against the "encargado" but they
did not pursue such a course of action because they did not have a
clearance from the then Ministry, now the Department of Agrarian
Reform, to proceed against such "encargado." Then, too, if the said
"encargado" did not have the status of a tenant or agricultural lessee
entitled to protection under the agrarian reform laws, he would not
have been given the attention and importance as to be brought before
the court a quo twice, just for a possible amicable settlement, and he
would not have had the firmness to reject an offer for him to continue
working half the area under controversy.
Equally supportive of the foregoing opinion are the following
ratiocinations in Cruz v. Court of Appeals, L-50350, May 15, 1984, 129
SCRA 222:
. . . it is also undisputed that respondent lives on a hut erected on the
landholding. This fully supports the appellate court's conclusion, since
only tenants are entitled to a homelot where he can build his house
thereon as an incident to this right as a tenant.
xxx xxx xxx
Also, the Court is aware of the practice of landowners, by way of
evading the provisions of tenancy laws, to have their tenants sign
contracts or agreements intended to camouflage the real import of
their relationship.
All things duly considered, let alone the better rule that all doubts vis-
a-vis the status of a tiller of the soil should be resolved in favor of
tenancy relationship. We cannot help but conclude here that the
"encargado" on the landholding deeded out in the deed of sale (Exhibit
"A") is a tenant or agricultural lessees within the purview and under the
mantle of protection of the Code of Agrarian Reforms. 11
To summarize, we hold that there was no basis for rescinding the
contract because the removal of the "encargado" was not a condition
precedent to the contract of sale. Rather, it was one of the alternative
periods for the payment of the second installment given by the seller
himself to the buyers. Secondly, even granting that it was indeed a
condition precedent rendering necessary the determination of the legal
status of the "encargado," the lower courts were rash in holding that
the "encargado" was a tenant of the land in question.
In view of the foregoing circumstances, we are convinced that specific
performance by the parties of their respective obligations is proper.
Accordingly, petitioners Marcelino and Guadalupe Galang are ordered
to pay private respondents the second 25% of the purchase price.
Considering, however, the time that has lapsed since the parties
entered into the contract, payment of the full balance, that is, 75% of
the purchase price, P192,795.00 is in order. However, the 12% interest
per annum that was stipulated in paragraph 3 of the contract of sale
should not be assessed against petitioners. On the other hand, private
respondents Ramon Buenaventura, Angeles Buenaventura, Corazon
Buenaventura, and Maria Luisa Buenaventura are obliged to deliver the
owner's duplicate certificate of title and to transfer the title to the land
in question upon payment of the purchase price by petitioners.

Under the Civil Code, private respondents are liable for damages to the
injured party, the petitioners in this case. However, in lieu of actual
payment of damages, and considering the fact that private respondents
were in possession of the land during the entire period that this case
was pending, private respondents are no longer entitled to the interest
payments which would have been due from petitioners. 12

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED

and the decision of the Court of Appeals is REVERSED and SET ASIDE.
Petitioners Marcelino and Guadalupe Galang are hereby ordered to pay
the full 75% balance of the purchase price (P144,596.25) within thirty
(30) days from notice, with interest upon default. Private respondents
Ramon Buenaventura, Corazon Buenaventura and Maria Luisa
Buenaventura are hereby ordered to transfer the title to petitioners
upon full payment of the purchase price.

SO ORDERED.

[G.R. No. 118180. September 20, 1996]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS respondents.
Private respondents were the original owners of a parcel of agricultural
land covered by TCT No. T-1432, situated in Barrio
Capucao, Ozamis City, with an area of 113,695 square meters, more or
less.
On 30 May 1977, private respondents mortgaged said land to
petitioner. When private respondents defaulted on their obligation,
petitioner foreclosed the mortgage on the land and emerged as sole
bidder in the ensuing auction sale.Consequently, Transfer Certificate of
Title No. T-10913 was eventually issued in petitioner's name.
On 6 April 1984, petitioner and private respondents entered into a
Deed of Conditional Sale wherein petitioner agreed to reconvey the
foreclosed property to private respondents.
The pertinent stipulations of the Deed provided that:
"WHEREAS, the VENDOR acquired a parcel of land in an auction sale by
the City Sheriff of Ozamiz City, pursuant to Act 3135, as amended, and
subject to the redemption period pursuant to CA 141, described as
follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to repurchase and the VENDOR agreed
to sell the above-described property, subject to the terms and
stipulations as hereinafter stipulated, for the sum of SEVENTY THREE
THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down payment
of P8,900.00 and the balance of P64,800 shall be payable in six (6)
years on equal quarterly amortization plan at 18% interest per
annum. The first quarterly amortization of P4,470.36 shall be payable
three months from the date of the execution of the documents and all
subsequent amortization shall be due and payable every quarter
thereafter.
xxx xxx xxx
That, upon completion of the payment herein stipulated and agreed,
the Vendor agrees to deliver to the Vendee/s(,) his heirs, administrators
and assigns(,) a good and sufficient deed of conveyance covering the
property, subject matter of this deed of conditional sale, in accordance
with the provisions of law." (Exh. "A", p. 5, Records)[2]
On 6 April 1990, upon completing the payment of the full repurchase
price, private respondents demanded from petitioner the execution of
a Deed of Conveyance in their favor.
Petitioner then informed private respondents that the prestation to
execute and deliver a deed of conveyance in their favor had become
legally impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988,
and Sec. 1 of E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific
performance with damages against petitioner before
the Regional Trial Court of Ozamis City, Branch XV. During the pre-trial,
the trial court narrowed down the issue to whether or not Sec. 6 of the
CARL (Rep. Act 6657) had rendered legally impossible compliance by
petitioner with its obligation to execute a deed of conveyance of the
subject land in favor of private respondents. The trial court ordered
both parties to file their separate memorandum and deemed the case
submitted for decision thereafter.
On 30 January 1992, the trial court rendered judgment, the dispositive
part of which reads:
"WHEREFORE, judgment is rendered ordering defendant to execute and
deliver unto plaintiffs a deed of final sale of the land subject of their
deed of conditional sale - Lot 5259-A, to pay plaintiffs P10,000.00 as
nominal damages, P5,000.00 as attorney's fees, P3,000.00 as litis
expenses and costs."[3]
The trial court held that petitioner interpreted the fourth paragraph of
Sec. 6, Rep. Act 6657 literally in conjunction with Sec. 1 of E.O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states that:
"Upon the effectivity of this Act, any sale disposition, lease,
management contract or transfer of possession of private lands
executed by the original landowner in violation of this act shall be null
and void; Provided, however, that those executed prior to this act shall
be valid only when registered with the Register of Deeds after the
effectivity of this Act. Thereafter, all Register of Deeds shall inform the
DAR within 320 days of any transaction involving agricultural lands in
excess of five hectares."
while Sec. 1 of E.O. 407 states that:
"Sec. 1. All government instrumentalities but not limited to x x x
financial institutions such as the DBP x x x shall immediately execute
deeds of transfer in favor of the Republic of the Philippines as
represented by the Department of Agrarian Reform and surrender to
the department all landholdings suitable for agriculture."
The court a quo noted that Sec. 6 of Rep. Act 6657, taken in its entirety,
is a provision dealing primarily with retention limits in agricultural land
allowed the landowner and his family and that the fourth paragraph,
which nullifies any sale x x x by the original landowner in violation of
the Act, does not cover the sale by petitioner (not the original land
owner) to private respondents.
On the other hand, according to the trial court, E.O. 407 took effect
on 10 June 1990. But private respondents completed payment of the
price for the property, object of the conditional sale, as early as 6 April
1990. Hence, with the fulfillment of the condition for the sale, the land
covered thereby, was detached from the mass of foreclosed properties
held by DBP, and, therefore, fell beyond the ambit or reach of E.O. 407.
Dissatisfied, petitioner appealed to the Court of Appeals (CA), still
insisting that its obligation to execute a Deed of Sale in favor of private
respondents had become a legal impossibility and that the non-
impairment clause of the Constitution must yield to the demands of
police power.
On 28 February 1994, the CA rendered judgment dismissing petitioner's
appeal on the basis of the following disquisitions:
"It is a rule that if the obligation depends upon a suspensive condition,
the demandability as well as the acquisition or effectivity of the rights
arising from the obligation is suspended pending the happening or
fulfillment of the fact or event which constitutes the condition. Once
the event which constitutes the condition is fulfilled resulting in the
effectivity of the obligation, its effects retroact to the moment when
the essential elements which gave birth to the obligation have taken
place (8 Manresa, 5th Ed. Bk. 1, pa. 33).Applying this precept to the
case, the full payment by the appellee on April 6, 1990 retroacts to the
time the contract of conditional sale was executed on April 6,
1984. From that time, all elements of the contract of sale were
present. Consequently, the contract of sale was perfected. As such, the
said sale does not come under the coverage of R.A. 6657.
It is likewise interesting to note that despite the mandate of Sec. 1, R.A.
6657, appellant continued to accept the payments made by the
appellee until it was fully paid on April 6, 1990. All that the appellant
has to do now is to execute the final deed of sale in favor of the
appellee. To follow the line of argument of the appellant would only
result in an unconscionable injury to the appellee.Obligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith (Flavio Macasaet &
Associates, Inc. vs. Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the same can neither affect
appellant's obligation under the deed of conditional sale. Under the
said law, appellant is required to transfer to the Republic of
the Philippines 'all lands foreclosed' effective June 10, 1990. Under the
facts obtaining, the subject property has ceased to belong to the mass
of foreclosed property falling within the reach of said law. As earlier
explained, the property has already been sold to herein appellees even
before the said E.O. has been enacted. On this same reason, We
therefore need not delve on the applicability of DBP Circular No. 11."[4]
In the present petition for review on certiorari, petitioner still insists on
its position that Rep. Act 6657, E.O. 407 and DBP Circular No. 11
rendered its obligation to execute a Deed of Sale to private
respondents "a legal impossibility."[5]Petitioner also questions the
award of attorney's fees, nominal damages, and costs in favor of
private respondents, as not in accord with law and the evidence.[6]
We rule in favor of private respondents.
In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.[7]
The deed of conditional sale between petitioner and private
respondents was executed on 6 April 1984. Private respondents had
religiously paid the agreed installments on the property until they
completed payment on 6 April 1990.Petitioner, in fact, allowed private
respondents to fulfill the condition of effecting full payment, and
invoked Section 6 of Rep. Act 6657 only after private respondents,
having fully paid the repurchase price, demanded the execution of a
Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10 June
1988. Following petitioner's argument in this case, its prestation to
execute the deed of sale was rendered legally impossible by Section 6
of said law. In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an impossibility of
performance.
We reject petitioner's contention as we rule - as the trial court and CA
have correctly ruled - that neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of
E.O. 407 was intended to impair the obligation of contract petitioner
had much earlier concluded with private respondents.
More specifically, petitioner cannot invoke the last paragraph of Sec. 6
of Rep. Act 6657 to set aside its obligations already existing prior to its
enactment. In the first place, said last paragraph clearly deals with
"any sale, lease, management contract or transfer or possession of
private lands executed by the original land owner." The original owner
in this case is not the petitioner but the private respondents. Petitioner
acquired the land through foreclosure proceedings but agreed
thereafter to reconvey it to private respondents, albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals with
retention limits allowed by law to small landowners. Since the property
here involved is more or less ten (10) hectares, it is then within the
jurisdiction of the Department of Agrarian Reform (DAR) to determine
whether or not the property can be subjected to agrarian reform. But
this necessitates an entirely different proceeding.
The CARL (Rep. Act 6657) was not intended to take away property
without due process of law. Nor is it intended to impair the obligation
of contracts. In the same manner must E.O. 407 be regarded. It was
enacted two (2) months after private respondents had legally fulfilled
the condition in the contract of conditional sale by the payment of all
installments on their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to that effect.[8]
As to petitioner's contention, however, that the CA erred in affirming
the trial court's decision awarding nominal damages, and attorney's
fees to private respondents, we rule in favor of petitioner.
It appears that the core issue in this case, being a pure question of law,
did not reach the trial stage as the case was submitted for decision
after pre-trial.
The award of attorney's fees under Article 2208 of the Civil Code is
more of an exception to the general rule that it is not sound policy to
place a penalty on the right to litigate. While judicial discretion in the
award of attorney's fees is not entirely left out, the same, as a rule,
must have a factual, legal or equitable justification. The matter cannot
and should not be left to speculation and conjecture.[9]
As aptly stated in the Mirasol case:
"x x x The matter of attorney's fees cannot be touched once and only in
the dispositive portion of the decision. The text itself must expressly
state the reason why attorney's fees are being awarded. The court,
after reading through the text of the appealed decision, finds the same
bereft of any findings of fact and law to justify the award of attorney's
fees. The matter of such fees was touched but once and appears only in
the dispositive portion of the decision. Simply put, the text of the
decision did not state the reason why attorney's fees are being
awarded, and for this reason, the Court finds it necessary to disallow
the same for being conjectural."[10]
While DBP committed egregious error in interpreting Sec. 6 of RA 6657,
the same is not equivalent to gross and evident bad faith when it
refused to execute the deed of sale in favor of private respondents.
For the same reasons stated above, the award of nominal damages in
the amount of P10,000.00 should also be deleted.
The amount of P3,000.00 as litigation expenses and costs against
petitioner must remain.

WHEREFORE, premises considered, the petition is hereby DENIED, and

the decision of the CA is hereby AFFIRMED, for lack of any reversible
error, with the MODIFICATION that attorney's fees and nominal
damages awarded to private respondents are hereby DELETED.

SO ORDERED.
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,  damages against CPU alleging that since 1939 up to the time the action
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ,
CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a
member of the Board of Trustees of the Central Philippine College (now
Central Philippine University [CPU]), executed a deed of donation in
favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of
the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for
which Transfer Certificate of Title No. T-3910-A was issued in the name
of the donee CPU with the following annotations copied from the deed
of donation —
1. The land described shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its buildings as part
of the curriculum;
2. The said college shall not sell, transfer or convey to any third party
nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said
college shall be under obligation to erect a cornerstone bearing that
name. Any net income from the land or any of its parks shall be put in a
fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used
for improvements of said campus and erection of a building thereon.1
On 31 May 1989, private respondents, who are the heirs of Don Ramon
Lopez, Sr., filed an action for annulment of donation, reconveyance and
was filed the latter had not complied with the conditions of the
donation. Private respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to
file the action had prescribed; that it did not violate any of the
conditions in the deed of donation because it never used the donated
property for any other purpose than that for which it was intended;
and, that it did not sell, transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply
with the conditions of the donation and declared it null and void. The
court a quo further directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of the donor,
namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993
ruled that the annotations at the back of petitioner's certificate of title
were resolutory conditions breach of which should terminate the rights
of the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated
petitioner to utilize the donated property for the establishment of a
medical school, the donor did not fix a period within which the
condition must be fulfilled, hence, until a period was fixed for the
fulfillment of the condition, petitioner could not be considered as
having failed to comply with its part of the bargain. Thus, the appellate
court rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the determination of the
time within which petitioner should comply with the first condition
annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding
that the quoted annotations in the certificate of title of petitioner are
onerous obligations and resolutory conditions of the donation which
must be fulfilled non-compliance of which would render the donation
revocable; (b) in holding that the issue of prescription does not deserve
"disquisition;" and, (c) in remanding the case to the trial court for the
fixing of the period within which petitioner would establish a medical
college.2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don Ramon
Lopez, Sr., gives us no alternative but to conclude that his donation was
onerous, one executed for a valuable consideration which is considered
the equivalent of the donation itself, e.g., when a donation imposes a
burden equivalent to the value of the donation. A gift of land to the
City of Manila requiring the latter to erect schools, construct a
children's playground and open streets on the land was considered an
onerous donation.3 Similarly, where Don Ramon Lopez donated the
subject parcel of land to petitioner but imposed an obligation upon the
latter to establish a medical college thereon, the donation must be for
an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which
constitutes the condition. Thus, when a person donates land to another
on the condition that the latter would build upon the land a school, the
condition imposed was not a condition precedent or a suspensive
condition but a resolutory one.4 It is not correct to say that the
schoolhouse had to be constructed before the donation became
effective, that is, before the donee could become the owner of the
land, otherwise, it would be invading the property rights of the donor.
The donation had to be valid before the fulfillment of the condition.5 If
there was no fulfillment or compliance with the condition, such as what
obtains in the instant case, the donation may now be revoked and all
rights which the donee may have acquired under it shall be deemed
lost and extinguished.
The claim of petitioner that prescription bars the instant action of
private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a medical
school upon the land donated, depended upon the exclusive will of the
donee as to when this condition shall be fulfilled. When petitioner
accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has been held
that its absolute acceptance and the acknowledgment of its obligation
provided in the deed of donation were sufficient to prevent the statute
of limitations from barring the action of private respondents upon the
original contract which was the deed of donation.6
Moreover, the time from which the cause of action accrued for the
revocation of the donation and recovery of the property donated
cannot be specifically determined in the instant case. A cause of action
arises when that which should have been done is not done, or that
which should not have been done is done.7 In cases where there is no
special provision for such computation, recourse must be had to the
rule that the period must be counted from the day on which the
corresponding action could have been instituted. It is the legal
possibility of bringing the action which determines the starting point for
the computation of the period. In this case, the starting point begins
with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the
necessary buildings and improvements on the property cannot be
quantified in a specific number of years because of the presence of
several factors and circumstances involved in the erection of an
educational institution, such as government laws and regulations
pertaining to education, building requirements and property
restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and
circumstances it can be inferred that a period was intended, the
general rule provided in Art. 1197 of the Civil Code applies, which
provides that the courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the
court has fixed the period for compliance therewith and such period
has arrived.8
This general rule however cannot be applied considering the different
set of circumstances existing in the instant case. More than a
reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even
if it be burdensome, to make the donation in its favor forever valid.
But, unfortunately, it failed to do so. Hence, there is no more need to
fix the duration of a term of the obligation when such procedure would
be a mere technicality and formality and would serve no purpose than
to delay or lead to an unnecessary and expensive multiplication of
suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon him, the obligee
may seek rescission and the court shall decree the same unless there is
just cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance, there is
no more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a
gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least transmission
of rights and interests. 10Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of filing of
the instant action, petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an unreasonable length
of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to the
heirs of the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of
31 May 1991 is REINSTATED and AFFIRMED, and the decision of the
Court of Appeals of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to private respondents
Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer
Certificate of Title No. T-3910-A within thirty (30) days from the finality
of this judgment.
Costs against petitioner.
SO ORDERED. Third: That it shall build and after building it shall do or cause to be
done all that is necessary for its preservation in good condition, and
G.R. No. L-29298          December 15, 1928 shall, during the period of this agreement, without charge to the
Procedure or Procedures, operate a permanent railroad run by steam
REYNALDO LABAYEN, ET AL., plaintiffs.  or motor, or both, for the use of the plantation or plantations in the
REYNALDO LABAYEN, appellant,  transportation of sugar cane, sugar, fertilizer, and all such articles as
vs. the procedure may need for his estate, his use and that of his family
TALISAY-SILAY MILLING CO., INC., defendant-appellee. and employees, and shall cause the main line or a branch thereof, as
the case may be, to reach the point of the plantation to be hereafter
This is an action for damage in the amount of P28,620 for the alleged described not farther than one mile from ay of the boundaries of said
breach of a contract to grind sugar cane in 1920-1921. After a plantation, whenever the contour of the land, the curves, and
rehearing, the defendant was absolved from the complaint, andthe elevations permit the same; it shall provide said railroad with
plaintiff was condemned, on the cross-complaint, to pay the defendant locomotives or motors and wagons in a number sufficient to make the
the sum of P12,114, without special pronouncement as to costs.  transportation of sugar cane, sugar, fertilizer, and the above mentioned
articles, and shall likewise build a branch of said railroad in such a way
An examination of the record on appeal discloses that the exhibits are that from the main line, mill and warehouses, it shall reach the wharf
missing. Still this is not in this instance of great importance. The facts as above mentioned, and it shall also cause the yard of the factory near
found by the trial judge are not seriously disputed from the facts which the sugar mill to be available for use with switches or otherwise. All the
worry the parties.  steam locomotives shall be provided with safety spark devices. The
railroad shall consist of a road or path conveniently and duly
The plaintiff, along with another, possesses the hacienda known as Dos designated so that, so far as possible, all the producers may derive
Hermanos of Talisay, Occidental Negros. The defendant is a corporation equal benefit from said railroad. The right-of way for the main line of
dedicated to the milling of sugar cane. On August 27, 1919, the plaintiff the railroad shall be three and a half (3-½) meters wide measured from
and the defendant entered into a contract similar to contracts entered the center of the road to each side, and the branches, switches, or
into by the defendant and other planters. It is this contract which is the curves shall have more if necessary.
basis of plaintiff's cause of action. Among the clauses in the contract
are the following: OBLIGATIONS OF THE PRODUCER

COVENANTS OF 'LA CENTRAL' x x x           x x x          x x x

x x x           x x x          x x x
Fifth: That he shall accept the provisions of clauses 7, 8, and 9 of the
covenants of "La Central" and shall deliver the cane as therein
provided; hereby binding himself to plant each year according to the
usage and custom of a good agriculturist not less than one-half of his
own lands devoted to sugar cane subject to the approval of the
Committee of Producers leaving the remainder
uncultivated.1awphi1.net
MUTUAL OBLIGATIONS
x x x           x x x          x x x
10. In case of . . . inability to secure, under reasonable conditions such
rights-of-way as "La Central" may require, . . . "La Central" shall notify
the Committee of Producers and without incurring any liability for the
non-fulfillment of the terms of this contract, its effects shall be
suspended in part or in whole during such period of incapacity. . . .
(Emphasis inserted.)
With particular reference to the third paragraph of the clauses
obligating the central, it is admitted that the central has not continued
its railroad through to the Hacienda Dos Hermanos. The railroad comes
to the HaciendaEsmeralda No. 2 and there stops. For the railroad to
extend to the Hacienda Dos Hermanos, a distance of four kilometers
would require a gradual elevation of 4.84 per cent to 7 per cent, would
make necessary the providing of twenty-six curves, and would cost
about P80,000. The witness H. W. Corp, a civil engeneer employed in
the construction work of the Manila Railroad Company, the Pampanga
Sugar Milling Co., and the Binalbagan Central, testified that it was
possible to construct a railroad to the Hacienda Dos Hermanos but that
to do so would be very dangerous.  form used by the central and various proprietors of sugar-cane fields. It
Recalling that the contract provided for the construction of a railroad
"whenever the contour of the land, the curves, and elevations permit
the same," and that such construction is possible but very dangerous,
the question then arises if the defendant can excuse itself on this
ground, or if the plaintiff can recover from the defendant for damages
for breach of contract, through inability to mill cane. 
It is elemental that the law requires parties to do what they have
agreed to do. If a party charges himself with an obligation possible to
be performed, he must abide by it unless performance is rendered
impossible by the act of God, the law, or the other party. A showing of
mere inconvenience, unexpected impediments, or increased expenses
is not enough. Equity cannot relieve from bad bargains simply because
they are such. So one must answer in damages where the impossibility
is only so in fact. (Thornborow vs. Whitacre, 2 Ld. Raym. [1164], 92 E.
R., 270; Reid vs. Alaska Packing Co. [1903], 43 Or., 429; Columbus Ry. &
Power Co. vs. Columbus [1919], 249 U. S., 399.) 
The foregoing are familiar principles to be found in the American and
English law of contracts. The civil law on the subject of obligations is
not essentially different. Article 1272 of the Civil Code provides:
"Impossible things of services cannot be the subject-matter of
contracts." And article 1184 of the same Code provides: "The debtor
shall also be relieved from obligations which consist in the performance
of a act if fulfillment of the undertaking becomes legally or physically
impossible." 
May one obligate himself to do something which, when accomplished,
will prove to be dangerous to life and property? We doubt it. Take the
contract in question as an example. It was a general contract of the
was intended to be limited in particular application to haciendas where
not impeded by physical impossibility. The contract was qualified by an
implied condition which, if given practical effect, results in absolving
the central from its promise. Not to sanction an exception to the
general rule would run counter to public policy and the law by forcing
the performance of a contract undesirable and harmful. (8
Manresa's Codigo Civil Espanol, p. 355.) 

There is another aspect to the case which has to do with the tenth
paragraph of the mutual obligations of the contract and which
concerned the securing of the right- of-way for the proposed railroad.
To get from the HaciendaEsmeralda No. 2 to the Hacienda Dos
Hermanos, the railroad would have to pass through the haciendas of
Esteban de la Rama. But he would not grant permission to use his land
for this purpose in 1920, and only consented to do so in 1924. Here
then was a clear case of such a condition of affairs as was
contemplated by the contract. 

The foregoing points being admitted, it logically follows that the

defendant can recover on its cross-complaint. The defense to the cross-
complaint is identical with the theory of the complaint. For the same
reasons that the plaintiff cannot recover must be make good for his
debt to the defendant. 

Accepting, therefore, the facts as found by the trial judge, and nothing
no reversible error on any legal question, the judgment appealed from
must be as it is hereby affirmed, with the costs of this instance against
the appellant. 

G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN
GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,  abide by the covenant, ruled in favor of the vendee (p. 64, Rollo) while
vs.
COURT OF APPEALS and ALBRIGIDO LEYVA, respondents.
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr.,
prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido
Leyva involving the undivided one-half portion of a piece of land
situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00
under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon the execution of this
agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within
ten (10) days from and after the execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the
VENDORS' indebtedness with the Philippine Veterans Bank which is
hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.)
shall be paid within one (1) year from and after the execution of this
instrument. (p. 53, Rollo)
is the subject matter of the present litigation between the heirs of Juan
Galicia, Sr. who assert breach of the conditions as against private
respondent's claim anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific performance filed by
private respondent on account of the herein petitioners' reluctance to
respondent court practically agreed with the trial court except as to the
amount to be paid to petitioners and the refund to private respondent
are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first installment
was received by Juan Galicia, Sr. According to petitioners, of the
P10,000.00 to be paid within ten days from execution of the
instrument, only P9,707.00 was tendered to, and received by, them on
numerous occasions from May 29, 1975, up to November 3, 1979.
Concerning private respondent's assumption of the vendors' obligation
to the Philippine Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness came from Celerina
Labuguin (p. 73, Rollo). Moreover, petitioners asserted that not a single
centavo of the P27,000.00 representing the remaining balance was paid
to them. Because of the apprehension that the heirs of Juan Galicia, Sr.
are disavowing the contract inked by their predecessor, private
respondent filed the complaint for specific performance.
In addressing the issue of whether the conditions of the instrument
were performed by herein private respondent as vendee, the
Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the
Regional Trial Court, Third Judicial Region stationed at Guimba, Nueva
Ecija, decided to uphold private respondent's theory on the basis of
constructive fulfillment under Article 1186 and estoppel through
acceptance of piecemeal payments in line with Article 1235 of the Civil
Code.
Anent the P10,000.00 specified as second installment, the lower court
counted against the vendors the candid statement of Josefina Tayag
who sat on the witness stand and made the admission that the check
issued as payment thereof was nonetheless paid on a staggered basis
when the check was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3,
Decision; p. 66, Rollo). Regarding the third condition, the trial court
noted that plaintiff below paid more than P6,000.00 to the Philippine
Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan
Galicia, Sr. paid P3,778.77 which circumstance was construed to be a
ploy under Article 1186 of the Civil Code that "prematurely prevented
plaintiff from paying the installment fully" and "for the purpose of
withdrawing the title to the lot". The acceptance by petitioners of the
various payments even beyond the periods agreed upon, was perceived
by the lower court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code. Furthermore, the
trial court noted that private respondent consigned P18,520.00, an
amount sufficient to offset the remaining balance, leaving the sum of
P1,315.00 to be credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of Juan Galicia, to execute the
Deed of Sale of their undivided ONE HALF (1/2) portion of Lot No. 1130,
Guimba Cadastre, covered by TCT No. NT-120563, in favor of plaintiff
Albrigido Leyva, with an equal frontage facing the national road upon
finality of judgment; that, in their default, the Clerk of Court II, is
hereby ordered to execute the deed of conveyance in line with the
provisions of Section 10, Rule 39 of the Rules of Court;
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally
to pay attorney's fees of P6,000.00 and the further sum of P3,000.00 for
actual and compensatory damages;
3. Ordering Celerina Labuguin and the other defendants herein to
surrender to the Court the owner's duplicate of TCT No. NT-120563,
province of Nueva Ecija, for the use of plaintiff in registering the
portion, subject matter of the instant suit;
4. Ordering the withdrawal of the amount of P18,520.00 now consigned
with the Court, and the amount of P17,204.75 be delivered to the heirs
of Juan Galicia as payment of the balance of the sale of the lot in
question, the defendants herein after deducting the amount of
attorney's fees and damages awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum of P1,315.25 excess or over
payment and, defendants to pay the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court, Justice
Dayrit with whom Justices Purisima and Aldecoa, Jr. concurred,
modified the fourth paragraph of the decretal portion to read:
4. Ordering the withdrawal of the amount of P18,500.00 now consigned
with the Court, and that the amount of P16,870.52 be delivered to the
heirs of Juan Galicia, Sr. as payment to the unpaid balance of the sale,
including the reimbursement of the amount paid to Philippine Veterans
Bank, minus the amount of attorney's fees and damages awarded in
favor of plaintiff. The excess of P1,649.48 will be returned to plaintiff.
The costs against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate court
declared:
With respect to the fourth condition stipulated in the contract, the
period indicated therein is deemed modified by the parties when the
heirs of Juan Galicia, Sr. accepted payments without objection up to
November 3, 1979. On the basis of receipts presented by appellee
commencing from August 8, 1975 up to November 3, 1979, a total
amount of P13,908.25 has been paid, thereby leaving a balance of
P13,091.75. Said unpaid balance plus the amount reimbursable to
appellant in the amount of P3,778.77 will leave an unpaid total of
P16,870.52. Since appellee consigned in court the sum of P18,500.00,
he is entitled to get the excess of P1,629.48. Thus, when the heirs of
Juan Galicia, Sr. (obligees) accepted the performance, knowing its
incompleteness or irregularity and without expressing any protest or
objection, the obligation is deemed fully complied with (Article 1235,
Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision appealed from,
which agreed with the conclusions of the trial court, is vulnerable to
attack via the recourse before Us on the principal supposition that the
full consideration of the agreement to sell was not paid by private
respondent and, therefore, the contract must be rescinded.
The suggestion of petitioners that the covenant must be cancelled in
the light of private respondent's so-called breach seems to overlook
petitioners' demeanor who, instead of immediately filing the case
precisely to rescind the instrument because of non-compliance,
allowed private respondent to effect numerous payments posterior to
the grace periods provided in the contract. This apathy of petitioners
who even permitted private respondent to take the initiative in filing
the suit for specific performance against them, is akin to waiver or
abandonment of the right to rescind normally conferred by Article 1191
of the Civil Code. As aptly observed by Justice Gutierrez, Jr. in Angeles
vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the
Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the defendants-
appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the
plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants
have waived, and are now estopped from exercising their alleged right
of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811;
817-818; cited in 4 Padilla, Civil Code Annotated, Seventh Ed. [1987],
pp. 212-213) a similar opinion was expressed to the effect that:
In a perfected contract of sale of land under an agreed schedule of
payments, while the parties may mutually oblige each other to compel
the specific performance of the monthly amortization plan, and upon
failure of the buyer to make the payment, the seller has the right to ask
for a rescission of the contract under Art. 1191 of the Civil Code, this
shall be deemed waived by acceptance of posterior payments.
Both the trial and appellate courts were, therefore, correct in
sustaining the claim of private respondent anchored on estoppel or
waiver by acceptance of delayed payments under Article 1235 of the
Civil Code in that:
When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
considering that the heirs of Juan Galicia, Sr. accommodated private
respondent by accepting the latter's delayed payments not only beyond
the grace periods but also during the pendency of the case for specific
performance (p. 27, Memorandum for petitioners; p. 166, Rollo).
Indeed, the right to rescind is not absolute and will not be granted
where there has been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First Ed. [1968] p. 132).
By and large, petitioners' actuation is susceptible of but one
construction — that they are now estopped from reneging from their
commitment on account of acceptance of benefits arising from overdue
accounts of private respondent.
Now, as to the issue of whether payments had in fact been made, there
is no doubt that the second installment was actually paid to the heirs of
Juan Galicia, Sr. due to Josefina Tayag's admission in judicio that the
sum of P10,000.00 was fully liquidated. It is thus erroneous for
petitioners to suppose that "the evidence in the records do not support
this conclusion" (p. 18, Memorandum for Petitioners; p. 157, Rollo).
A contrario, when the court of origin, as well as the appellate court,
emphasized the frank representation along this line of Josefina Tayag
before the trial court (TSN, September l, 1983, pp. 3-4; p. 5, Decision in
CA-G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681-
G, p. 66, Rollo), petitioners chose to remain completely mute even at
this stage despite the opportunity accorded to them, for clarification.
Consequently, the prejudicial aftermath of Josefina Tayag's
spontaneous reaction may no longer be obliterated on the basis of
estoppel (Article 1431, Civil Code; Section 4, Rule 129; Section 2(a),
Rule 131, Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it may be recalled
that respondent court applied Article 1186 of the Civil Code on
constructive fulfillment which petitioners claim should not have been
appreciated because they are the obligees while the proviso in point
speaks of the obligor. But, petitioners must concede that in a reciprocal
obligation like a contract of purchase, (Ang vs. Court of Appeals, 170
SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties are mutually
obligors and also obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the other privy of his
part of the prestation, rescind the contract or seek fulfillment (Article
1191, Civil Code). In short, it is puerile for petitioners to say that they
are the only obligees under the contract since they are also bound as
obligors to respect the stipulation in permitting private respondent to
assume the loan with the Philippine Veterans Bank which petitioners
impeded when they paid the balance of said loan. As vendors, they are
supposed to execute the final deed of sale upon full payment of the
balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of payment nor
consignation of the sum of P18,520.00 which they acknowledge to have
been deposited in court on January 22, 1981 five years after the
amount of P27,000.00 had to be paid (p. 23, Memorandum for
Petitioners; p. 162, Rollo). Again this suggestion ignores the fact that
consignation alone produced the effect of payment in the case at bar
because it was established below that two or more heirs of Juan
Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil
Code; pp. 4-5, Decision in Civil Case No. 681-G; pp. 67-68, Rollo).
Moreover, petitioners did not bother to refute the evidence on hand
that, aside from the P18,520.00 (not P18,500.00 as computed by
respondent court) which was consigned, private respondent also paid
the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These two
figures representing private respondent's payment of the fourth
condition amount to P32,428.25, less the P3,778.77 paid by petitioners
to the bank, will lead us to the sum of P28,649.48 or a refund of
P1,649.48 to private respondent as overpayment of the P27,000.00
balance.

WHEREFORE, the petition is hereby DISMISSED and the decision

appealed from is hereby AFFIRMED with the slight modification of
Paragraph 4 of the dispositive thereof which is thus amended to read:

4. ordering the withdrawal of the sum of P18,520.00 consigned with the

Regional Trial Court, and that the amount of P16,870.52 be delivered
by private respondent with legal rate of interest until fully paid to the
heirs of Juan Galicia, Sr. as balance of the sale including reimbursement
of the sum paid to the Philippine Veterans Bank, minus the attorney's
fees and damages awarded in favor of private respondent. The excess
of P1,649.48 shall be returned to private respondent also with legal
interest until fully paid by petitioners. With costs against petitioners.

SO ORDERED.
 of sale, with interest at six percent for the first year and twelve percent
thereafter until fully paid. To secure the payment of that balance, the
defendant-appellee executed in the same document a deed of
mortgage in favor of the vendors on several parcels of land variously
situated in Quezon City, Pampanga and Bulacan. The deed of mortgage
embodies certain stipulations which the plaintiffs-appellants invoked,
thus: ñé+.£ªwph!1

G.R. No. L-23616 September 30, 1976 During the term and existence of this mortgage, the Mortgagor shall
duly pay and discharge, at her expense, and on their maturity, all lawful
RODRIGO ENRIQUEZ, AUREA SORIANO DE DIZON and URBANO DIZON, taxes or assessments levied or assessed upon the mortgaged property:
JR., plaintiffs-appellants,  in default thereof the Mortgagee may pay and discharge such taxes of
vs. assessments and insure the security of the property, and any and all
SOCORRO A. RAMOS, defendant-appellee. sums so paid by the Mortgagee shall be repayable on demand with
interest at per annum and be a lien or. the property herein mortgaged. 
This case is a direct appeal from an order of the Court of First Instance
of Rizal (Quezon City) dated December 3, 1963, reversing its decision xxx xxx xxx
dated October 8, 1963 in favor of the plaintiffs-appellants Rodrigo
Enriquez, Aurea Soriano de Dizon and Urbano Dizon, Jr., in civil case Q- If for any reason the mortgage cannot be registered, then the whole
7229, an action for foreclosure of real estate mortgage.  obligation shall immediately become due and demandable.

This is the second time that the herein party litigants have come to this
Court on basically the same causes of action affecting the same deed of
sale with real estate mortgage covenanted between them.  conditions herein set forth, or should she fail to perform and of the
In Rodrigo Enriquez, et al. vs. Socorro A. Ramos (G.R. No. L18077,
September 29, 1962), the plaintiffs-appellants averred that on
November 24, 1958 they sold to the defendant-appellee Socorro A.
Ramos 20 subdivision lots in Quezon City for the sum of P235,056 of
which only P35,056 had been paid 'The balance of P200,000 was to be
liquidated within two years from the date of the execution of the deed
In the event that the Mortgagor should fail to pay the amount secured
this mortgaged or any part thereof in accordance in that terms an I
conditions stipulated herein, the Mortgage shall have the right ... to
foreclose this mortgage extra-judicial and to that end that Mortgagee is
hereby appointed the attorney-in-fact of the Mortgagor with full power
of substitution, to enter upon and take possession of the mortgagee
property without the order of any court or any `authority other than
that herein granted, and to sell and dislike of the same to the highest
bidder at public auction after the publication of notice, in accordance
with the provisions of Act No. I5 of the Philippine Legislature, as appellee had stated that she applied her backpay certificates to the
amended. payment of her realty and income taxes but as she had not yet received
said certificates the payment of the taxes was delayed. On the other
According to the plaintiffs-appellants in L-18077, the defendant- hand the registration of the Bulacan property could not be Under taken
appellee violated the terms of their agreement in the following because it was then still registered in both her name in the name of co-
respects:  owner. The defendant-appellee promised that she would pay the taxes
in due time and undertake the needed segregation and the annotation
1. Inspite of repeated demands, the defendant-appellee refused to pay of the lien of the mortgage on the Bulacan property as soon as the
the sum of P200,000 within the stipulated period;  vendors proceeded with the construction of the roads on the
purchased lots. 
2. The mortgage, on the Bulacan property was never registered and 
Now returning to the case at bar, the plaintiffs-appellants charged on
3. The realty tax for 1959 on the lots mortgaged were not paid by the May 4, 1963 before the Court of First Instance of Rizal (Quezon City)
defendant-appellee.  that the defendant-appellee has not yet paid the sum of P200,000
despite the fact that the roads on the questioned lots were completed
This Court upheld the findings and conclusions of the trial court which on May 9, 1960; that the mortgage on the Bulacan property has not yet
ruled that the actual price of the lots sold to the defendant-appellee been registered; and that the realty taxes corresponding to the years
was only P185,056 instead of P235,056, and that only if and when the 1959 to 1963 on the mortgaged lots had not been paid. 
roads shall have been constructed pursuant to the ordinances of
Quezon City "may the period of two years specified in the contract The defendant-appellee admits that she has not paid the realty taxes
begin to run." These conclusions arrived account of a private deed and has not registered the mortgage on the Bulacan property, but
entitled "Explanation" in which the plaintiffs- appellants certified that argues that in L-18077 these matters were considered minor ones and
of the consideration of P235,056 appearing in the questioned deed of also sufficiently explained by her, invoking the rule of res judicata. The
sale for mortgage, P50,000 "represent contribution of his Socorro A. defendant-appellee likewise does not dispute her non-payment of the
Ramos for the construction of roads, which we will undertake in sum of P200,000; she contends, however, that the roads have not yet
accordance with the provisions of the City Ordinances of Quezon City."  been completed in accordance with Ordinance No. 2999 of Quezon
Cities the pertinent portions of which state: ñé+.£ªwph!1
With reference to the non-payment of the 1959 realty tax and the non-
registration of the mortgaged Bulacan estate, this Court held that SEC. 10. The following subdivision improvements shall be contracted or
"aside from being minor matters, the appear sufficient, explained in the provided in accordance with the plans and/pr specifications as adopted
brief of defendant- appellee." In her in L-18077, the defendant- by the Administrative Agency.
(a) Street paraments. — All streets shall be paved. Waterbound
macadam pavements on a suitable base shall be considered the
minimum standard or pavement that shall be used.  1. It is true that in L-18077 this Court held that the non-payment of the
(b) Curbs and gutters. — All streets shall be provided with concrete
curbs and gutters.
(c) Filling. — The subdivision shall be filled up to the grade as may be
required by the Administrative Agency.
(d) Drainage facilities. — The subdivision shall be provided with
adequate drainage facilities as approved by the Administrative Agency.  the execution of a contract may be considered minor matters,
(e) Tree Plantings. — The subdivider shall plant and grow shade trees,
if none are yet existing for the purpose of this requirement, on the side
or sides of every lot adjacent to streets about three (3) meters from
the street line, with a maximum spacing of en (10) meters.
(f) Water facilities. — The subdivider shall provide the subdivision with
adequate water facilities.
According to the defendant-appellee, the roads in question cannot be
considered completed because the plaintiffs-appellants have not yet
planted trees nor put up water facilities as required by the foregoing
ordinance. Neither may said roads be considered completed in the legal
sense until their construction has been accepted by the Capital City
Planning Commission which was designated to implement Ordinance
2969. Moreover, even if the roads in question have already been
constructed in accordance with the mentioned ordinance. still her
obligation to pay the sum of P200,000 has not yet arisen as no previous
notice and demand for payment has been made on her.
We find the posture of the defendant-appellee to be untenable. 
1956 realty tax as well as the non-registration of the mortgaged
Bulacan estate by the defendant-appellee were minor matters aside
from being sufficiently explained by her. That pronouncement,
however, should be taken in the light of the environmental, however,
should be taken in the light of the environmental, however, should be
taken in the light of the environmental milieu under which L-18077 was
decided. The non-payment of the realty tax for a year and the non-
registration of the mortgaged property within a reasonable time after
particularly where, in addition, the failure to do so was sufficiently
explained, and the mortgagor promised this Court that positive
remedial action would be taken. The opinion of this Court cannot
however be taken as a license for the continued non-fulfillment by the
defendant-appellee of her contractual obligations. It was far from the
intention of this Court to allow or enable the litigants to utilized its
decision as an instrument whereby solemnly covenanted obligations
could be avoided. In such situation, the continued obligations could be
avoided. In such situation, the continued violation by the defendant
appelle of the express terms of her contract can no longer be
countenanced. As it is, not only has the defendant-appelle failed to
perform the mentioned obligations, but she has likewise entirely failed
to deliver to the plaintiffs-appellants the sum of P50,000 which she
promised to contribute to the latter for the construction of the roads
on her lots in accordance with the ordinances of Quezon City. The deed
of sale with mortgage makes it the express duty of the defendant-
appellee to pay the realty taxes on the mortgaged lots, to register the
mortgaged estates, and to contribute P50,000 for the construction of
roads on the purchased lots. By its express terms, if the defendant-
appelle failed to fulfill these conditions her entire obligation was to
become immediately due and demandable and the mortgage would
have the option to foreclosure the mortgage. These terms of the
contract have the force of law between the parties thereto. 1
2. On the issue of whether the construction of the questioned roads
has already been completed in accordance with the ordinances of
Quezon City, evidence adduced below sufficiently supports the plaintiff-
appellant's position.
At the trial below, the plaintiffs-appellants adduced the testimonies of
two witnesses, Oscar Delfin and Atty. Gelacio L. Dimaano (plaintiffs-
appellants' counsel). Delfin testified that he was a construction
superintendent of Wendel Construction Co., Inc. which was contracted
to open up roads on the lots in question; that his outfit undertook the
building of the said roads in accordance with the ordinances of Quezon
City, having laid out "type B gutters, concrete curbs, pavement made of
Vituminous macadam asphalt;" that construction commenced on
November 2, 1959 and was completed on May 9, 1960 for the sum of
P100,000 which has already been paid by the plaintiffs-appellants; that
while the construction was in progress, the defendant-appellee visited
the worksite two or three times and inspected the work being done;
and that the certificate of turnover of the roads was given by the
president of his firm to the plaintiffs-appellants. Dimaano, in the main,
corroborated Delfin's testimony, and added that under the mentioned
deed of sale with mortgage, the attorney's fees in case of litigation
would be 10% of the amount due.
At the trial below, the defendant-appellee, pursuant to a partial
stipulation of facts, presented a letter dated May 9, 1963 of the Acting
City Engineer of Quezon City which states the following:ñé+.£ªwph!1
This is in reply to your letter dated May 3, 1969 requesting inspection
of the Mindanao Avenue Subdivisions, Quezon City, in which you have
purchased thirty-one (31) lots.
In that connection, I wish to advise you that an ocular inspection has
already been made by a representative of this Office and his report
points out that said subdivision is already provided with curbs and
gutters together with drainage facilities. The roads have already been
asphalted but no final test, verification and approval have been
undertaken by this Office.
It was revealed also that water and lighting system have not yet been
installed thereat.
In connection with the aforequoted letter, the parties stipulated that
the "test, verification and approval mentioned in Exhibit 1-A is required
only when the roads of the subdivision and easements are to be
donated to the city Government, and there is no law as to when the
roads of any subdivision are to be donated (to the) City Government."
This stipulation was arrived at after the counsel for the defendant-
appelle had conferred with a representative of the Quezon City
Engineer's Office.
On the basis of the foregoing items of evidence, not contradicted by
the defendant-appelle, the completion of the roads in question must
be regarded as having been sufficiently established.
3. The defendant-appellee, however, argues that the said roads "are
not yet completed in the technical, legal sense. This is because the final
say or acceptance by the Administrative Agency was not yet secured."
This posture is inordinately technical and also is devoid of merit. There
is nothing at all in Ordinance 296!) of Quezon City which makes the
acceptance by the said agency a condition precedent before a street in
Quezon City may be considered constructed in accordance with
Ordinance 2969.  considered completed water facilities are built on the subdivision.
4. The planting of trees and the installation of water facilities required
by section 10 of Ordinance 2969, supra, which the defendant-appellee
says must first be made before the roads in question may be
considered legally completed are matters which could not have been
conceivably within the contemplation of the parties. In the first place,
these activities involve a substantial outlay of funds which, by its very
nature, should have been unavoidably referred to in the mentioned
"Explanation." In the second place, the said requirements are imposed
on the subdivision owner, and it is obvious from this decision in L-18077
that it was the defendant-appellee who intended to develop the
purchased lots into a subdivision. this said in L-18077: ñé+.£ªwph!1
We find no error in the conclusion reached by the court a quo for
indeed that is the condition to be expected by a person who desire to
purchase a big parcel of land for purposes of subdivision. In a
subdivision the main improvement to be undertaken before it could be
sold to the public is feeder roads as otherwise it would be inaccessible
and valueless and would offer no attraction to the buying public. And
so it is correct to presume, as the court a quo did, that when the sale in
question was being negotiated, the construction of roads in the
prospective subdivision must have been uppermost in the mind of
defendant for her purpose in purchasing the property was to develop it
into a subdivision ...  the rate of 6% per annum from May 9, 1960 up to May 9, 1961, and,
In the third place, no evidence has been adduced which would show
that the planting of trees and the putting up to of water facilities were
within the contemplation of the parties when they were negotiating for
the purchase of the lots in question. And in the fourth place, there is
nothing in Ordinance 2969 which would indicate that a street may be
These activities are definitely segregable from the laying out and
construction of roads and cannot be deemed included within the scope
of the latter.
5. As to be alleged lack of previous notice completion and demand for
payment, the filing of the case below is sufficient notice to the
defendant-appellee of the completion of the roads in question and of
the plaintiffs-appellee's desire to be paid the purchase price of the
questioned lots. The effect of such demand retroacts to the day of the
constitution of the defendant-appellee's obligation. Thus, Article 1187
provides the "The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution
obligation..." The contacted obligation of the defendant-appellee under
the facts of the case at bar was to pay the balance of P200,000 within
two years from the date the roads in question are completed.
Accordingly the order of the court a quo dated December 3, 1963 is set
aside, and judgment is hereby rendered ordering the defendant-
appellee to pay to the plaintiffs-appellants, within ninety (90) days
from the finality of this decision, the following : 
1. The sum of P200,000 representing the unpaid balance of her
contractual obligation;
2. Interest thereon, as stipulated in the deed of sale with mortgage, at
thereafter, 12% interest per annum until the principal amount shall
have been fully paid;
3. An amount equivalent to 5% of the mortgage indebtedness of
attorney's fees; and
4. The costs.
Should the defendant-appellee fail to pay the aforementioned
mortgage indebtedness within the period granted in this decision, and
the properties mortgaged shall be sold at public auction and the
proceeds thereof shall be applied to the satisfaction of this judgement
and the costs of the auction sale. Costs against the defendant-appellee.
The motion of Guillermo N. Pablo "to join defendant-appellee as co-
party" is denied.
[G.R. No. 126780. February 17, 2005]
YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA
PAYAM, petitioners, vs. THE COURT OF APPEALS and MAURICE
McLOUGHLIN, respondents.
The primary question of interest before this Court is the only legal issue
in the case: It is whether a hotel may evade liability for the loss of
items left with it for safekeeping by its guests, by having these guests
execute written waivers holding the establishment or its employees
free from blame for such loss in light of Article 2003 of the Civil Code
which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision[1] dated
19 October 1995 of the Court of Appeals which affirmed
the Decision[2] dated 16 December 1991 of the Regional Trial Court
(RTC), Branch 13, of Manila, finding YHT Realty Corporation, Brunhilda
Mata-Tan (Tan), Erlinda Lainez (Lainez) and Anicia Payam (Payam)
jointly and solidarily liable for damages in an action filed by Maurice
McLoughlin (McLoughlin) for the loss of his American and Australian
dollars deposited in the safety deposit box of Tropicana Copacabana
Apartment Hotel, owned and operated by YHT Realty Corporation.
The factual backdrop of the case follow.
Private respondent McLoughlin, an Australian businessman-
philanthropist, used to stay at Sheraton Hotel during his trips to the
Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin
by showing him around, introducing him to important people,
accompanying him in visiting impoverished street children and assisting
him in buying gifts for the children and in distributing the same to
charitable institutions for poor children. Tan convinced McLoughlin to
transfer from Sheraton Hotel to Tropicana where Lainez, Payam and
Danilo Lopez were employed. Lopez served as manager of the hotel
while Lainez and Payam had custody of the keys for the safety deposit
boxes of Tropicana. Tan took care of McLoughlins booking at the
Tropicana where he started staying during his trips to the Philippines
from December 1984 to September 1987.[3]
On 30 October 1987, McLoughlin arrived from Australia and registered
with Tropicana. He rented a safety deposit box as it was his practice to
rent a safety deposit box every time he registered at Tropicana in
previous trips. As a tourist, McLoughlin was aware of the procedure
observed by Tropicana relative to its safety deposit boxes. The safety
deposit box could only be opened through the use of two keys, one of
which is given to the registered guest, and the other remaining in the
possession of the management of the hotel. When a registered guest
wished to open his safety deposit box, he alone could personally
request the management who then would assign one of its employees
to accompany the guest and assist him in opening the safety deposit
box with the two keys.[4]
McLoughlin allegedly placed the following in his safety deposit box:
Fifteen Thousand US Dollars (US$15,000.00) which he placed in two
envelopes, one envelope containing Ten Thousand US Dollars
(US$10,000.00) and the other envelope Five Thousand US Dollars
(US$5,000.00); Ten Thousand Australian Dollars (AUS$10,000.00) which
he also placed in another envelope; two (2) other envelopes containing
letters and credit cards; two (2) bankbooks; and a checkbook, arranged
side by side inside the safety deposit box.[5]
On 12 December 1987, before leaving for a brief trip to Hongkong,
McLoughlin opened his safety deposit box with his key and with the key
of the management and took therefrom the envelope containing Five
Thousand US Dollars (US$5,000.00), the envelope containing Ten
Thousand Australian Dollars (AUS$10,000.00), his passports and his
credit cards.[6] McLoughlin left the other items in the box as he did not
check out of his room at the Tropicana during his short visit to
Hongkong. When he arrived in Hongkong, he opened the envelope
which contained Five Thousand US Dollars (US$5,000.00) and
discovered upon counting that only Three Thousand US Dollars
(US$3,000.00) were enclosed therein.[7] Since he had no idea whether
somebody else had tampered with his safety deposit box, he thought
that it was just a result of bad accounting since he did not spend
anything from that envelope.[8]
After returning to Manila, he checked out of Tropicana on 18 December
1987 and left for Australia. When he arrived in Australia, he discovered
that the envelope with Ten Thousand US Dollars (US$10,000.00) was
short of Five Thousand US Dollars (US$5,000). He also noticed that the
jewelry which he bought in Hongkong and stored in the safety deposit
box upon his return to Tropicana was likewise missing, except for a
diamond bracelet.[9]
When McLoughlin came back to the Philippines on 4 April 1988, he
asked Lainez if some money and/or jewelry which he had lost were
found and returned to her or to the management. However, Lainez told
him that no one in the hotel found such things and none were turned
over to the management. He again registered at Tropicana and rented
a safety deposit box. He placed therein one (1) envelope containing
Fifteen Thousand US Dollars (US$15,000.00), another envelope
containing Ten Thousand Australian Dollars (AUS$10,000.00) and other
envelopes containing his traveling papers/documents. On 16 April 1988,
McLoughlin requested Lainez and Payam to open his safety deposit
box. He noticed that in the envelope containing Fifteen Thousand US
Dollars (US$15,000.00), Two Thousand US Dollars (US$2,000.00) were
missing and in the envelope previously containing Ten Thousand
Australian Dollars (AUS$10,000.00), Four Thousand Five Hundred
Australian Dollars (AUS$4,500.00) were missing.[10]
When McLoughlin discovered the loss, he immediately confronted
Lainez and Payam who admitted that Tan opened the safety deposit
box with the key assigned to him.[11] McLoughlin went up to his room
where Tan was staying and confronted her. Tan admitted that she had
stolen McLoughlins key and was able to open the safety deposit box
with the assistance of Lopez, Payam and Lainez.[12] Lopez also told
McLoughlin that Tan stole the key assigned to McLoughlin while the
latter was asleep.[13]
McLoughlin requested the management for an investigation of the
incident. Lopez got in touch with Tan and arranged for a meeting with
the police and McLoughlin. When the police did not arrive, Lopez and
Tan went to the room of McLoughlin at Tropicana and thereat, Lopez
wrote on a piece of paper a promissory note dated 21 April 1988. The
promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00
and US$2,000.00 or its equivalent in Philippine currency on or before
May 5, 1988.[14]
Lopez requested Tan to sign the promissory note which the latter did
and Lopez also signed as a witness. Despite the execution of promissory
note by Tan, McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. However, Lopez refused
to accept the responsibility relying on the conditions for renting the
safety deposit box entitled Undertaking For the Use Of Safety Deposit
Box,[15] specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT
HOTEL from any liability arising from any loss in the contents and/or
use of the said deposit box for any cause whatsoever, including but not
limited to the presentation or use thereof by any other person should
the key be lost;
. . .  dismissed for failure to prosecute. Mcloughlin requested the
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.[16]
On 17 May 1988, McLoughlin went back to Australia and he consulted
his lawyers as to the validity of the abovementioned stipulations. They
opined that the stipulations are void for being violative of universal
hotel practices and customs. His lawyers prepared a letter dated 30
May 1988 which was signed by McLoughlin and sent to President
Corazon Aquino.[17] The Office of the President referred the letter to the
Department of Justice (DOJ) which forwarded the same to the Western
Police District (WPD).[18]
After receiving a copy of the indorsement in Australia, McLoughlin
came to the Philippines and registered again as a hotel guest of
Tropicana. McLoughlin went to Malacaňang to follow up on his letter
but he was instructed to go to the DOJ. The DOJ directed him to
proceed to the WPD for documentation. But McLoughlin went back to
Australia as he had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business
and came back to the Philippines to follow up on his letter to the
President but he failed to obtain any concrete assistance.[19]
McLoughlin left again for Australia and upon his return to the
Philippines on 25 August 1989 to pursue his claims against petitioners,
the WPD conducted an investigation which resulted in the preparation
of an affidavit which was forwarded to the Manila City Fiscals Office.
Said affidavit became the basis of preliminary investigation. However,
McLoughlin left again for Australia without receiving the notice of the
hearing on 24 November 1989. Thus, the case at the Fiscals Office was
reinstatement of the criminal charge for theft. In the meantime,
McLoughlin and his lawyers wrote letters of demand to those having
responsibility to pay the damage. Then he left again for Australia.
Upon his return on 22 October 1990, he registered at the Echelon
Towers at Malate, Manila. Meetings were held between McLoughlin
and his lawyer which resulted to the filing of a complaint for damages
on 3 December 1990 against YHT Realty Corporation, Lopez, Lainez,
Payam and Tan (defendants) for the loss of McLoughlins money which
was discovered on 16 April 1988. After filing the complaint, McLoughlin
left again for Australia to attend to an urgent business matter. Tan and
Lopez, however, were not served with summons, and trial proceeded
with only Lainez, Payam and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had
previously allowed and assisted Tan to open the safety deposit box,
McLoughlin filed an Amended/Supplemental Complaint[20] dated 10 June
1991 which included another incident of loss of money and jewelry in
the safety deposit box rented by McLoughlin in the same hotel which
took place prior to 16 April 1988.[21] The trial court admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the
country to attend to urgent business in Australia, and while staying in
the Philippines to attend the hearing, he incurred expenses for hotel
bills, airfare and other transportation expenses, long distance calls to
Australia, Meralco power expenses, and expenses for food and
maintenance, among others.[22]
After trial, the RTC of Manila rendered judgment in favor of
McLoughlin, the dispositive portion of which reads:
WHEREFORE, above premises considered, judgment is hereby rendered
by this Court in favor of plaintiff and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of
US$11,400.00 or its equivalent in Philippine Currency of P342,000.00,
more or less, and the sum of AUS$4,500.00 or its equivalent in
Philippine Currency of P99,000.00, or a total of P441,000.00, more or
less, with 12% interest from April 16 1988 until said amount has been
paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum
of P3,674,238.00 as actual and consequential damages arising from the
loss of his Australian and American dollars and jewelries complained
against and in prosecuting his claim and rights administratively and
judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. CC);
3. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P500,000.00 as moral damages (Item X, Exh. CC);
4. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P350,000.00 as exemplary damages (Item XI, Exh. CC);
5. And ordering defendants, jointly and severally, to pay litigation
expenses in the sum of P200,000.00 (Item XII, Exh. CC);
6. Ordering defendants, jointly and severally, to pay plaintiff the sum
of P200,000.00 as attorneys fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.
SO ORDERED.[23]
The trial court found that McLoughlins allegations as to the fact of loss
and as to the amount of money he lost were sufficiently shown by his
direct and straightforward manner of testifying in court and found him
to be credible and worthy of belief as it was established that
McLoughlins money, kept in Tropicanas safety deposit box, was taken
by Tan without McLoughlins consent. The taking was effected through
the use of the master key which was in the possession of the
management. Payam and Lainez allowed Tan to use the master key
without authority from McLoughlin. The trial court added that if
McLoughlin had not lost his dollars, he would not have gone through
the trouble and personal inconvenience of seeking aid and assistance
from the Office of the President, DOJ, police authorities and the City
Fiscals Office in his desire to recover his losses from the hotel
management and Tan.[24]
As regards the loss of Seven Thousand US Dollars (US$7,000.00) and
jewelry worth approximately One Thousand Two Hundred US Dollars
(US$1,200.00) which allegedly occurred during his stay at Tropicana
previous to 4 April 1988, no claim was made by McLoughlin for such
losses in his complaint dated 21 November 1990 because he was not
sure how they were lost and who the responsible persons were. But
considering the admission of the defendants in their pre-trial brief that
on three previous occasions they allowed Tan to open the box, the trial
court opined that it was logical and reasonable to presume that his
personal assets consisting of Seven Thousand US Dollars (US$7,000.00)
and jewelry were taken by Tan from the safety deposit box without
McLoughlins consent through the cooperation of Payam and Lainez.[25]
The trial court also found that defendants acted with gross negligence
in the performance and exercise of their duties and obligations as
innkeepers and were therefore liable to answer for the losses incurred
by McLoughlin.[26]
Moreover, the trial court ruled that paragraphs (2) and (4) of
the Undertaking For The Use Of Safety Deposit Box are not valid for
being contrary to the express mandate of Article 2003 of the New Civil
Code and against public policy.[27]Thus, there being fraud or wanton
conduct on the part of defendants, they should be responsible for all
damages which may be attributed to the non-performance of their
contractual obligations.[28]
The Court of Appeals affirmed the disquisitions made by the lower
court except as to the amount of damages awarded. The decretal text
of the appellate courts decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby
AFFIRMED but modified as follows:
The appellants are directed jointly and severally to pay the
plaintiff/appellee the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and
AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from
Sidney [sic] to Manila and back for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to
Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation
from the residence to Sidney [sic] Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for
food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorneys fees.
With costs.
SO ORDERED.[29]
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this
Court in this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a)
whether the appellate courts conclusion on the alleged prior existence
and subsequent loss of the subject money and jewelry is supported by
the evidence on record; (b) whether the finding of gross negligence on
the part of petitioners in the performance of their duties as innkeepers
is supported by the evidence on record; (c) whether the Undertaking
For The Use of Safety Deposit Box admittedly executed by private
respondent is null and void; and (d) whether the damages awarded to
private respondent, as well as the amounts thereof, are proper under
the circumstances.[30]
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is the resolution only of
questions of law and any peripheral factual question addressed to this
Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove
the fact of prior existence of the dollars and the jewelry which had
been lost while deposited in the safety deposit boxes of Tropicana, the
basis of the trial court and the appellate court being the sole testimony
of McLoughlin as to the contents thereof. Likewise, petitioners dispute
the finding of gross negligence on their part as not supported by the
evidence on record.
We are not persuaded. We adhere to the findings of the trial court as
affirmed by the appellate court that the fact of loss was established by
the credible testimony in open court by McLoughlin. Such findings are
factual and therefore beyond the ambit of the present petition.
The trial court had the occasion to observe the demeanor of
McLoughlin while testifying which reflected the veracity of the facts
testified to by him. On this score, we give full credence to the
appreciation of testimonial evidence by the trial court especially if what
is at issue is the credibility of the witness. The oft-repeated principle is
that where the credibility of a witness is an issue, the established rule is
that great respect is accorded to the evaluation of the credibility of
witnesses by the trial court.[31] The trial court is in the best position to
assess the credibility of witnesses and their testimonies because of its
unique opportunity to observe the witnesses firsthand and note their
demeanor, conduct and attitude under grilling examination.[32]
We are also not impressed by petitioners argument that the finding of
gross negligence by the lower court as affirmed by the appellate court
is not supported by evidence. The evidence reveals that two keys are
required to open the safety deposit boxes of Tropicana. One key is
assigned to the guest while the other remains in the possession of the
management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In
other words, the guest alone cannot open the safety deposit box
without the assistance of the management or its employees. With more
reason that access to the safety deposit box should be denied if the
one requesting for the opening of the safety deposit box is a stranger.
Thus, in case of loss of any item deposited in the safety deposit box, it
is inevitable to conclude that the management had at least a hand in
the consummation of the taking, unless the reason for the loss is force
majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of
Tropicana, had custody of the master key of the management when the
loss took place. In fact, they even admitted that they assisted Tan on
three separate occasions in opening McLoughlins safety deposit box.
[33]
 This only proves that Tropicana had prior knowledge that a person
aside from the registered guest had access to the safety deposit box.
Yet the management failed to notify McLoughlin of the incident and
waited for him to discover the taking before it disclosed the matter to
him. Therefore, Tropicana should be held responsible for the damage
suffered by McLoughlin by reason of the negligence of its employees.
The management should have guarded against the occurrence of this
incident considering that Payam admitted in open court that she
assisted Tan three times in opening the safety deposit box of
McLoughlin at around 6:30 A.M. to 7:30 A.M. while the latter was still
asleep.[34] In light of the circumstances surrounding this case, it is
undeniable that without the acquiescence of the employees of
Tropicana to the opening of the safety deposit box, the loss of
McLoughlins money could and should have been avoided.
The management contends, however, that McLoughlin, by his act,
made its employees believe that Tan was his spouse for she was always
with him most of the time. The evidence on record, however, is bereft
of any showing that McLoughlin introduced Tan to the management as
his wife. Such an inference from the act of McLoughlin will not
exculpate the petitioners from liability in the absence of any showing
that he made the management believe that Tan was his wife or was
duly authorized to have access to the safety deposit box. Mere close
companionship and intimacy are not enough to warrant such
conclusion considering that what is involved in the instant case is the
very safety of McLoughlins deposit. If only petitioners exercised due
diligence in taking care of McLoughlins safety deposit box, they should
have confronted him as to his relationship with Tan considering that
the latter had been observed opening McLoughlins safety deposit box a
number of times at the early hours of the morning. Tans acts should
have prompted the management to investigate her relationship with
McLoughlin. Then, petitioners would have exercised due diligence
required of them. Failure to do so warrants the conclusion that the
management had been remiss in complying with the obligations
imposed upon hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are liable for
damages. As to who shall bear the burden of paying damages, Article
2180, paragraph (4) of the same Code provides that the owners and
managers of an establishment or enterprise are likewise responsible
for damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions.
Also, this Court has ruled that if an employee is found negligent, it is
presumed that the employer was negligent in selecting and/or
supervising him for it is hard for the victim to prove the negligence of
such employer.[35]Thus, given the fact that the loss of McLoughlins
money was consummated through the negligence of Tropicanas
employees in allowing Tan to open the safety deposit box without the
guests consent, both the assisting employees and YHT Realty
Corporation itself, as owner and operator of Tropicana, should be held
solidarily liable pursuant to Article 2193.[36]
The issue of whether the Undertaking For The Use of Safety Deposit
Box executed by McLoughlin is tainted with nullity presents a legal
question appropriate for resolution in this petition. Notably, both the
trial court and the appellate court found the same to be null and void.
We find no reason to reverse their common conclusion. Article 2003 is
controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles brought
by the guest. Any stipulation between the hotel-keeper and the guest
whereby the responsibility of the former as set forth in Articles 1998 to
2001[37] is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in
this case. The hotel business like the common carriers business is
imbued with public interest. Catering to the public, hotelkeepers are
bound to provide not only lodging for hotel guests and security to their
persons and belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called undertakings
that ordinarily appear in prepared forms imposed by hotel keepers on
guests for their signature.
In an early case,[38] the Court of Appeals through its then Presiding
Justice (later Associate Justice of the Court) Jose P. Bengzon, ruled that
to hold hotelkeepers or innkeeper liable for the effects of their guests,
it is not necessary that they be actually delivered to the innkeepers or
their employees. It is enough that such effects are within the hotel or
inn.[39]With greater reason should the liability of the hotelkeeper be
enforced when the missing items are taken without the guests
knowledge and consent from a safety deposit box provided by the
hotel itself, as in this case.
Paragraphs (2) and (4) of the undertaking manifestly contravene Article
2003 of the New Civil Code for they allow Tropicana to be released
from liability arising from any loss in the contents and/or use of the
safety deposit box for any cause whatsoever.[40] Evidently, the
undertaking was intended to bar any claim against Tropicana for any
loss of the contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The New Civil
Code is explicit that the responsibility of the hotel-keeper shall extend
to loss of, or injury to, the personal property of the guests even if
caused by servants or employees of the keepers of hotels or inns as
well as by strangers, except as it may proceed from any force majeure.
[41]
 It is the loss through force majeure that may spare the hotel-keeper
from liability. In the case at bar, there is no showing that the act of the
thief or robber was done with the use of arms or through an irresistible
force to qualify the same as force majeure.[42]
Petitioners likewise anchor their defense on Article 2002[43] which
exempts the hotel-keeper from liability if the loss is due to the acts of
his guest, his family, or visitors. Even a cursory reading of the provision
would lead us to reject petitioners contention. The justification they
raise would render nugatory the public interest sought to be protected
by the provision. What if the negligence of the employer or its
employees facilitated the consummation of a crime committed by the
registered guests relatives or visitor? Should the law exculpate the
hotel from liability since the loss was due to the act of the visitor of the
registered guest of the hotel? Hence, this provision presupposes that
the hotel-keeper is not guilty of concurrent negligence or has not
contributed in any degree to the occurrence of the loss. A depositary is
not responsible for the loss of goods by theft, unless his actionable
negligence contributes to the loss.[44]
In the case at bar, the responsibility of securing the safety deposit box
was shared not only by the guest himself but also by the management
since two keys are necessary to open the safety deposit box. Without
the assistance of hotel employees, the loss would not have occurred.
Thus, Tropicana was guilty of concurrent negligence in allowing Tan,
who was not the registered guest, to open the safety deposit box of
McLoughlin, even assuming that the latter was also guilty of negligence
in allowing another person to use his key. To rule otherwise would
result in undermining the safety of the safety deposit boxes in hotels
for the management will be given imprimatur to allow any person,
under the pretense of being a family member or a visitor of the guest,
to have access to the safety deposit box without fear of any liability
that will attach thereafter in case such person turns out to be a
complete stranger. This will allow the hotel to evade responsibility for
any liability incurred by its employees in conspiracy with the guests
relatives and visitors.
Petitioners contend that McLoughlins case was mounted on the theory
of contract, but the trial court and the appellate court upheld the grant
of the claims of the latter on the basis of tort.[45] There is nothing
anomalous in how the lower courts decided the controversy for this
Court has pronounced a jurisprudential rule that tort liability can exist
even if there are already contractual relations. The act that breaks the
contract may also be tort.[46]
As to damages awarded to McLoughlin, we see no reason to modify the
amounts awarded by the appellate court for the same were based on
facts and law. It is within the province of lower courts to settle factual
issues such as the proper amount of damages awarded and such
finding is binding upon this Court especially if sufficiently proven by
evidence and not unconscionable or excessive. Thus, the appellate
court correctly awarded McLoughlin Two Thousand US Dollars
(US$2,000.00) and Four Thousand Five Hundred Australian dollars
(AUS$4,500.00) or their peso equivalent at the time of payment,
[47]
 being the amounts duly proven by evidence.[48] The alleged loss that
took place prior to 16 April 1988 was not considered since the amounts
alleged to have been taken were not sufficiently established by
evidence. The appellate court also correctly awarded the sum
of P308,880.80, representing the peso value for the air fares from
Sydney to Manila and back for a total of eleven (11) trips;[49] one-half
of P336,207.05 or P168,103.52 representing payment to Tropicana;
[50]
 one-half of P152,683.57 or P76,341.785 representing payment to
Echelon Tower;[51] one-half of P179,863.20 or P89,931.60 for the taxi or
transportation expenses from McLoughlins residence to Sydney Airport
and from MIA to the hotel here in Manila, for the eleven (11) trips;
[52]
 one-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;[53] one-half of P356,400.00 or P178,000.00 representing
expenses for food and maintenance.[54]
The amount of P50,000.00 for moral damages is reasonable. Although
trial courts are given discretion to determine the amount of moral
damages, the appellate court may modify or change the amount
awarded when it is palpably and scandalously excessive. Moral
damages are not intended to enrich a complainant at the expense of a
defendant. They are awarded only to enable the injured party to obtain
means, diversion or amusements that will serve to alleviate the moral
suffering he has undergone, by reason of defendants culpable action.[55]
The awards of P10,000.00 as exemplary damages and P200,000.00
representing attorneys fees are likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court
of Appeals dated 19 October 1995 is hereby AFFIRMED. Petitioners are
directed, jointly and severally, to pay private respondent the following
amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time
of payment;
(2) P308,880.80, representing the peso value for the air fares from
Sydney to Manila and back for a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to
Tropicana Copacabana Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to
Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation
expense from McLoughlins residence to Sydney Airport and from MIA
to the hotel here in Manila, for the eleven (11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for
food and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorneys fees.

[G.R. No. 144934. January 15, 2004]

With costs. ADELFA S. RIVERA, CYNTHIA S. RIVERA, and JOSE S.

RIVERA, petitioners, vs. FIDELA DEL ROSARIO (deceased and
SO ORDERED. substituted by her co-respondents), and her children, OSCAR, ROSITA,
VIOLETA, ENRIQUE JR., CARLOS, JUANITO and ELOISA, all surnamed
DEL ROSARIO, respondents.

Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr.,

Carlos, Juanito and Eloisa, all surnamed Del Rosario, were the
registered owners of Lot No. 1083-C, a parcel of land situated at
Lolomboy, Bulacan. This lot spanned an area of 15,029 square meters
and was covered by TCT No. T-50.668 (M) registered in the Registry of
Deeds of Bulacan. 

On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa,
executed a Special Power of Attorney[3] in favor of their mother and co-
respondent, Fidela, authorizing her to sell, lease, mortgage, transfer
and convey their rights over Lot No. 1083-C.[4] Subsequently, Fidela
borrowed P250,000 from Mariano Rivera in the early part of 1987. To
secure the loan, she and Mariano Rivera agreed to execute a deed of
real estate mortgage and an agreement to sell the land. Consequently,
on March 9, 1987, Mariano went to his lawyer, Atty. Efren Barangan, to
have three documents drafted: the Deed of Real Estate Mortgage[5],
a Kasunduan (Agreement to Sell)[6], and a Deed of Absolute Sale.[7]

The Kasunduan provided that the children of Mariano Rivera, herein

petitioners Adelfa, Cynthia and Jose, would purchase Lot No. 1083-C for
a consideration of P2,141,622.50. This purchase price was to be paid in
three installments: P250,000 upon the signing of
the Kasunduan, P750,000 on August 31, 1987, and P1,141,622.50 on
December 31, 1987.[8] It also provided that the Deed of Absolute Sale
would be executed only after the second installment is paid and a
postdated check for the last installment is deposited with Fidela.[9] As
previously stated, however, Mariano had already caused the drafting of
the Deed of Absolute Sale. But unlike the Kasunduan, the said deed
stipulated a purchase price of only P601,160, and covered a certain Lot
No. 1083-A in addition to Lot No. 1083-C.[10] This deed, as well as
the Kasunduan and the Deed of Real Estate Mortgage[11], was signed by
Marianos children, petitioners Adelfa, Cynthia and Jose, as buyers and
mortgagees, on March 9, 1987.[12]
The following day, Mariano Rivera returned to the office of Atty.
Barangan, bringing with him the signed documents.He also brought
with him Fidela and her son Oscar del Rosario, so that the latter two
may sign the mortgage and the Kasunduan there.  was then made on August 12, 1992. Later, it was inscribed on TCT No.
Although Fidela intended to sign only the Kasunduan and the Real
Estate Mortgage, she inadvertently affixed her signature on all the
three documents in the office of Atty. Barangan on the said day, March
10, 1987. Mariano then gave Fidela the amount of P250,000. On
October 30, 1987, he also gave Fidela a check for P200,000. In the
ensuing months, also, Mariano gave Oscar del Rosario several amounts
totaling P67,800 upon the latters demand for the payment of the
balance despite Oscars lack of authority to receive payments under
the Kasunduan.[13] While Mariano was making payments to Oscar,
Fidela entrusted the owners copy of TCT No. T-50.668 (M) to Mariano
to guarantee compliance with the Kasunduan.
When Mariano unreasonably refused to return the TCT,[14] one of the
respondents, Carlos del Rosario, caused the annotation on TCT No. T-
50.668 (M) of an Affidavit of Loss of the owners duplicate copy of the
title on September 7, 1992. This annotation was offset, however, when
Mariano registered the Deed of Absolute Sale on October 13, 1992, and
afterwards caused the annotation of an Affidavit of Recovery of Title on
October 14, 1992. Thus, TCT No. T-50.668 (M) was cancelled, and in its
place was issued TCT No. 158443 (M) in the name of petitioners Adelfa,
Cynthia and Jose Rivera.[15]
Meanwhile, the Riveras, representing themselves to be the new owners
of Lot No. 1083-C, were also negotiating with the tenant, Feliciano
Nieto, to rid the land of the latters tenurial right. When Nieto refused
to relinquish his tenurial right over 9,000 sq. m. of the land, the Riveras
offered to give 4,500 sq. m. in exchange for the surrender. Nieto could
not resist and he accepted. Subdivision Plan No. Psd-031404-052505
158443 (M), and Lot No. 1083-C was divided into Lots 1083 C-1 and
1083 C-2.[16]
To document their agreement with Feliciano Nieto, the Riveras
executed a Kasulatan sa Pagtatakwil ng Karapatan sa Pagmamay-ari
ng Bahagi ng Isang Lagay na Lupa (Written Abdication of Rights over a
Portion of a Parcel of Land)[17]on November 16, 1992. Four days later,
they registered the document with the Registry of Deeds. Two titles
were then issued: TCT No. T-161784 (M) in the name of Nieto, for
4,500 sq. m. of land, and TCT No. T-161785 (M) in the name of
petitioners Adelfa, Cynthia and Jose Rivera, over the remaining 10,529
sq. m. of land.[18]
On February 18, 1993, respondents filed a complaint[19] in the Regional
Trial Court of Malolos, asking that the Kasunduan be rescinded for
failure of the Riveras to comply with its conditions, with damages. They
also sought the annulment of the Deed of Absolute Sale on the ground
of fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-
161785 (M), and the reconveyance to them of the entire property with
TCT No. T-50.668 (M) restored.[20]
Respondents claimed that Fidela never intended to enter into a deed of
sale at the time of its execution and that she signed the said deed on
the mistaken belief that she was merely signing copies of
the Kasunduan. According to respondents, the position where Fidelas
name was typed and where she was supposed to sign her name in
the Kasunduan was roughly in the same location where it was typed in
the Deed of Absolute Sale. They argued that given Fidelas advanced age
(she was then around 72 at the time)[21] and the fact that the
documents were stacked one on top of the other at the time of signing,
Fidela could have easily and mistakenly presumed that she was merely
signing additional copies of the Kasunduan.[22] They also alleged that
petitioners acquired possession of the TCT through fraud and
machination.
In their defense, petitioners denied the allegations and averred that the
Deed of Absolute Sale was validly entered into by both
parties. According to petitioners, Fidela del Rosario mortgaged Lot No.
1083-C to their predecessor in interest, Mariano Rivera, on March 9,
1987. But on the following day Fidela decided to sell the lot to
petitioners for P2,161,622.50. When Mariano agreed (on the condition
that Lot No. 1083-C will be delivered free from all liens and
encumbrances), the Kasunduan was consequently drawn up and
signed. After that, however, Fidela informed Mariano of the existence
of Feliciano Nietos tenancy right over the lot to the extent of 9,000 sq.
m. When Mariano continued to want the land, albeit on a much lower
price of only P601,160, as he had still to deal with Feliciano Nieto, the
parties drafted the Deed of Absolute Sale on March 10, 1987, to
supersede the Kasunduan. 
Petitioners likewise argued that respondents cause of action had been
barred by laches or estoppel since more than four years has lapsed
from the time the parties executed the Deed of Absolute Sale on March
10, 1987, to the time respondents instituted their complaint on
February 18, 1993.
Petitioners also filed a counterclaim asking for moral and exemplary
damages and the payment of attorneys fees and costs of suit.
After trial, the RTC ruled in favor of respondents:
WHEREFORE, in the light of all the foregoing, judgment is hereby
rendered:
1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null
and void;
2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in
the names of Adelfa, Cynthia and Jose, all surnamed Rivera;
3. Declaring the plaintiffs to be the legitimate owners of the land
covered by TCT No. T-161785 (M) and ordering defendant Adelfa,
Cynthia, and Jose, all surnamed Rivera, to reconvey the same to the
plaintiffs;
4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-
161785 (M) and to issue in its place a new certificate of title in the
name of the plaintiffs as their names appear in TCT No. T-50.668;
5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as
valid;
6. Ordering the defendant Riveras to pay the plaintiffs solidarily the
following amounts:
a) P191,246.98 as balance for the 4,500 square-meter portion given to
defendant Feliciano Nieto
b) P200,000.00 as moral damages
c) P50,000.00 as exemplary damages
d) P50,000.00 as attorneys fees
e) costs of the suit.
7. Dismissing the counterclaim of the defendant Riveras;
8. Dismissing the counterclaim and the crossclaim of defendant
Feliciano Nieto.
SO ORDERED.[23]
The trial court ruled that Fidelas signature in the Deed of Absolute Sale
was genuine, but found that Fidela never intended to sign the said
deed. Noting the peculiar differences between the Kasunduan and the
Deed of Absolute Sale, the trial court concluded that the Riveras were
guilty of fraud in securing the execution of the deed and its registration
in the Registry of Deeds.[24] This notwithstanding, the trial court
sustained the validity of TCT No. T-161784 (M) in the name of Feliciano
Nieto since there was no fraud proven on Nietos part. The trial court
found him to have relied in good faith on the representations of
ownership of Mariano Rivera. Thus, Nietos rights, according to the trial
court, were akin to those of an innocent purchaser for value.[25]
On the foregoing, the trial court rescinded the Kasunduan but ruled
that the P450,000 paid by petitioners be retained by respondents as
payment for the 4,500 sq. m. portion of Lot No. 1083-C that petitioners
gave to Nieto.[26] The trial court likewise ordered petitioners to
pay P191,246.98 as balance for the price of the land given to
Nieto, P200,000 as moral damages, P50,000 as exemplary
damages, P50,000 as attorneys fees, and the costs of suit.[27]
On appeal to the Court of Appeals, the trial courts judgment was
modified as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED with
the MODIFICATION that the Deed of Absolute Sale dated March 10,
1987 is declared null and void only insofar as Lot No. 1083-C is
concerned, but valid insofar as it conveyed Lot No. 1083-A, that TCT No.
158443 (M) is valid insofar as Lot No. 1083-A is concerned and should
not be annulled, and increasing the amount to be paid by the
defendants-appellants to the plaintiffs-appellees for the 4,500 square
meters of land given to Feliciano Nieto to P323,617.50.
Costs against the defendants-appellants.
SO ORDERED.[28]
Petitioners motion for reconsideration was denied. Hence, this petition.
While this petition was pending, respondent Fidela del Rosario
died. She was substituted by her children, herein respondents.
In this petition, petitioners rely on the following grounds:
I
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE
AND REVERSIBLE ERROR IN AWARDING LOT 1083-A IN FAVOR OF THE
PETITIONERS AND FELICIANO NIETO WHICH IS ADMITTEDLY A PART
AND PORTION OF THE EXISTING NORTH LUZON EXPRESSWAY AND AS
SUCH ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION, OR WITH
GRAVE ABUSE OF JUDICIAL DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION.
II
RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND
OTHER LAWFUL FEES WITH THE OFFICE OF THE CLERK OF COURT OF
THE COURT A QUO (RTC, MALOLOS, BULACAN) AT THE TIME OF THE
FILING OF THE ORIGINAL COMPLAINT IN 1993 PURSUANT TO THE
SIOL[29] DOCTRINE.
III
[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR
IN THE AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF
THE CORRECT DOCKET, FILING AND OTHER LAWFUL FEES.
IV
THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTS
CAUSE OF ACTION AND OVER THE RESCONSIDERING THAT FELICIANO
NIETO IS AN AGRICULTURAL TENANT OF THE RICELAND IN QUESTION.
V
RESPONDENTS[] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF
CONTRACT WHICH IS SUBSIDIARY IN NATURE[,] AND ANNULMENT OF
SALE[,] BOTH OF WHICH HAVE ALREADY PRESCRIBED UNDER ARTICLES
1389 AND 1391 OF THE CIVIL CODE.[30]
Petitioners assignment of errors may be reduced into three issues: (1)
Did the trial court acquire jurisdiction over the case, despite an alleged
deficiency in the amount of filing fees paid by respondents and despite
the fact that an agricultural tenant is involved in the case? (2) Did the
Court of Appeals correctly rule that the Deed of Absolute Sale is valid
insofar as Lot 1083-A is concerned? (3) Is the respondents cause of
action barred by prescription?
On the first issue, petitioners contend that jurisdiction was not validly
acquired because the filing fees respondents paid was only P1,554.45
when the relief sought was reconveyance of land that was
worth P2,141,622.50 under the Kasunduan. They contend that
respondents should have paid filing fees amounting to P12,183.70. In
support of their argument, petitioners invoke the doctrine in Sun
Insurance Office, Ltd., (SIOL) v. Asuncion[31] and attach a Petitioners also contend that the trial court does not have jurisdiction
certification[32]from the Clerk of Court of the RTC of Quezon City.
Respondents counter that it is beyond dispute that they paid the
correct amount of docket fees when they filed the complaint. If the
assessment was inadequate, they could not be faulted because the
clerk of court made no notice of demand or reassessment, respondents
argue. Respondents also add that since petitioners failed to contest the
alleged underpayment of docket fees in the lower court, they cannot
raise the same on appeal.[33]
We rule in favor of respondents. Jurisdiction was validly acquired over
the complaint. In Sun Insurance Office, Ltd., (SIOL) v. Asuncion,[34] this
Court ruled that the filing of the complaint or appropriate initiatory
pleading and the payment of the prescribed docket fee vest a trial
court with jurisdiction over the subject matter or nature of the
action. If the amount of docket fees paid is insufficient considering the
amount of the claim, the clerk of court of the lower court involved or
his duly authorized deputy has the responsibility of making a deficiency
assessment. The party filing the case will be required to pay the
deficiency, but jurisdiction is not automatically lost.
Here it is beyond dispute that respondents paid the full amount of
docket fees as assessed by the Clerk of Court of the Regional Trial Court
of Malolos, Bulacan, Branch 17, where they filed the complaint. If
petitioners believed that the assessment was incorrect, they should
have questioned it before the trial court. Instead, petitioners belatedly
question the alleged underpayment of docket fees through this
petition, attempting to support their position with the opinion and
certification of the Clerk of Court of another judicial region. Needless to
state, such certification has no bearing on the instant case.
over the case because it involves an agricultural tenant. They insist that
by virtue of Presidential Decree Nos. 316 and 1038,[35] it is the
Department of Agrarian Reform Adjudication Board (DARAB) that has
jurisdiction.[36]
Petitioners contention lacks merit. The DARAB has exclusive original
jurisdiction over cases involving the rights and obligations of persons
engaged in the management, cultivation and use of all agricultural
lands covered by the Comprehensive Agrarian Reform Law.[37] However,
the cause of action in this case is primarily against the petitioners, as
indispensable parties, for rescission of the Kasunduan and nullification
of the Deed of Sale and the TCTs issued because of them. Feliciano
Nieto was impleaded merely as a necessary party, stemming from
whatever rights he may have acquired by virtue of the agreement
between him and the Riveras and the corresponding TCT issued. Hence,
it is the regular judicial courts that have jurisdiction over the case.
On the second issue, contrary to the ruling of the Court of Appeals that
the Deed of Absolute Sale is void only insofar as it covers Lot No. 1083-
C, we find that the said deed is void in its entirety. Noteworthy is that
during the oral arguments before the Court of Appeals, both petitioners
and respondents admitted that Lot No. 1083-A had been expropriated
by the government long before the Deed of Absolute Sale was entered
into.[38] Whats more, this case involves only Lot No. 1083-C. It never
involved Lot 1083-A. Thus, the Court of Appeals had no jurisdiction to
adjudicate on Lot 1083-A, as it was never touched upon in the
pleadings or made the subject of evidence at trial.[39]
As to the third issue, petitioners cite Articles 1383,[40] 1389[41] and
1391[42] of the New Civil Code. They submit that the complaint for
rescission of the Kasunduan should have been dismissed, for
respondents failure to prove that there was no other legal means
available to obtain reparation other than to file a case for rescission, as
required by Article 1383. Moreover, petitioners contend that even
assuming respondents had satisfied this requirement, prescription had
already set in, the complaint having been filed in 1992 or five years
after the execution of the Deed of Absolute Sale in March 10, 1987.  whom they represent suffer lesion by more than one-fourth of the
Respondents counter that Article 1383 of the New Civil Code applies
only to rescissible contracts enumerated under Article 1381 of the
same Code, while the cause of action in this case is for rescission of a
reciprocal obligation, to which Article 1191[43] of the Code applies. They
assert that their cause of action had not prescribed because the four-
year prescriptive period is counted from the date of discovery of the
fraud, which, in this case, was only in 1992.
Rescission of reciprocal obligations under Article 1191 of the New Civil
Code should be distinguished from rescission of contracts under Article
1383 of the same Code. Both presuppose contracts validly entered into
as well as subsisting, and both require mutual restitution when proper,
nevertheless they are not entirely identical.[44]
In countless times there has been confusion between rescission under
Articles 1381 and 1191 of the Civil Code.Through this case we again
emphasize that rescission of reciprocal obligations under Article 1191 is
different from rescissible contracts under Chapter 6 of the law on
contracts under the Civil Code.[45] While Article 1191 uses the
term rescission, the original term used in Article 1124 of the old Civil
Code, from which Article 1191 was based, was resolution.[46] Resolution
is a principal action that is based on breach of a party, while rescission
under Article 1383 is a subsidiary action limited to cases of rescission
for lesion under Article 1381 of the New Civil Code,[47] which expressly
enumerates the following rescissible contracts:
ART. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter
suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in
any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval of
the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
Obviously, the Kasunduan does not fall under any of those situations
mentioned in Article 1381. Consequently, Article 1383 is
inapplicable. Hence, we rule in favor of the respondents.
May the contract entered into between the parties, however, be
rescinded based on Article 1191?
A careful reading of the Kasunduan reveals that it is in the nature of a
contract to sell, as distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee upon the delivery of
the thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price.[48] In a contract to sell, the payment of
the purchase price is a positive suspensive condition,[49] the failure of
which is not a breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from acquiring an
obligatory force.[50]
Respondents in this case bound themselves to deliver a deed of
absolute sale and clean title covering Lot No. 1083-C after petitioners
have made the second installment. This promise to sell was subject to
the fulfillment of the suspensive condition that petitioners
pay P750,000 on August 31, 1987, and deposit a postdated check for
the third installment of P1,141,622.50.[51] Petitioners, however, failed to
complete payment of the second installment. The non-fulfillment of the
condition rendered the contract to sell ineffective and without force
and effect. It must be stressed that the breach contemplated in Article
1191 of the New Civil Code is the obligors failure to comply with an
obligation already extant, not a failure of a condition to render binding
that obligation.[52] Failure to pay, in this instance, is not even a breach
but an event that prevents the vendors obligation to convey title from
acquiring binding force.[53] Hence, the agreement of the parties in the
instant case may be set aside, but not because of a breach on the part
of petitioners for failure to complete payment of the second
installment. Rather, their failure to do so prevented the obligation of
respondents to convey title from acquiring an obligatory force.[54]
Coming now to the matter of prescription. Contrary to petitioners
assertion, we find that prescription has not yet set in. Article 1391
states that the action for annulment of void contracts shall be brought
within four years. This period shall begin from the time the fraud or
mistake is discovered. Here, the fraud was discovered in 1992 and the
complaint filed in 1993. Thus, the case is well within the prescriptive
period.
On the matter of damages, the Court of Appeals awarded
respondents P323,617.50 as actual damages for the loss of the land
that was given to Nieto, P200,000 as moral damages, P50,000 as
exemplary damages, P50,000 as attorneys fees and the costs of
suit. Modifications are in order, however.
Moral damages may be recovered in cases where one willfully causes
injury to property, or in cases of breach of contract where the other
party acts fraudulently or in bad faith.[55] Exemplary damages are
imposed by way of example or correction for the public good,[56] when
the party to a contract acts in a wanton, fraudulent, oppressive or
malevolent manner.[57] Attorneys fees are allowed when exemplary
damages are awarded and when the party to a suit is compelled to
incur expenses to protect his interest.[58]
While it has been sufficiently proven that the respondents are entitled
to damages, the actual amounts awarded by the lower court must be
reduced because damages are not intended for a litigants enrichment,
at the expense of the petitioners.[59] The purpose for the award of
damages other than actual damages would be served, in this case, by
reducing the amounts awarded.
Respondents were amply compensated through the award of actual
damages, which should be sustained. The other damages awarded
total P300,000, or almost equivalent to the amount of actual
damages. Practically this will double the amount of actual damages
awarded to respondents. To avoid breaching the doctrine on
enrichment, award for damages other than actual should be
reduced. Thus, the amount of moral damages should be set at
only P30,000, and the award of exemplary damages at
only P20,000. The award of attorneys fees should also be reduced
to P20,000, which under the circumstances of this case appears
justified and reasonable.

WHEREFORE, the assailed decision of the Court of Appeals is

MODIFIED. The Deed of Absolute Sale in question is declared NULL and
VOID in its entirety. Petitioners are ORDERED to pay
respondents P323,617.50 as actual damages, P30,000.00 as moral
damages, P20,000.00 as exemplary damages and P20,000.00 as G.R. No. 139523             May 26, 2005
attorneys fees. No pronouncement as to costs.
SPS. FELIPE AND LETICIA CANNU, petitioners, 
SO ORDERED. vs.
SPS. GIL AND FERNANDINA GALANG AND NATIONAL HOME
MORTGAGE FINANCE CORPORATION, respondents.

Before Us is a Petition for Review on Certiorari which seeks to set aside

the decision1 of the Court of Appeals dated 30 September 1998 which
affirmed with modification the decision of Branch 135 of the Regional
Trial Court (RTC) of Makati City, dismissing the complaint for Specific
Performance and Damages filed by petitioners, and its Resolution2dated
22 July 1999 denying petitioners’ motion for reconsideration.

A complaint3 for Specific Performance and Damages was filed by

petitioners-spouses Felipe and Leticia Cannu against respondents-
spouses Gil and Fernandina Galang and the National Home Mortgage
Finance Corporation (NHMFC) before Branch 135 of the RTC of Makati,
on 24 June 1993. The case was docketed as Civil Case No. 93-2069.
The facts that gave rise to the aforesaid complaint are as follows:
Respondents-spouses Gil and Fernandina Galang obtained a loan from
Fortune Savings & Loan Association for P173,800.00 to purchase a
house and lot located at Pulang Lupa, Las Piñas, with an area of 150
square meters covered by Transfer Certificate of Title (TCT) No. T-8505
in the names of respondents-spouses. To secure payment, a real estate
mortgage was constituted on the said house and lot in favor of Fortune
Savings & Loan Association. In early 1990, NHMFC purchased the
mortgage loan of respondents-spouses from Fortune Savings & Loan
Association for P173,800.00.
4
Respondent Fernandina Galang authorized  her attorney-in-fact,
Adelina R. Timbang, to sell the subject house and lot.
Petitioner Leticia Cannu agreed to buy the property for P120,000.00
and to assume the balance of the mortgage obligations with the
NHMFC and with CERF Realty5 (the Developer of the property).
Of the P120,000.00, the following payments were made by petitioners:
Date Amount Paid
July 19, 1990 P40,000.006
March 13, 1991 15,000.007
April 6, 1991 15,000.008
November 28, 1991
5,000.009
Total P75,000.00
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of Mortgage Obligation10 dated 20
August 1990 was made and entered into by and between spouses
Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot in question which
contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the sum of TWO
HUNDRED FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency,
receipt of which is hereby acknowledged by the Vendors and the
assumption of the mortgage obligation, the Vendors hereby sell, cede
and transfer unto the Vendees, their heirs, assigns and successor in
interest the above-described property together with the existing
improvement thereon.
It is a special condition of this contract that the Vendees shall assume
and continue with the payment of the amortization with the National
Home Mortgage Finance Corporation Inc. in the outstanding balance
of P_______________, as of __________ and shall comply with and
abide by the terms and conditions of the mortgage document dated
Feb. 27, 1989 and identified as Doc. No. 82, Page 18, Book VII, S. of
1989 of Notary Public for Quezon City Marites Sto. Tomas Alonzo, as if
the Vendees are the original signatories.
Petitioners immediately took possession and occupied the house and
lot.
Petitioners made the following payments to the NHMFC: and pay the remaining unpaid loan balance. Petitioners’ formal
assumption of mortgage was not approved by the NHMFC.19
Date Amount Receipt
Because the Cannus failed to fully comply with their obligations,
July 9, 1990 P 14,312.47 D-503986 respondent Fernandina Galang, on 21 May 1993, paid P233,957.64 as
full payment of her remaining mortgage loan with NHMFC.20
March 12, 1991 8,000.00  D-729478
Petitioners opposed the release of TCT No. T-8505 in favor of
February 4, 1992 10,000.00 D-999127 respondents-spouses insisting that the subject property had already
been sold to them. Consequently, the NHMFC held in abeyance the
release of said TCT.
March 31, 1993 6,000.00 E-563749

Thereupon, a Complaint for Specific Performance and Damages was

April 19, 1993 10,000.00
April 27, 1993 7,000.00
  P 55,312.47
17
Petitioners paid the "equity" or second mortgage to CERF Realty.
Despite requests from Adelina R. Timbang and Fernandina Galang to
pay the balance of P45,000.00 or in the alternative to vacate the
property in question, petitioners refused to do so.
In a letter18 dated 29 March 1993, petitioner Leticia Cannu informed
Mr. Fermin T. Arzaga, Vice President, Fund Management Group of the
NHMFC, that the ownership rights over the land covered by TCT No. T-
8505 in the names of respondents-spouses had been ceded and
transferred to her and her husband per Deed of Sale with Assumption
of Mortgage, and that they were obligated to assume the mortgage
E-582432
filed asking, among other things, that petitioners (plaintiffs therein) be
declared the owners of the property involved subject to
E-618326 reimbursements of the amount made by respondents-spouses
(defendants therein) in preterminating the mortgage loan with NHMFC.
 
Respondent NHMFC filed its Answer.21 It claimed that petitioners have
no cause of action against it because they have not submitted the
formal requirements to be considered assignees and successors-in-
interest of the property under litigation.
In their Answer,22 respondents-spouses alleged that because of
petitioners-spouses’ failure to fully pay the consideration and to
update the monthly amortizations with the NHMFC, they paid in full
the existing obligations with NHMFC as an initial step in the rescission
and annulment of the Deed of Sale with Assumption of Mortgage. In
their counterclaim, they maintain that the acts of petitioners in not
fully complying with their obligations give rise to rescission of the Deed
of Sale with Assumption of Mortgage with the corresponding damages.
After trial, the lower court rendered its decision ratiocinating:
On the basis of the evidence on record, testimonial and documentary,
this Court is of the view that plaintiffs have no cause of action either
against the spouses Galang or the NHMFC. Plaintiffs have admitted on
record they failed to pay the amount of P45,000.00 the balance due to
the Galangs in consideration of the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. "C" and "3"). Consequently, this is a breach
of contract and evidently a failure to comply with obligation arising
from contracts. . . In this case, NHMFC has not been duly informed due
to lack of formal requirements to acknowledge plaintiffs as legal
assignees, or legitimate tranferees and, therefore, successors-in-
interest to the property, plaintiffs should have no legal personality to
claim any right to the same property.23
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not been proven
even by preponderance of evidence, and, as such, plaintiffs have no
cause of action against the defendants herein. The above-entitled case
is ordered dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim, in favor of
defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of Mortgage Obligation
(Exhs. "C" and "3") rescinded and hereby declared the same as nullified
without prejudice for defendants-spouses Galang to return the partial
payments made by plaintiffs; and the plaintiffs are ordered, on the
other hand, to return the physical and legal possession of the subject
property to spouses Galang by way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC, each the amount of
P10,000.00 as litigation expenses, jointly and severally;
3. To pay attorney’s fees to defendants in the amount of P20,000.00,
jointly and severally; and
4. The costs of suit.
5. No moral and exemplary damages awarded.24
A Motion for Reconsideration25 was filed, but same was denied.
Petitioners appealed the decision of the RTC to the Court of Appeals.
On 30 September 1998, the Court of Appeals disposed of the appeal as
follows:
Obligations arising from contract have the force of law between the
contracting parties and should be complied in good faith. The terms of
a written contract are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to pay defendants-
appellees spouses Galang the sum of P250,000.00, and to assume the
mortgage.
Records show that upon the execution of the Contract of Sale or on July
19, 1990 plaintiffs-appellants paid defendants-appellees spouses
Galang the amount of only P40,000.00.
The next payment was made by plaintiffs-appellants on March 13, 1991
or eight (8) months after the execution of the contract. Plaintiffs-
appellants paid the amount of P5,000.00.
The next payment was made on April 6, 1991 for P15,000.00 and on
November 28, 1991, for another P15,000.00.
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang.
Out of the P250,000.00 purchase price which was supposed to be paid
on the day of the execution of contract in July, 1990 plaintiffs-
appellants have paid, in the span of eight (8) years, from 1990 to
present, the amount of only P75,000.00. Plaintiffs-appellants should
have paid the P250,000.00 at the time of the execution of contract in
1990. Eight (8) years have already lapsed and plaintiffs-appellants have
not yet complied with their obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the filing of this case, of
the Managerial Check in the amount of P278,957.00 dated January 24,
1994 cannot be considered as an effective mode of payment.
Performance or payment may be effected not by tender of payment
alone but by both tender and consignation. It is consignation which is
essential in order to extinguish plaintiffs-appellants obligation to pay
the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with their obligation
to pay the monthly amortizations due on the mortgage.
In the span of three (3) years from 1990 to 1993, plaintiffs-appellants
made only six payments. The payments made by plaintiffs-appellants
are not even sufficient to answer for the arrearages, interests and
penalty charges.
On account of these circumstances, the rescission of the Contract of
Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed decision is hereby
AFFIRMED with modification. Defendants-appellees spouses Galang are
hereby ordered to return the partial payments made by plaintiff-
appellants in the amount of P135,000.00.
No pronouncement as to cost.26
The motion for reconsideration27 filed by petitioners was denied by the
Court of Appeals in a Resolution28 dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT
PETITIONERS’ BREACH OF THE OBLIGATION WAS SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN EFFECT IT
HELD THAT THERE WAS NO SUBSTANTIAL COMPLIANCE WITH THE
OBLIGATION TO PAY THE MONTHLY AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO
CONSIDER THE OTHER FACTS AND CIRCUMSTANCES THAT MILITATE
AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO
CONSIDER THAT THE ACTION FOR RESCISSION IS SUBSIDIARY.29
Before discussing the errors allegedly committed by the Court of
Appeals, it must be stated a priori that the latter made a
misappreciation of evidence regarding the consideration of the
property in litigation when it relied solely on the Deed of Sale with
Assumption of Mortgage executed by the respondents-spouses Galang
and petitioners-spouses Cannu.
As above-quoted, the consideration for the house and lot stated in the
Deed of Sale with Assumption of Mortgage is P250,000.00, plus the
assumption of the balance of the mortgage loan with NHMFC.
However, after going over the record of the case, more particularly the
Answer of respondents-spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the outstanding loan
mortgage with NHMFC, and of the "equity" or second mortgage with
CERF Realty (Developer of the property).30
Nowhere in the complaint and answer of the petitioners-spouses
Cannu and respondents-spouses Galang shows that the consideration is
"P250,000.00." In fact, what is clear is that of the P120,000.00 to be
paid to the latter, only P75,000.00 was paid to Adelina Timbang, the
spouses Galang’s attorney-in-fact. This debunks the provision in the
Deed of Sale with Assumption of Mortgage that the amount
of P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption of Mortgage failed to
express the true intent and agreement of the parties regarding its
consideration, the same should not be fully relied upon. The foregoing
facts lead us to hold that the case on hand falls within one of the
recognized exceptions to the parole evidence rule. Under the Rules of
Court, a party may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in his pleading,
among others, its failure to express the true intent and agreement of
the parties thereto.31
In the case at bar, when respondents-spouses enumerated in their
Answer the terms and conditions for the sale of the property under
litigation, which is different from that stated in the Deed of Sale with
Assumption with Mortgage, they already put in issue the matter of
consideration. Since there is a difference as to what the true
consideration is, this Court has admitted evidence aliunde to explain
such inconsistency. Thus, the Court has looked into the pleadings and
testimonies of the parties to thresh out the discrepancy and to clarify
the intent of the parties.
As regards the computation32 of petitioners as to the breakdown of
the P250,000.00 consideration, we find the same to be self-serving and
unsupported by evidence.
On the first assigned error, petitioners argue that the Court erred when
it ruled that their breach of the obligation was substantial.
Settled is the rule that rescission or, more accurately, resolution,33 of a
party to an obligation under Article 119134 is predicated on a breach of
faith by the other party that violates the reciprocity between
them.35 Article 1191 reads:
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.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual breach of the
contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in
making the agreement.36 The question of whether a breach of contract
is substantial depends upon the attending circumstances37 and not
merely on the percentage of the amount not paid.
In the case at bar, we find petitioners’ failure to pay the remaining
balance of P45,000.00 to be substantial. Even assuming arguendo that
only said amount was left out of the supposed consideration
of P250,000.00, or eighteen (18%) percent thereof, this percentage is
still substantial. Taken together with the fact that the last payment
made was on 28 November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding balance of the
mortgage loan with NHMFC, the intention of petitioners to renege on
their obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate Appellate
Court,38 petitioners ask that they be granted additional time to
complete their obligation. Under the facts of the case, to give
petitioners additional time to comply with their obligation will be
putting premium on their blatant non-compliance of their obligation.
They had all the time to do what was required of them (i.e., pay the
P45,000.00 balance and to properly assume the mortgage loan with the
NHMFC), but still they failed to comply. Despite demands for them to
pay the balance, no payments were made.39
The fact that petitioners tendered a Manager’s Check to respondents-
spouses Galang in the amount of P278,957.00 seven months after the
filing of this case is of no moment. Tender of payment does not by itself
produce legal payment, unless it is completed by consignation.40 Their
failure to fulfill their obligation gave the respondents-spouses Galang
the right to rescission.
Anent the second assigned error, we find that petitioners were not
religious in paying the amortization with the NHMFC. As admitted by
them, in the span of three years from 1990 to 1993, their payments
covered only thirty months.41 This, indeed, constitutes another breach
or violation of the Deed of Sale with Assumption of Mortgage. On top
of this, there was no formal assumption of the mortgage obligation
with NHMFC because of the lack of approval by the NHMFC42 on
account of petitioners’ non-submission of requirements in order to be
considered as assignees/successors-in-interest over the property
covered by the mortgage obligation.43
On the third assigned error, petitioners claim there was no clear
evidence to show that respondents-spouses Galang demanded from
them a strict and/or faithful compliance of the Deed of Sale with
Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that demands were made from
petitioners to comply with their obligation. Adelina R. Timbang,
attorney-in-fact of respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after the last payment
made on 28 November 1991, but petitioners did not pay.44Respondent
Fernandina Galang stated in her Answer45 that upon her arrival from
America in October 1992, she demanded from petitioners the complete
compliance of their obligation by paying the full amount of the
consideration (P120,000.00) or in the alternative to vacate the property
in question, but still, petitioners refused to fulfill their obligations under
the Deed of Sale with Assumption of Mortgage. Sometime in March
1993, due to the fact that full payment has not been paid and that the
monthly amortizations with the NHMFC have not been fully updated,
she made her intentions clear with petitioner Leticia Cannu that she will
rescind or annul the Deed of Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part of petitioners to
demand the rescission of the Deed of Sale with Assumption of
Mortgage. The fact that respondents-spouses accepted, through their
attorney-in-fact, payments in installments does not constitute waiver
on their part to exercise their right to rescind the Deed of Sale with
Assumption of Mortgage. Adelina Timbang merely accepted the
installment payments as an accommodation to petitioners since they
kept on promising they would pay. However, after the lapse of
considerable time (18 months from last payment) and the purchase
price was not yet fully paid, respondents-spouses exercised their right
of rescission when they paid the outstanding balance of the mortgage
loan with NHMFC. It was only after petitioners stopped paying that
respondents-spouses moved to exercise their right of rescission.
Petitioners cite the case of Angeles v. Calasanz46 to support their claim
that respondents-spouses waived their right to rescind. We cannot
apply this case since it is not on all fours with the case before us. First,
in Angeles, the breach was only slight and casual which is not true in
the case before us. Second, in Angeles, the buyer had already paid
more than the principal obligation, while in the instant case, the buyers
(petitioners) did not pay P45,000.00 of the P120,000.00 they were
obligated to pay.
We find petitioners’ statement that there is no evidence of prejudice or
damage to justify rescission in favor of respondents-spouses to be
unfounded. The damage suffered by respondents-spouses is the effect
of petitioners’ failure to fully comply with their obligation, that is, their
failure to pay the remaining P45,000.00 and to update the
amortizations on the mortgage loan with the NHMFC. Petitioners have
in their possession the property under litigation. Having parted with
their house and lot, respondents-spouses should be fully compensated
for it, not only monetarily, but also as to the terms and conditions
agreed upon by the parties. This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue that no rescission
should be decreed because there is no evidence on record that
respondent Fernandina Galang is ready, willing and able to comply with
her own obligation to restore to them the total payments they made.
They added that no allegation to that effect is contained in
respondents-spouses’ Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely with the case
on hand. In the former, the failure of one party to perform his
obligation was the fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their obligation was due to
their own fault.
Second, what is stated in the book of Justice Edgardo L. Paras is "[i]t
(referring to the right to rescind or resolve) can be demanded only if
the plaintiff is ready, willing and able to comply with his own obligation,
and the other is not." In other words, if one party has complied or
fulfilled his obligation, and the other has not, then the former can
exercise his right to rescind. In this case, respondents-spouses complied
with their obligation when they gave the possession of the property in
question to petitioners. Thus, they have the right to ask for the
rescission of the Deed of Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on Article 1383 of the
Civil Code, maintain that the Court of Appeals erred when it failed to
consider that the action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission applies to contracts
enumerated in Articles 138148 of the Civil Code. The contract involved in
the case before us is not one of those mentioned therein. The provision
that applies in the case at bar is Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes in Universal Food
Corp. v. Court of Appeals,49 rescission under Article 1191 was
distinguished from rescission under Article 1381. Justice J.B.L. Reyes
said:
. . . The rescission on account of breach of stipulations is not predicated
on injury to economic interests of the party plaintiff but on the breach
of faith by the defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is
subordinated to anything other than the culpable breach of his
obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held bound to
fulfill his promises when the other violates his. As expressed in the old
Latin aphorism: "Non servanti fidem, non est fides servanda." Hence,
the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of that
prejudice, because it is the raison d être as well as the measure of the
right to rescind. Hence, where the defendant makes good the damages
caused, the action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion enumerated in
Article 1381 of the Civil Code of the Philippines, and does not apply to
cases under Article 1191.
From the foregoing, it is clear that rescission ("resolution" in the Old
Civil Code) under Article 1191 is a principal action, while rescission
under Article 1383 is a subsidiary action. The former is based on breach
by the other party that violates the reciprocity between the parties,
while the latter is not.
In the case at bar, the reciprocity between the parties was violated
when petitioners failed to fully pay the balance of P45,000.00 to
respondents-spouses and their failure to update their amortizations
with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses Galang
were not granted the right to unilaterally rescind the sale under the
Deed of Sale with Assumption of Mortgage, they should have first
asked the court for the rescission thereof before they fully paid the
outstanding balance of the mortgage loan with the NHMFC. They claim
that such payment is a unilateral act of rescission which violates
existing jurisprudence.
In Tan v. Court of Appeals,50 this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in
case one of the obligors should not comply with what is incumbent
upon him is clear from a reading of the Civil Code provisions. However,
it is equally settled that, in the absence of a stipulation to the contrary,
this power must be invoked judicially; it cannot be exercised solely on a
party’s own judgment that the other has committed a breach of the
obligation. Where there is nothing in the contract empowering the
petitioner to rescind it without resort to the courts, the petitioner’s
action in unilaterally terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a
provision authorizing its extrajudicial rescission in case one of the
parties fails to comply with what is incumbent upon him. This being the
case, respondents-spouses should have asked for judicial intervention
to obtain a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses’ Answer (with affirmative
defenses) with Counterclaim seeks for the rescission of the Deed of
Sale with Assumption of Mortgage, it behooves the court to settle the
matter once and for all than to have the case re-litigated again on an
issue already heard on the merits and which this court has already
taken cognizance of. Having found that petitioners seriously breached
the contract, we, therefore, declare the same is rescinded in favor of
respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of
the Deed of Sale with Assumption of Mortgage, it is the duty of the
court to require the parties to surrender whatever they may have
received from the other. The parties should be restored to their original
situation.51
The record shows petitioners paid respondents-spouses the amount of
P75,000.00 out of the P120,000.00 agreed upon. They also made
payments to NHMFC amounting to P55,312.47. As to the petitioners’
alleged payment to CERF Realty of P46,616.70, except for petitioner
Leticia Cannu’s bare allegation, we find the same not to be supported
by competent evidence. As a general rule, one who pleads payment has
the burden of proving it.52However, since it has been admitted in
respondents-spouses’ Answer that petitioners shall assume the second
mortgage with CERF Realty in the amount of P35,000.00, and that
Adelina Timbang, respondents-spouses’ very own witness,
testified53 that same has been paid, it is but proper to return this
amount to petitioners. The three amounts total P165,312.47 -- the sum
to be returned to petitioners.
WHEREFORE, premises considered, the decision of the Court of Appeals
is hereby AFFIRMED with MODIFICATION. Spouses Gil and Fernandina
Galang are hereby ordered to return the partial payments made by
petitioners in the amount of P165,312.47. With costs.
SO ORDERED.

G.R. No. 188986               March 20, 2013

GALILEO A. MAGLASANG, doing business under the name GL

Enterprises, Petitioner, 
vs.
NORTHWESTERN INC., UNIVERSITY, Respondent.

On 10 June 2004, respondent Northwestern University (Northwestern),

an educational institution offering maritime-related courses, engaged
the services of a Quezon City-based firm, petitioner GL Enterprises, to
install a new IBS in Laoag City. The installation of an IBS, used as the
students’ training laboratory, was required by the Commission on
Higher Education (CHED) before a school could offer maritime
transportation programs.4

Since its IBS was already obsolete, respondent required petitioner to

supply and install specific components in order to form the most
modern IBS that would be acceptable to CHED and would be compliant
with the standards of the International Maritime Organization (IMO).
For this purpose, the parties executed two contracts. Php
TOTAL COST:
3,800,000.00
The first contract partly reads:5

That in consideration of the payment herein mentioned to be made by LESS: OLD MARITIME
the First Party (defendant), the Second Party agrees to furnish, supply, EQUIPMENT TRADE-IN VALUE 1,000,000.00
install and integrate the most modern INTEGRATED BRIDGE SYSTEM
located at Northwestern University MOCK BOAT in accordance with the
general conditions, plans and specifications of this contract. DISCOUNT 100,000.00

SUPPLY & INSTALLATION OF THE FOLLOWING: PROJECT COST (MATERIALS & PhP
INSTALLATION) 2,700,000.00
INTEGRATED BRIDGE SYSTEM

A. 2-RADAR SYSTEM (Emphasis in the original)

B. OVERHEAD CONSOLE MONITORING SYSTEM The second contract essentially contains the same terms and conditions
as follows:6
C. ENGINE TELEGRAPH SYSTEM
That in consideration of the payment herein mentioned to be made by
D. ENGINE CONTROL SYSTEM the First Party (defendant), the Second Party agrees to furnish, supply,
install & integrate the most modern INTEGRATED BRIDGE SYSTEM
E. WEATHER CONTROL SYSTEM located at Northwestern University MOCK BOAT in accordance with the
general conditions, plans and specifications of this contract.
F. ECDIS SYSTEM
SUPPLY & INSTALLATION OF THE FOLLOWING:
G. STEERING WHEEL SYSTEM
1. ARPA RADAR SIMULATION ROOM
H. BRIDGE CONSOLE
xxxx
2. GMDSS SIMULATION ROOM
xxxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions: (1) the IBS and
its components must be compliant with the IMO and CHED standard
and with manuals for simulators/major equipment; (2) the contracts
may be terminated if one party commits a substantial breach of its
undertaking; and (3) any dispute under the agreement shall first be
settled mutually between the parties, and if settlement is not obtained,
resort shall be sought in the courts of law.
Subsequently, Northwestern paid ₱1 million as down payment to GL
Enterprises. The former then assumed possession of Northwestern’s
old IBS as trade-in payment for its service. Thus, the balance of the
contract price remained at ₱1.97 million.7
Two months after the execution of the contracts, GL Enterprises
technicians delivered various materials to the project site. However,
when they started installing the components, respondent halted the
operations. GL Enterprises then asked for an explanation.8
Northwestern justified the work stoppage upon its finding that the
delivered equipment were substandard.9 It explained further that GL
Enterprises violated the terms and conditions of the contracts, since
the delivered components (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO and CHED
standards. Thus, Northwestern demanded compliance with the
agreement and suggested that GL Enterprises meet with the former’s
representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8 September
2004 a Complaint10 for breach of contract and prayed for the following
sums: ₱1.97 million, representing the amount that it would have
earned, had Northwestern not stopped it from performing its tasks
under the two contracts; at least ₱100,000 as moral damages; at least
₱100,000 by way of exemplary damages; at least ₱100,000 as
attorney’s fees and litigation expenses; and cost of suit. Petitioner
alleged that Northwestern breached the contracts by ordering the work
stoppage and thus preventing the installation of the materials for the
IBS.
Northwestern denied the allegation. In its defense, it asserted that
since the equipment delivered were not in accordance with the
specifications provided by the contracts, all succeeding works would be
futile and would entail unnecessary expenses. Hence, it prayed for the
rescission of the contracts and made a compulsory counterclaim for
actual, moral, and exemplary damages, and attorney’s fees.
The RTC held both parties at fault. It found that Northwestern unduly
halted the operations, even if the contracts called for a completed
project to be evaluated by the CHED. In turn, the breach committed by
GL Enterprises consisted of the delivery of substandard equipment that
were not compliant with IMO and CHED standards as required by the
agreement.
Invoking the equitable principle that "each party must bear its own
loss," the trial court treated the contracts as impossible of performance
without the fault of either party or as having been dissolved by mutual
consent. Consequently, it ordered mutual restitution, which would
thereby restore the parties to their original positions as follows:11
Accordingly, plaintiff is hereby ordered to restore to the defendant all
the equipment obtained by reason of the First Contract and refund the
downpayment of ₱1,000,000.00 to the defendant; and for the
defendant to return to the plaintiff the equipment and materials it
withheld by reason of the non-continuance of the installation and
integration project. In the event that restoration of the old equipment
taken from defendant's premises is no longer possible, plaintiff is
hereby ordered to pay the appraised value of defendant's old
equipment at ₱1,000,000.00. Likewise, in the event that restoration of
the equipment and materials delivered by the plaintiff to the defendant
is no longer possible, defendant is hereby ordered to pay its appraised
value at ₱1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all the
equipment obtained by reason of the Second Contract, or if restoration
or return is not possible, plaintiff is ordered to pay the value thereof to
the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them pointing
a finger at the other party as the violator of the contracts, the appellate
court ultimately determined that GL Enterprises was the one guilty of
substantial breach and liable for attorney’s fees.
The CA appreciated that since the parties essentially sought to have an
IBS compliant with the CHED and IMO standards, it was GL Enterprises’
delivery of defective equipment that materially and substantially
breached the contracts. Although the contracts contemplated a
completed project to be evaluated by CHED, Northwestern could not
just sit idly by when it was apparent that the components delivered
were substandard.
The CA held that Northwestern only exercised ordinary prudence to
prevent the inevitable rejection of the IBS delivered by GL Enterprises.
Likewise, the appellate court disregarded petitioner’s excuse that the
equipment delivered might not have been the components intended to
be installed, for it would be contrary to human experience to deliver
equipment from Quezon City to Laoag City with no intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared the
rescission of the contracts. It then proceeded to affirm the RTC’s order
of mutual restitution. Additionally, the appellate court granted ₱50,000
to Northwestern by way of attorney’s fees.
Before this Court, petitioner rehashes all the arguments he had raised
in the courts a quo.12 He maintains his prayer for actual damages
equivalent to the amount that he would have earned, had respondent
not stopped him from performing his tasks under the two contracts;
moral and exemplary damages; attorney’s fees; litigation expenses; and
cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is
whether the CA gravely erred in (1) finding substantial breach on the
part of GL Enterprises; (2) refusing petitioner’s claims for damages, and
(3) awarding attorney’s fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the
courts a quo, however, differed on the basis thereof. The RTC applied
the equitable principle of mutual fault, while the CA applied Article
1191 on rescission.
The power to rescind the obligations of the injured party is implied in
reciprocal obligations, such as in this case. On this score, the CA
correctly applied Article 1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
The two contracts require no less than substantial breach before they
can be rescinded. Since the contracts do not provide for a definition of
substantial breach that would terminate the rights and obligations of
the parties, we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike slight or
casual breaches of contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement, since the law is not
concerned with trifles.14
The question of whether a breach of contract is substantial depends
upon the attending circumstances.15
In the case at bar, the parties explicitly agreed that the materials to be
delivered must be compliant with the CHED and IMO standards and
must be complete with manuals. Aside from these clear provisions in
the contracts, the courts a quo similarly found that the intent of the
parties was to replace the old IBS in order to obtain CHED accreditation
for Northwestern’s maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999,
as amended by CMO No. 13, Series of 2005, any simulator used for
simulator-based training shall be capable of simulating the operating
capabilities of the shipboard equipment concerned. The simulation
must be achieved at a level of physical realism appropriate for training
objectives; include the capabilities, limitations and possible errors of
such equipment; and provide an interface through which a trainee can
interact with the equipment, and the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises to
supply the components that would create an IBS that would effectively
facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its responsibility.
As contained in the findings of the CA and the RTC, petitioner supplied
substandard equipment when it delivered components that (1) were
old; (2) did not have instruction manuals and warranty certificates; (3)
bore indications of being reconditioned machines; and, all told, (4)
might not have met the IMO and CHED standards. Highlighting the
defects of the delivered materials, the CA quoted respondent’s
testimonial evidence as follows:16
Q: In particular which of these equipment of CHED requirements were
not complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that is
the monitor of the Radar. That is 16-inch and the gyrocompass with
two (2) repeaters and the history card. The gyrocompass - there is no
marker, there is no model, there is no serial number, no gimbal, no
gyroscope and a bulb to work it properly to point the true North
because it is very important to the Cadets to learn where is the true
North being indicated by the Master Gyrocompass.
xxxx
Q: Mr. Witness, one of the defects you noted down in this history card
is that the master gyrocompass had no gimbals, gyroscope and balls
and was replaced with an ordinary electric motor. So what is the
Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not indicate
the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn into
school where is the true North and what is that equipment to be used
on board.
Q: One of the defects is that the steering wheel was that of an ordinary
automobile. And what is the implication of this?
A: Because. on board Ma’am, we are using the real steering wheel and
the cadets will be implicated if they will notice that the ship have the
same steering wheel as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater was only
refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma’am because this gyro repeater, it must to
repeat also the true North being indicated by the Master Gyro Compass
so it will not work properly, I don’t know it will work properly.
(Underscoring supplied)
Evidently, the materials delivered were less likely to pass the CHED
standards, because the navigation system to be installed might not
accurately point to the true north; and the steering wheel delivered
was one that came from an automobile, instead of one used in ships.
Logically, by no stretch of the imagination could these form part of the
most modern IBS compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute that the
equipment it delivered was substandard. However, it reiterates its
rejected excuse that Northwestern should have made an assessment
only after the completion of the IBS.17 Thus, petitioner stresses that it
was Northwestern that breached the agreement when the latter halted
the installation of the materials for the IBS, even if the parties had
contemplated a completed project to be evaluated by CHED. However,
as aptly considered by the CA, respondent could not just "sit still and
wait for such day that its accreditation may not be granted by CHED
due to the apparent substandard equipment installed in the bridge
system."18 The appellate court correctly emphasized that, by that time,
both parties would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts, the
materials that were hauled all the way from Quezon City to Laoag City
under the custody of the four designated installers might not have
been the components to be used.19 Without belaboring the point, we
affirm the conclusion of the CA and the RTC that the excuse is
untenable for being contrary to human experience.20
Given that petitioner, without justification, supplied substandard
components for the new IBS, it is thus clear that its violation was not
merely incidental, but directly related to the essence of the agreement
pertaining to the installation of an IBS compliant with the CHED and
IMO standards.
Consequently, the CA correctly found substantial breach on the part of
petitioner.
In contrast, Northwestern’s breach, if any, was characterized by the
appellate court as slight or casual.21 By way of negative definition, a
breach is considered casual if it does not fundamentally defeat the
object of the parties in entering into an agreement. Furthermore, for
there to be a breach to begin with, there must be a "failure, without
legal excuse, to perform any promise which forms the whole or part of
the contract."22
Here, as discussed, the stoppage of the installation was justified. The
action of Northwestern constituted a legal excuse to prevent the highly
possible rejection of the IBS. Hence, just as the CA concluded, we find
that Northwestern exercised ordinary prudence to avert a possible
wastage of time, effort, resources and also of the ₱2.9 million
representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's Fees
As between the parties, substantial breach can clearly be attributed to
GL Enterprises.1âwphi1 Consequently, it is not the injured party who
can claim damages under Article 1170 of the Civil Code. For this reason,
we concur in the result of the CA's Decision denying petitioner actual
damages in the form of lost earnings, as well as moral and exemplary
damages.
With respect to attorney's fees, Article 2208 of the Civil Code allows the
grant thereof when the court deems it just and equitable that
attorney's fees should be recovered. An award of attorney's fees is
proper if one was forced to litigate and incur expenses to protect one's
rights and interest by reason of an unjustified act or omission on the
part of the party from whom the award is sought.23
Since we affirm the CA's finding that it was not Northwestern but GL
Enterprises that breached the contracts without justification, it follows
that the appellate court correctly awarded attorney’s fees to
respondent. Notably, this litigation could have altogether been avoided
if petitioner heeded respondent's suggestion to amicably settle; or,
better yet, if in the first place petitioner delivered the right materials as
required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of
Appeals in CA-G.R. CV No. 88989 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 207133, March 09, 2015

SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner, v. JAYNE

YU, Respondent.

Respondent Jayne Yu and petitioner Swire Realty Development

Corporation entered into a Contract to Sell on July 25, 1995 covering
one residential condominium unit, specifically Unit 3007 of the Palace
of Makati, located at P. Burgos corner Caceres Sts., Makati City, with an
area of 137.30 square meters for the total contract price of
P7,519,371.80, payable in equal monthly installments until September
24, 1997. Respondent likewise purchased a parking slot in the same
condominium building for P600,000.00.

On September 24, 1997, respondent paid the full purchase price of

P7,519,371.80 for the unit while making a down payment of P20,000.00
for the parking lot. However, notwithstanding full payment of the
contract price, petitioner failed to complete and deliver the subject unit
on time. This prompted respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land Use Regulatory
Board (HLURB) Expanded National Capital Region Field Office
(ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a
Decision 3 dismissing respondent’s complaint. It ruled that rescission is
not permitted for slight or casual breach of the contract but only for
such breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement. It disposed of the case
as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
ordering [petitioner] the following:
1. To finish the subject unit as pointed out in the inspection
Report
2. To pay [respondent] the following:
a. the amount of P100,000 as compensatory damages for
the minor irreversible defects in her unit [respondent],
or, in the alternative, conduct the necessary repairs on
the subject unit to conform to the intended
specifications;
b. moral damages of P20,000.00
c. Attorney’s fees of P20,000.00
On the other hand, [respondent] is hereby directed to immediately
update her account insofar as the parking slot is concerned, without
interest, surcharges or penalties charged therein.
All other claims and counterclaims are hereby dismissed for lack of
merit.
IT IS SO ORDERED. 
Respondent then elevated the matter to the HLURB Board of
Commissioners.
In a Decision 5 dated March 30, 2006, the HLURB Board of
Commissioners reversed and set aside the ruling of the HLURB ENCRFO
and ordered the rescission of the Contract to Sell, ratiocinating
We find merit in the appeal. The report on the ocular inspection
conducted on the subject condominium project and subject unit shows
that the amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit has not been
delivered to [respondent] as of August 28, 2002, which is beyond the
period of development of December 1999 under the license to sell. The
delay in the completion of the project as well as of the delay in the
delivery of the unit are breaches of statutory and contractual
obligations which entitles [respondent] to rescind the contract, demand
a refund and payment of damages.
The delay in the completion of the project in accordance with the
license to sell also renders [petitioner] liable for the payment of
administrative fine.

Wherefore, the decision of the Office below is set aside and a new
decision is rendered as follows:
1. Declaring the contract to sell as rescinded and directing
[petitioner] to refund to [respondent] the amount of
P7,519,371.80 at 6% per annum from the time of extrajudicial
demand on January 05, 2001: subject to computation and
payment of the correct filing fee;
2. Directing [petitioner] to pay respondent attorney’s fees in the
amount of P20,000.00;
3. Directing [petitioner] to pay an administrative fine of
P10,000.00 for violation of Section 20, in relation to Section 38
of P.D. 957:
SO ORDERED.  Series of 1987 provides that:
Petitioner moved for reconsideration, but the same was denied by the
HLURB Board of Commissioners in a Resolution 7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP) on
August 7, 2007.
8
In a Decision   dated November 21, 2007, the OP, through then Deputy
Executive Secretary Manuel Gaite, dismissed petitioner’s appeal on the
ground that it failed to promptly file its appeal before the OP. It held:
Records show that [petitioner] received its copy of the 30 March 2006
HLURB Decision on 17 April 2006 and instead of filing an appeal, it
opted first to file a Motion for Reconsideration on 28 April 2006 or
eleven (11) days thereafter. The said motion interrupted the 15-day
period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution dated 14
June 2007 denying the Motion for Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v.
Ching (486 SCRA 655), the period to appeal decisions of the HLURB
Board of Commissioners to the Office of the President is 15 days from
receipt thereof pursuant to Section 15 of P.D. No. 957 and Section 2 of
P.D. No. 1344 which are special laws that provide an exception to
Section 1 of Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18,
The time during which a motion for reconsideration has been pending
with the Ministry/Agency concerned shall be deducted from the period
of appeal. But where such a motion for reconsideration has been filed
during office hours of the last day of the period herein provided, the
appeal must be made within the day following receipt of the denial of
said motion by the appealing party.  (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt on 23
July 2007 of HLURB Resolution dated 14 June 2007, or until 27 July 2007
to file the Notice of Appeal before this Office. However, [petitioner]
filed its appeal only on 7 August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed as the
records clearly show that the said appeal was filed out of time.
WHEREFORE, premises considered, [petitioner]’s appeal is
hereby DISMISSED, and the HLURB Decision dated 30 March 2006 and
HLURB Resolution dated 14 June 2007 are hereby AFFIRMED.
SO ORDERED. 9cralawlawlibrary
Immediately thereafter, petitioner filed a motion for reconsideration
against said decision.
In a Resolution 10 dated February 17, 2009, the OP, through then
Executive Secretary Eduardo Ermita, granted petitioner’s motion and
set aside Deputy Executive Secretary Gaite’s decision. It held that after
a careful and thorough evaluation and study of the records of the case,
the OP was more inclined to agree with the earlier decision of the
HLURB ENCRFO as it was more in accord with facts, law and
jurisprudence relevant to the case. Thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for
Reconsideration is hereby GRANTED. The Decision and Resolution of
the HLURB Third Division Board of Commissioners, dated March 30,
2006 and June 14, 2007, respectively, are hereby SET ASIDE, and
the HLURB ENCRFO Decision dated October 19, 2004 is hereby
REINSTATED.
SO ORDERED. 11cralawred
cralawlawlibrary
Respondent sought reconsideration of said resolution, however, the
same was denied by the OP in a Resolution 12 dated August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondent’s
appeal and reversed and set aside the Order of the OP. The fallo of its
decision reads:
WHEREFORE, the Petition is hereby GRANTED. The
assailed Resolution dated 17 February 2009 and Order dated 18 August
2011 of the Office of the President, in O.P. Case No. 07-H-283, are
hereby REVERSED and SET ASIDE. Accordingly, the Decision dated 30
March 2006 and Resolution dated 14 June 2007 of the HLURB Board of
Commissioners in HLURB Case No. REM-A-050127-0014,
are REINSTATED.
SO ORDERED.
Petitioner moved for reconsideration, however, the CA denied the
same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the following
grounds to support its petition:
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL
PRECEPTS THAT:
 1. TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE
AGENCIES; and
2. RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH
COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE OBJECT
OF THE PARTIES IN ENTERING INTO THE AGREEMENT. 14
cralawlawlibrary
In essence, the issues are: (1) whether petitioner’s appeal was timely
filed before the OP; and (2) whether rescission of the contract is proper
in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of
Commissioners to the Office of the President has long been settled in
the case of SGMC Realty Corporation v. Office of the President,  15 as
reiterated in the cases of Maxima Realty Management and
Development Corporation v. Parkway Real Estate Development
Corporation 16 and United Overseas Bank Philippines, Inc. v.
Ching. 17cralawred
In the aforementioned cases, we ruled that the period to appeal
decisions of the HLURB Board of Commissioners is fifteen (15) days
from receipt thereof pursuant to Section 15 18 of PD No. 957 19 and
Section 2 20 of PD No. 1344 21 which are special laws that provide an
exception to Section 1 of Administrative Order No. 18. Thus, in
the SGMC Realty Corporation v. Office of the President case, the Court
explained:
As pointed out by public respondent, the aforecited administrative
order allows aggrieved party to file its appeal with the Office of the
President within thirty (30) days from receipt of the decision
complained of. Nonetheless, such thirty-day period is subject to the
qualification that there are no other statutory periods of appeal
applicable. If there are special laws governing particular cases which
provide for a shorter or longer reglementary period, the same shall
prevail over the thirty-day period provided for in the administrative
order. This is in line with the rule in statutory construction that an
administrative rule or regulation, in order to be valid, must not
contradict but conform to the provisions of the enabling law.
We note that indeed there are special laws that mandate a shorter
period of fifteen (15) days within which to appeal a case to public
respondent. First, Section 15 of Presidential Decree No. 957 provides
that the decisions of the National Housing Authority (NHA) shall
become final and executory after the lapse of fifteen (15) days from the
date of receipt of the decision. Second, Section 2 of Presidential Decree
No. 1344 states that decisions of the National Housing Authority shall
become final and executory after the lapse of fifteen (15) days from the
date of its receipt. The latter decree provides that the decisions of the
NHA is appealable only to the Office of the President. Further, we note
that the regulatory functions of NHA relating to housing and land
development has been transferred to Human Settlements Regulatory
Commission, now known as HLURB.  x x x 22cralawlawlibrary
Records show that petitioner received a copy of the HLURB Board of
Commissioners’ decision on April 17, 2006. Correspondingly, it had
fifteen days from April 17, 2006 within which to file its appeal or until
May 2, 2006. However, on April 28, 2006, or eleven days after receipt
of the HLURB Board of Commissioner’s decision, it filed a Motion for
Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No. 18 23 provides
that the time during which a motion for reconsideration has been
pending with the ministry or agency concerned shall be deducted from
the period for appeal. Petitioner received the HLURB Board Resolution
denying its Motion for Reconsideration on July 23, 2007 and filed its
appeal only on August 7, 2007. Consequently therefore, petitioner had
only four days from July 23, 2007, or until July 27, 2007, within which to
file its appeal to the OP as the filing of the motion for reconsideration
merely suspended the running of the 15-day period. However, records
reveal that petitioner only appealed to the OP on August 7, 2007, or
eleven days late. Ergo, the HLURB Board of Commissioners’ decision
had become final and executory on account of the fact that petitioner
did not promptly appeal with the OP.
In like manner, we find no cogent reason to exempt petitioner from the
effects of its failure to comply with the rules.
In an avuncular case, we have held that while the dismissal of an
appeal on purely technical grounds is concededly frowned upon, it
bears emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that litigants can just
discard and disregard at will. Neither being a natural right nor a part of
due process, the rule is settled that the right to appeal is merely a
statutory privilege which may be exercised only in the manner and in
accordance with the provisions of the law. 24cralawred
Time and again, we have held that rules of procedure exist for a noble
purpose, and to disregard such rules, in the guise of liberal
construction, would be to defeat such purpose. Procedural rules are
not to be disdained as mere technicalities. They may not be ignored to
suit the convenience of a party. 25 The reason for the liberal application
of the rules before quasi-judicial agencies cannot be used to
perpetuate injustice and hamper the just resolution of the case.
Neither is the rule on liberal construction a license to disregard the
rules of procedure. 26cralawred
Thus, while there may be exceptions for the relaxation of technical
rules principally geared to attain the ends of justice, petitioner’s
fatuous belief that it had a fresh 15-day period to elevate an appeal
with the OP is not the kind of exceptional circumstance that merits
relaxation.
Second, Article 1191 of the Civil Code sanctions the right to rescind the
obligation in the event that specific performance becomes impossible,
to wit:
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law.cralawlawlibrary
Basic is the rule that the right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith
by the other party who violates the reciprocity between them. The
breach contemplated in the said provision is the obligor’s failure to
comply with an existing obligation. When the obligor cannot comply
with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission. 27cralawred
In the instant case, the CA aptly found that the completion date of the
condominium unit was November 1998 pursuant to License No. 97-12-
3202 dated November 2, 1997 but was extended to December 1999 as
per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the
time of the ocular inspection conducted by the HLURB ENCRFO, the
unit was not yet completely finished as the kitchen cabinets and
fixtures were not yet installed and the agreed amenities were not yet
available. Said inspection report states:
The unit of the [respondent] is Unit 3007, which was labeled as P2-07,
at the Palace of Makati, located at the corner of P. Burgos Street and
Caceres Street, Poblacion, Makati City. Based on the approved plans,
the said unit is at the 26thFloor.
1. During the time of inspection, the said unit appears to be
completed except for the installation of kitchen cabinets and
fixtures.
2. Complainant pinpointed to the undersigned the deficiencies as
follows:
a. The delivered unit has high density fiber (HDF) floorings
instead of narra wood parquet.
b. The [petitioners] have also installed baseboards as
borders instead of pink porrino granite boarders.
c. Walls are newly painted by the respondent and the
alleged obvious signs of cladding could not be
determined.
d. Window opening at the master bedroom conforms to
the approved plans. As a result it leaves a 3 inches (sic)
gap between the glass window and partitioning of the
master’s bedroom.
e. It was verified and confirmed that a square column
replaced the round column, based on the approved
plans.
f. At the time of inspection, amenities such as swimming
pool and change room are seen at the 31st floor only.
These amenities are reflected on the 27th floor plan of
the approved condominium plans. Health spa for men
and women, Shiatsu Massage Room, Two-Level Sky
Palace Restaurant and Hall for games and
entertainments, replete with billiard tables, a bar,
indoor golf with spectacular deck and karaoke rooms
were not yet provided by the [petitioner].
 g. The [master’s] bedroom door bore sign of poor quality
of workmanship as seen below.
h. The stairs have been installed in such manner
acceptable to the undersigned.
i. Bathrooms and powder room have been installed in
such manner acceptable to the undersigned. 28
cralawlawlibrary
From the foregoing, it is evident that the report on the ocular
inspection conducted on the subject condominium project and subject
unit shows that the amenities under the approved plan have not yet
been provided as of May 3, 2002, and that the subject unit has not
been delivered to respondent as of August 28, 2002, which is beyond
the period of development of December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the performance of its
obligation amounting to breach of contract as it failed to finish and
deliver the unit to respondent within the stipulated period. The delay in
the completion of the project as well as of the delay in the delivery of
the unit are breaches of statutory and contractual obligations which
entitle respondent to rescind the contract, demand a refund and
payment of damages.
WHEREFORE, premises considered, the instant petition is DENIED. The
Decision dated January 24, 2013 and Resolution dated April 30, 2013 of
the Court of Appeals in CA-G.R. SP No. 121175 are hereby AFFIRMED,
with MODIFICATION that moral damages be awarded in the amount
of P20,000.00
SO ORDERED.
G.R. No. 185592               June 15, 2015
GEORGE C. FONG, Petitioner, 
vs.
JOSE V. DUEÑAS, Respondent.
Dueñas is engaged in the bakery, food manufacturing, and retailing
business, which are all operated under his two companies, D.C.
DANTON, Inc. (Danton) and Bakcom Food Industries, Inc. (Bakcom). He
was an old acquaintance of Fong as they were former schoolmates at
the De La Salle University.6
Sometime in November 1996, Dueñas and Fong entered into a verbal
joint venture contract where they agreed to engage in the food
business and to incorporate a holding company under the name
Alliance Holdings, Inc. (Alliance or the proposed corporation). Its
capitalization would be Sixty Five Million Pesos (₱65 Million), to which
they would contribute in equal parts.7
The parties agreed that Fong would contribute Thirty Two Million and
Five Hundred Thousand Pesos (₱32.5 Million) in cash while Dueñas
would contribute all his Danton and Bakcom shares which he valued at
₱32.5 Million.8 Fong required Dueñas to submit the financial documents
supporting the valuation of these shares.
On November 25, 1996, Fong started remitting in tranches his share in
the proposed corporation’s capital. He made the remittances under the
impression that his contribution would be applied as his subscription to
fifty percent (50%) of Alliance’s total shareholdings. On the other hand,
Dueñas started processing the Boboli9 international license that they
would use in their food business. Fong’s cash contributions are
summarized below.10
On June 13, 1997, Fong sent a letter to Dueñas informing him of his
decision to limit his total contribution from ₱32.5 Million to ₱5 Million.
This letter reads:
June 13, 1997
Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for ₱919,534.80 representing our additional
advances to subject company in process of incorporation. This will
make our total advances to date amounting to ₱5 million.
Since we agreed in principal late last year to pursue subject matter, the
delays in implementing the joint venture have caused us to rethink our
position. First, we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn down a number
of business opportunities. Secondly, since last year, the operation of
Century 21 has been taking more time from us than anticipated. That is
why we decided to relinquish our original plan to manage and operate
‘Boboli’ knowing this limitation. For us, it does not make sense
anymore to go for a significant shareholding when we cannot be hands
on and participate actively as originally planned. For your information,
we will probably be giving up our subway franchise too.
Together with our business advisers and legal counsel, we came to a
decision to hold our commitment (from advances to investment) at ₱5
million only for now from the original plan of ₱32.5 million, if this is
acceptable to you.
We know that our decision will somewhat upset the overall plans. But
it will probably be more problematic for us in the long run if we
continue full speed. We have put our money down in trust and good
faith despite the much delayed financials. We continue to believe in
your game plan and capabilities to achieve the desired goals for subject
undertaking. Please permit us instead to be just a modest silent
investor now with a take out plan when time and price is right.
Thank you for your kind understanding and consideration.
With best regards.
(Signed) George Fong11
Fong observed that despite his ₱5 Million contribution, Dueñas still
failed to give him the financial documents on the valuation of the
Danton and Bakcom shares. Thus, except for Dueñas’ representations,
Fong had nothing to rely on to ensure that these shares were really
valued at ₱32.5 Million. Moreover, Dueñas failed to incorporate and
register Alliance with the Securities and Exchange Commission (SEC).12
These circumstances convinced Fong that Dueñas would no longer
honor his obligations in their joint venture agreement.13 Thus, on
October 30, 1997, Fong wrote Dueñas informing him of his decision to
cancel the joint venture agreement. He also asked for the refund of the
₱5 Million that he advanced.14 In response, Dueñas admitted that he
could not immediately return the money since he used it to defray the
business expenses of Danton and Bakcom.15
To meet Fong’s demand, Dueñas proposed several schemes for
payment of the ₱5 Million.16 However, Fong did not accept any of these
proposed schemes. On March 25, 1998, Fong wrote a final letter of
demand17 informing Dueñas that he would file a judicial action against
him should he still fail to pay after receipt of this written demand.
Since Dueñas did not pay, Fong filed a complaint against him for
collection of a sum of money and damages18 on April 24, 1998.
The Trial Court’s Ruling
In its June 27, 2006 decision, the trial court ruled in favor of Fong and
held that a careful examination of the complaint shows that although it
was labeled as an action for collection of a sum of money, it was
actually an action for rescission.19
The trial court noted that Dueñas’ failure to furnish Fong with the
financial documents on the valuation of the Danton and Bakcom
shares, as well as the almost one year delay in the incorporation of
Alliance, caused Fong to rescind the joint venture
agreement.20 According to the trial court, these are adequate and
acceptable reasons for rescission.
The trial court also held that Dueñas erroneously invested Fong’s cash
contributions in his two companies, Danton and Bakcom. The signed
receipts,21 presented as evidence, expressly provided that each
remittance should be applied as advance subscription to Fong’s
shareholding in Alliance. Thus, Dueñas’ investment of the money in
Danton and Bakcom was clearly unauthorized and contrary to the
parties’ agreement.
Since Dueñas was unjustly enriched by Fong’s advance capital
contributions, the trial court ordered him to return the money
amounting to ₱5 Million and to pay ten percent (10%) of this amount
in attorney’s fees, as well as the cost of the suit.22
Fong filed a partial motion for reconsideration from the trial court’s
June 27, 2006 decision and asked for the imposition of a six percent
(6%) annual interest, computed from the date of extrajudicial demand
until full payment of the award. The trial court granted this prayer in its
October 30, 2006 order.23
The CA’s Ruling
Dueñas responded to the trial court’s ruling through an appeal with the
CA, which granted the appeal and annulled the trial court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter evidenced his intention to
convert his cash contributions from "advances" to the proposed
corporation’s shares, to mere "investments." Thus, contrary to the trial
court’s ruling, Dueñas correctly invested Fong’s ₱5 Million contribution
to Bakcom and Danton. This did not deviate from the parties’ original
agreement as eventually, the shares of these two companies would
form part of Alliance’s capital.24
Lastly, the CA held that the June 13, 1997 letter showed that Fong knew
all along that he could not immediately ask for the return of his ₱5
Million investment. Thus, whether the action filed was a complaint for
collection of a sum of money, or rescission, it must still fail.25
The Petition
Fong submits that the CA erred when it ruled that his June 13, 1997
letter showed his intent to convert his contributions from advance
subscriptions to Alliance’s shares, to investments in Dueñas’ two
companies. Contrary to the CA’s findings, the receipts and the letter
expressly mentioned that his contributions should all be treated as his
share subscription to Alliance.26 Also, Fong argues that Dueñas’
unjustified retention of the ₱5 Million and its appropriation to his
(Dueñas’) own business, amounted to unjust enrichment; and that he
contributed to fund Alliance’s capital and incorporation, not to pay for
Danton and Bakcom’s business expenses.27
The Case for Dueñas
Dueñas contends that he could no longer refund the ₱5 Million since he
had already applied it to his two companies; that this is proper since
Danton and Bakcom’s shares would also form part of his capital
contribution to Alliance.28
Moreover, the incorporation did not push through because Fong
unilaterally rescinded the joint venture agreement by limiting his
investment from ₱32.5 Million to ₱5 Million.29 Thus, it was Fong who
first breached the contract, not he. Consequently, Fong’s failure to
comply with his undertaking disqualified him from seeking the
agreement’s rescission.30
The Court's Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the parties’ joint venture agreement
to incorporate a company that would hold the shares of Danton and
Bakcom and that would serve as the business vehicle for their food
enterprise, is a valid agreement. The failure to reduce the agreement to
writing does not affect its validity or enforceability as there is no law or
regulation which provides that an agreement to incorporate must be in
writing.
With this as premise, we now address the related issues raised by the
parties.
The body rather than the title of
the complaint determines the
nature of the action.
A well-settled rule in procedural law is that the allegations in the body
of the pleading or the complaint, and not its title, determine the nature
of an action.31
An examination of Fong’s complaint shows that although it was labeled
as an action for a sum of money and damages, it was actually a
complaint for rescission. The following allegations in the complaint
support this finding:
9. Notwithstanding the aforesaid remittances, defendant failed for an
unreasonable length of time to submit a valuation of the equipment of
D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed
to accomplish the organization and incorporation of the proposed
holding company, contrary to his representation to promptly do so.
xxxx
17. Considering that the incorporation of the proposed holding
company failed to materialize, despite the lapse of one year and four
months from the time of subscription, plaintiff has the right to revoke
his pre-incorporation subscription. Such revocation entitles plaintiff to a
refund of the amount of ₱5,000,000.00 he remitted to defendant,
representing advances made in favor of defendant to be considered as
payment on plaintiff’s subscription to the proposed holding company
upon its incorporation, plus interest from receipt by defendant of said
amount until fully paid. [Emphasis supplied.]
Fong’s allegations primarily pertained to his cancellation of their verbal
agreement because Dueñas failed to perform his obligations to provide
verifiable documents on the valuation of the Danton’s and Bakcom’s
shares, and to incorporate the proposed corporation. These allegations
clearly show that what Fong sought was the joint venture agreement’s
rescission.
As a contractual remedy, rescission is available when one of the parties
substantially fails to do what he has obligated himself to perform.32 It
aims to address the breach of faith and the violation of reciprocity
between two parties in a contract.33 Under Article 1191 of the Civil
Code, the right of rescission is inherent in reciprocal obligations, viz:
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. [Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of his cash
contribution supports his claim that Fong’s complaint is an action for
collection of a sum of money. However, Dueñas failed to appreciate
that the ultimate effect of rescission is to restore the parties to their
original status before they entered in a contract. As the Court ruled in
Unlad Resources v. Dragon:34 Rescission has the effect of "unmaking a
contract, or its undoing from the beginning, and not merely its
termination." Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged to restore.
To rescind is to declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to terminate it and
release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.
Accordingly, when a decree for rescission is handed down, it is the duty
of the court to require both parties to surrender that which they have
respectively received and to place each other as far as practicable in his
original situation.35 [Emphasis supplied.]
In this light, we rule that Fong’s prayer for the return of his
contribution did not automatically convert the action to a complaint for
a sum of money. The mutual restitution of the parties’ original
contributions is only a necessary consequence of their agreement’s
rescission. Rescission under Art. 1191 is
applicable in the present case
Reciprocal obligations are those which arise from the same cause, in
which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent on the obligation of the other.36
Fong and Dueñas’ execution of a joint venture agreement created
between them reciprocal obligations that must be performed in order
to fully consummate the contract and achieve the purpose for which it
was entered into.
Both parties verbally agreed to incorporate a company that would hold
the shares of Danton and Bakcom and which, in turn, would be the
platform for their food business. Fong obligated himself to contribute
half of the capital or ₱32.5 Million in cash. On the other hand, Dueñas
bound himself to shoulder the other half by contributing his Danton
and Bakcom shares, which were allegedly also valued at ₱32.5 Million.
Aside from this, Dueñas undertook toprocess Alliance’s incorporation
and registration with the SEC.
When the proposed company remained unincorporated by October 30,
1997, Fong cancelled the joint venture agreement and demanded the
return of his ₱5 Million contribution.
For his part, Dueñas explained that he could not immediately return
the ₱5 Million since he had invested it in his two companies. He found
nothing irregular in this as eventually, the Danton and Bakcom shares
would form part of Alliance’s capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his money in Danton
and Bakcom. Contrary toDueñas’ submission, Fong’s understanding
was that his money would be applied to his shareholdings in Alliance.
As shown in Fong’s June13, 1997 letter, this fact remained to be true
even after he limited his contribution to ₱5 Million, viz:
Dear Jojit,
Enclosed is our check for ₱919,534.80 representing our additional
advances to subject company in process of incorporation. This will
make our total advances to date amounting to ₱5 million.37[Emphasis
supplied.]
Moreover, under the Corporation Code, before a stock corporation may
be incorporated and registered, itis required that at least twenty five
percent (25%) of its authorized capital stock as stated in the articles of
incorporation, be first subscribed at the time of incorporation, and at
least twenty five percent (25%) of the total subscription, be paid upon
subscription.38
To prove compliance with this requirement, the SEC requires the
incorporators to submit a treasurer’s affidavit and a certificate of bank
deposit, showing the existence of an amount compliant with the
prescribed capital subscription.39
In this light, we conclude that Fong’s cash contributions play an
indispensable part in Alliance’s incorporation. The process necessarily
requires the money not only to fund Alliance’s registration with the SEC
but also its initial capital subscription. This is evident in the receipts
which Dueñas himself executed, one of which provides:
I, JOSE V. DUEÑAS, hereby acknowledge the receipt on January 14,
1997 of the amount of One Million Pesos (Php1,000,000.00) Check No.
118 118 7014 Metro Bank, Pasong Tamo branch dated January 13, 1997
from Mr. George Fong, which amount shall constitute an advance of
the contribution or investment of Mr. Fong in the joint venture which
he and I are in the process of organizing. Specifically, this amount will
be considered as part of Mr. Fong’s subscription to the shares of stock
of the joint venture company which we will incorporate to embody and
carry out our joint venture.40 [Emphasis supplied.]
Thus, Dueñas erred when he invested Fong’s contributions in his two
companies. This money should have been used in processing Alliance’s
registration. Its incorporation would not materialize if there would be
no funds for its initial capital. Moreover, Dueñas represented that
Danton and Bakcom’s shares were valued at ₱32.5 Million. If this was
true, then there was no need for Fong’s additional ₱5 Million
investment, which may possibly increase the value of the Danton and
Bakcom shares.
Under these circumstances, the Court agrees with the trial court that
Dueñas violated his agreement with Fong. Aside from unilaterally
applying Fong’s contributions to his two companies, Dueñas also failed
to deliver the valuation documents of the Danton and Bakcom shares
to prove that the combined values of their capital contributions actually
amounted to ₱32.5 Million. These acts led to Dueñas’ delay in
incorporating the planned holding company, thus resulting in his breach
of the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of the joint
venture agreement under Article 1191. As the Court ruled in Velarde v.
Court of Appeals:41
The right of rescission of a party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach contemplated in the
said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and in the absence of any just
cause for the court to determine the period of compliance, the court
shall decree the rescission.
In the present case, private respondents validly exercised their right to
rescind the contract, because of the failure of petitioners to comply
with their obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently gave rise to private
respondents’ right to rescind the same in accordance with
law.42 [Emphasis supplied.]
However, the Court notes that Fong also breached his obligation in the
joint venture agreement. In his June 13, 1997 letter, Fong expressly
informed Dueñas that he would be limiting his cash contribution from
₱32.5 Million to ₱5 Million because of the following reasons which we
quote verbatim:
1. First, we were faced with the ‘personal’ factor which was explained
to you one time. This has caused us to turn down a number of business
opportunities;
2. Secondly, since last year, the operation of Century 21 has been
taking more time from us than anticipated. That is why we decided to
relinquish our original plan to manage and operate ‘Boboli’ knowing
this limitation. For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on and participate
actively as originally planned.43 x x x.
Although these reasons appear to be valid, they do not erase the fact
that Fong still reneged on his original promise to contribute ₱32.5
Million. The joint venture agreement was not reduced to writing and
the evidence does not show if the parties agreed on valid causes that
would justify the limitation of the parties’ capital contributions. Their
only admission was that they obligated themselves to contribute ₱32.5
Million each.
Hence, Fong’s diminution of his capital share to ₱5 Million also
amounted to a substantial breach of the joint venture agreement,
which breach occurred before Fong decided to rescind his agreement
with Dueñas. Thus, Fong also contributed to the non-incorporation of
Alliance that needed ₱65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial reduction of
his capital contribution also greatly impeded the implementation of
their agreement to engage in the food business and to incorporate a
holding company for it.
As both parties failed to comply with their respective reciprocal
obligations, we apply Article 1192 of the Civil Code, which provides:
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first in fractor shall be equitably tempered
by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each
shall bear his own damages. [Emphasis supplied.]
Notably, the Court is not aware of the schedule of performance of the
parties’ obligations since the joint venture agreement was never
reduced to writing. The facts, however, show that both parties began
performing their obligations after executing the joint venture
agreement. Fong started remitting his share while Dueñas started
processing the Boboli international license for the proposed
corporation’s food business.
The absence of a written contract renders the Court unsure as to
whose obligation must be performed first. It is possible that the parties
agreed that Fong would infuse capital first and Dueñas’ submission of
the documents on the Danton and Bakcom shares would just follow. It
could also be the other way around. Further, the parties could have
even agreed to simultaneously perform their respective obligations.
Despite these gray areas, the fact that both Fong and Dueñas
substantially contributed to the non-incorporation of Alliance and to
the failure of their food business plans remains certain.
As the Court cannot precisely determine who between the parties first
violated the agreement, we apply the second part of Article 1192 which
states: "if it cannot be determined which of the parties first violated
the contract, the same shall be deemed extinguished, and each shall
bear his own damages. "

In these lights, the Court holds that the joint venture agreement
between Fong and Dueñas is deemed extinguished through rescission
under Article 1192 in relation with Article 1191 of the Civil Code.
Dueñas must therefore return the ₱5 Million that Fong initially
contributed since rescission requires mutual restitution.44 After
rescission, the parties must go back to their original status before they G.R. No. 202947, December 09, 2015
entered into the agreement. Dueñas cannot keep Fong's contribution
as this would constitute unjust enrichment. ASB REALTY CORPORATION, Petitioner, v. ORTIGAS & COMPANY
LIMITED PARTNERSHIP, Respondent.
No damages shall be awarded to any party in accordance with the rule
under Article 1192 of the Civil Code that in case of mutual breach and
the first infractor of the contract cannot exactly be determined, each
party shall bear his own damages. WHEREFORE, premises considered, judgment is rendered:
1. Granting the appeal of plaintiff-appellant and herein movant Ortigas
WHEREFORE, premises considered, we hereby GRANT the petition and and Company Limited Partnership, and reversing the Decision of the
reverse the September 16, 2008 decision and December 8, 2008 court a quo dated December 14, 2009;
resolution of the Court of Appeals in CA-G.R. CV No. 88396. Respondent
Jose V. Dueñas is ordered to RETURN Five Million Pesos to petitioner 2. Rescinding the June 24, 1994 Deed of Sale between Ortigas and
George C. Fong. This amount shall incur an interest of six percent (6%) Company Limited Partnership and Amethyst Pearl Corporation in view
per annum from the date of finality of this judgment until fully of the material breached (sic) thereof by AMETHYST;
paid.45 The parties' respective claims for damages are deemed
EXTINGUISHED and each of them shall bear his own damages. 3. Ordering ASB Realty Corporation, by way of mutual restitution, the
RECONVEYANCE to ORTIGAS of the subject property covered by TCT
SO ORDERED. No. PT-105797 upon payment by ORTIGAS to ASB of the amount of
Two Million Twenty Four Thousand Pesos (PhP 2,024,000.00) plus legal
interest at the rate of 6% per annum from the time of the finality of
this judgment until the same shall have been fully paid; and
4. Ordering the Register of Deeds of Pasig City to cancel TCT No. PT-
105797 and issue a new title over the subject property under the name
of ORTIGAS & COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED.2
The petitioner also assails the resolution promulgated on July 26,
2012,3 whereby the CA denied its Motion for Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas & Company Limited Partnership
(Ortigas) entered into a Deed of Sale with Amethyst Pearl Corporation
(Amethyst) involving the parcel of land with an area of 1,012 square
meters situated in Barrio Oranbo, Pasig City and registered under
Transfer Certificate of Title (TCT) No. 65118 of the Register of Deeds of
Rizal4 for the consideration of P2,024,000.00. The Deed of
Sale5 contained the following stipulations, among others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its subdivisions to form
part of a zonified BUILDING AREA pursuant to its controlled real estate
development project and subdivision scheme, and is subject to the
following covenants which form part of the consideration of ORTIGAS'
sale to VENDEE and its assigns, namely:
x x x x  sole stockholder, petitioner ASB Realty Corporation (the petitioner),
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of reinforced
concrete, cement hollow blocks and other high-quality materials and
shall be of the following height of not more than: fourteen (14) storeys
plus one penthouse.
x x x x 
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building shall be submitted
to ORTIGAS for approval not later than six (6) months from date
hereof. Should ORTIGAS object to the same, it shall notify and specify
to the VENDEE in writing the amendments required to conform with its
building restrictions and VENDEE shall submit the amended plans
within sixty (60) days from receipt of said notice.
M. CONSTRUCTION AND COMPLETION OF BUILDING:
The VENDEE shall finish construction of its building within four (4) years
from December 31, 1991.6ChanRoblesVirtualawlibrary
As a result, the Register of Deeds of Rizal cancelled TCT No. 65118 and
issued TCT No. PT-94175 in the name of Amethyst.7 The conditions
contained in the Deed of Sale were also annotated on TCT No. PT-
94175 as encumbrances.8
On December 28, 1996, Amethyst assigned the subject property to its
under a so-called Deed of Assignment in Liquidation in consideration of
10,000 shares of the petitioner's outstanding capital stock.9 Thus, the
property was transferred to the petitioner free from any liens or
encumbrances except those duly annotated on TCT No. PT-94175.10 The
Register of Deeds of Rizal cancelled TCT No. PT-94175 and issued TCT
No. PT-105797 in the name of the petitioner with the same
encumbrances annotated on TCT No. PT-94175.11
On July 7, 2000, Ortigas filed its complaint for specific performance
against the petitioner,12 which was docketed as Civil Case No. 67978 of
the Regional Trial Court (RTC) in Pasig City.13 Ortigas amended the
complaint, and alleged,14 among others, that:
5. Defendant has violated the terms of the Deed of Absolute Sale
(Annex "A") in the following manner:
a. While the lot may be used only "for office and residential purposes",
defendant introduced constructions on the property which are
commercial in nature, like restaurants, retail stores and the like (see
par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by defendant on the property
extend up to the boundary lines of the lot in question violating the
setbacks established in the contract (see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans and specifications
of its proposed building not later than six (6) months from June 29,
1994 and to complete construction of the same within four (4) years
from December 31, 1991. (see pars. L and M, ibid).
d. Being situated in a first-class office building area, it was agreed that
no advertisements or any kind of commercial signs shall be allowed on
the lot or the improvements therein but this was violated by defendant
when it put up commercial signs and advertisements all over the area,
(see par. F, ibid).
6. Any of the afore-described violations committed by the defendant
empower the plaintiff to sue under parangraph "N. Unilateral
Cancellation", plaintiff may have the Deed of Absolute Sale (Annex "A")
cancelled and the property reverted to it by paying the defendant the
amount it has paid less the items indicated
therein.15ChanRoblesVirtualawlibrary
For reliefs, Ortigas prayed for the reconveyance of the subject property,
or, alternatively, for the demolition of the structures and improvements
thereon, plus the payment of penalties, attorney's fees and costs of
suit.16
During the pendency of the proceedings in the RTC, the petitioner
amended its Articles of Incorporation to change its name to St. Francis
Square Realty Corporation.17
After trial on the merits, the RTC rendered its decision on December 14,
2009,18 and dismissed the complaint, pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June 1994. Amethyst was
supposed to finish construction on 31 December 1995. Yet, up to the
time the property was transferred to ASB on 28 December 1996,
Ortigas never initiated any action against Amethyst to enforce said
provision. Ortigas is therefore guilty of laches or negligence or omission
to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined
to assert it. (Tijam v. Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated in TCT No. 94175
(in the name of Amethyst Pearl Corporation) and TCT No. PT-105797 (in
the name of ASB) repeatedly and consistently refer to the VENDEE. The
term VENDEE in the said restrictions obviously refer to Amethyst Pearls
Corporation considering the fact that the date referred to in Paragraph
N thereof (Construction and Completion of Building), which is four (4)
years from December 31, 1991, obviously refer to the plaintiffs VENDEE
Amethyst Pearl Corporation. Definitely, it cannot refer to the defendant
ASB which is not a vendee of the plaintiff. Therefore, all references to
VENDEE in the restrictions evidently refer to Amethyst Pearl
Corporation, the VENDEE in the sale from the plaintiff. Such explanation
is more consistent with logic than the plaintiffs convoluted assertions
that the said restrictions apply to the defendant ASB.
Reconveyance of the property to Ortigas necessarily implies rescission
of the sale or transfer from Amethyst to ASB and from Ortigas to
Amethyst. But Amethyst was not made a party to the case.
Reconveyance of the property to the original seller (Ortigas) applies
only on the sale to the original vendee (Amethyst) and not to
subsequent vendees to whom the property was sold (Ayala Corp. v.
Rosa Diana Realty and Dev. Corp., G.R. No. 134284, Dec. 1, 2000, 346
SCRA 663).
The non-compliance by the plaintiff with the requisites of its own
restrictions further proves that it had no intention whatsoever to
enforce or implement the same. If at all, this evinces an afterthought of
the plaintiff to belatedly and unjustifiably single out the defendant for
alleged non compliance of the said restrictions which are not applicable
to it anyway.
WHEREFORE, foregoing premises considered, the present complaint is
hereby dismissedfor lack of basis.
SO ORDERED.19ChanRoblesVirtualawlibrary
Ortigas appealed to the CA, which initially affirmed the RTC under the
decision promulgated on September 6, 2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said restrictions as against
ASB.
The "Covenants, Conditions and Restrictions" of ORTIGAS with respect
to the property clearly states the following purpose:
"This lot has been segregated by ORTIGAS from its subdivisions to form
part of a zonified BUILDING AREA pursuant to its controlled real estate
development project and subdivision scheme. x x x"
However, it appears from the circumstances obtaining in this case that
ORTIGAS failed to pursue the aforequoted purpose. It never filed a
complaint against its vendee, AMETHYST, notwithstanding that it
required the latter to complete construction of the building within four
(4) years from the execution of the Deed of Sale. Neither did it make a
demand to enforce the subject restriction. Moreover, while it imposed
a restriction on the registration and issuance of title in the name of the
vendee under Paragraph "P" on "Registration of Sale", to
wit:chanRoblesvirtualLawlibrary
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being, this Deed will not
be registered and that its title shall not be issued until the satisfactory
construction of the contemplated Office Building and VENDEE's
compliance with all conditions therein. x x x"
AMETHYST was nonetheless able to procure the title to the property in
its name, and subsequently, assigned the same to ASB.
Besides, records show that there are registered owner-corporations of
several properties within the Ortigas area, where the subject property
is located, that have likewise failed to comply with the restriction on
building construction notwithstanding the fact of its annotation on the
titles covering their properties. In fact, the tax declarations covering
these properties in the respective names of UNIMART INC., CHAILEASE
DEVELOPMENT CO. INC., CANOGA PARK DEVELOPMENT
CORPORATION, and MAKATI SUPERMARKET CORPORATION reveal that
no improvements or buildings have been erected thereon.
Notwithstanding such blatant non-compliance, however, records are
bereft of evidence to prove that ORTIGAS took steps to demand
observance of the said restriction from these corporations, or that it
opted to institute any case against them in order to enforce its rights as
seller. Thus, while ORTIGAS effectively tolerated the non-compliance of
these other corporations, it nonetheless proceeded with the filing of
the Complaint a quo against ASB, seeking the rescission of the
original Deed of Sale on the ground of non-compliance of the very
same restriction being violated by other property owners similarly
situated.
On the basis of the foregoing acts or omissions of ORTIGAS, and the
factual milieu of the present case, it cannot be pretended that it failed
to actively pursue the attainment of its objective of having a
"controlled real estate development project and subdivision scheme".
The Court thus concurs with the ratiocinations of the RTC when it
posited that the restrictions imposed by ORTIGAS on ASB have been
"rendered obsolete and inexistent" for failure of ORTIGAS to enforce
the same uniformly and indiscriminately against all non-complying
property owners. If the purpose of ORTIGAS for imposing the
restrictions was for its "controlled real estate development project and
subdivision scheme", then it should have sought compliance from all
property owners that have violated the restriction on building
completion. As things stand, ASB would appear to have been singled
out by ORTIGAS, rendering the present action highly suspect and a
mere afterthought.
Consequently, while it may be true that ASB was bound by the
restrictions annotated on its title, specifically the restriction on building
completion, ORTIGAS is now effectively estopped from enforcing the
same by virtue of its inaction and silence.
xxxx
In this case, ORTIGAS acquiesced to the conveyance of the property
from AMETHYST to ASB with nary a demand, reservation or complaint
for the enforcement of the restriction on building construction. It
allowed the four-year period within which to construct a building to
lapse before it decided that it wanted, after all, to enforce the
restriction, which cannot be allowed lest the property rights of the
registered owner, ASB, be transgressed. Such a silence or inaction,
which in effect led ASB to believe that ORTIGAS no longer sought the
enforcement of the restrictions on the contract,
therefore bars ORTIGAS from enforcing the restriction it imposed on
the subject property.
xxxx
WHEREFORE, premises considered, the instant appeal is DENIED. The
assailed Decision is hereby AFFIRMED.
SO ORDERED.21ChanRoblesVirtualawlibrary
Acting on Ortigas' Motion for Reconsideration, however, the CA
promulgated its assailed amended decision on January 9,
2012,22 whereby it reversed the decision promulgated on September 6,
2011. It observed and ruled as follows:
It is not disputed that AMETHYST failed to finish construction within the
period stated in the 1994 Deed of Sale. As correctly pointed out by
ORTIGAS, in accordance with Article 1144 of the Civil Code, the
prescriptive period within which to enforce remedies under the 1994
Deed of sale is ten (10) years from the time the right of action accrues.
ORTIGAS, therefore, had ten (10) years from 31 December 1995 or until
31 December 2005 within which to file suit to enforce the
restriction. ORTIGAS filed the present complaint on 07 July 2000 well
within the prescriptive period for filing the same.
ASB contends that it could not have complied with the particular
restriction to finish construction of the building as the period to finish
the same had already lapsed by the time ASB acquired the property by
way of a Deed of Assignment in Liquidation between AMETHYST and
ASB on 28 December 1996. We hold, however, that the mere
assignment or transfer of the subject property from AMETHYST to ASB
does not serve to defeat the vested right of ORTIGAS to avail of
remedies to enforce the subject restriction within the applicable
prescriptive period.
xxxx
As to the argument that the inaction of ORTIGAS with respect to other
non-compliant properties in the Ortigas area is tantamount to
consenting to such non-compliance, it must be mentioned that it is the
sole prerogative and discretion of Ortigas to initiate any action against
the violators of the deed restrictions. This Court cannot interfere with
the exercise of such prerogative/discretion. Furthermore, We cannot
sustain estoppel in doubtful inference. Absent the conclusive proof that
its essential elements are present, estoppel must fail. Estoppel, when
misapplied, becomes an effective weapon to accomplish an injustice,
inasmuch as it shuts a man's mouth from speaking the
truth.23ChanRoblesVirtualawlibrary
By its resolution promulgated on July 26, 2012, the CA denied the
petitioner's Motion for Reconsideration24 for being filed out of
time.25cralawred
Issues
Hence, this appeal in which ASB submits: (1) that its Motion for
Reconsideration vis-a-vis the CA's amended decision was filed on time;
and (2) that the amended decision promulgated on January 9, 2012 by
CA be reversed and set aside, and the decision promulgated on
September 6, 2011 be reinstated.26
The petitioner essentially seeks the resolution of the issue of whether
or not Ortigas validly rescinded the Deed of Sale due to the failure of
Amethyst and its assignee, the petitioner, to fulfil the covenants under
the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration vis-a-vis the amended
decision of the CA was timely filed
In denying the petitioner's Motion for Reconsideration, the CA
concluded as follows:
Per allegation of material dates, the Motion for Reconsideration filed
by Balgos Gumara & Jalandoni, co-counsel with Jose, Mendoza &
Associates, on January 30, 2012 appears to have been filed on time.
However, per registry return attached at the back of p. 212 of the Rollo,
the Motion for Reconsideration was filed three (3) days late
considering that the Amended Decision was received by defendant
appellee's counsel of record, Jose, Mendoza & Associates, on January
12, 2012.27ChanRoblesVirtualawlibrary
The conclusion of the CA was unwarranted because the petitioner
established that its filing of the Motion for Reconsideration was timely.
It is basic that the party who asserts a fact or the affirmative of an issue
has the burden of proving it.28Here, that party was the petitioner. To
comply with its burden, it attached to its petition for review
on certiorari: (1) the affidavit executed by Noel S.R. Rose, Senior
Partner of Jose, Mendoza & Associates attesting that he had requested
the postmaster of the Mandaluyong City Post Office to certify the date
when Jose, Mendoza & Associates had received the copy of the
amended decision of the CA;29 and (2) the certification issued on
August 15, 2012 by Postmaster Rufino C. Robles, and Letter Carrier, Jojo
Salvador, both of the Mandaluyong Central Post Office, certifying that
Registered Letter No. MVC 457 containing the copy of the amended
decision had been delivered to and received on January 18, 2012 by
Jose, Mendoza & Associates, through Ric Ancheta.30 It thereby sought
to prove that it had received the copy of the amended decision only on
January 18, 2012, not January 12, 2012 as stated in the registry return
card on record. Thus, it had until February 2, 2012, or 15 days from
January 18, 2012, within which to file the same. In contrast, Ortigas
relied only on the copy of the registry return to refute the petitioner's
assertion.31 Under the circumstances, the filing on January 30, 2012 of
the Motion for Reconsideration was timely.
2.
Ortigas' action for rescission could not prosper
The petitioner reiterates that although the restrictions and covenants
imposed by Ortigas under the Deed of Sale with Amethyst, particularly
with regard to the construction of the building, were similarly imposed
on Ortigas' other buyers and annotated on the latter's respective
certificates of title,32 Ortigas never took to task such other buyers and
Amethyst for failing to construct the buildings within the periods
contractually imposed.33 It maintains, therefore, that Ortigas slept on its
rights because it did not take any action against Amethyst during the
period prescribed in the Deed of Sale.34 It argues that even assuming
that it was bound by the terms of the Deed of Sale, certain
circumstances occurred in the interim that rendered it impossible for
the petitioner to comply with the covenants embodied in the Deed of
Sale, namely: (1) the delay in the petitioner's possession of the
property resulted from the complaint for forcible entry it had filed in
the Metropolitan Trial Court in Pasig City; (2) at the time the property
was transferred to the petitioner, the period within which to construct
the building had already expired without Ortigas enforcing the
obligation against Amethyst; and (3) the petitioner was placed under
corporate rehabilitation by the Securities and Exchange Commission
(SEC) by virtue of which a stay order was issued on May 4, 2000.35
In contrast, Ortigas contends that it had the sole discretion whether or
not to commence any action against a party who violated a restriction
in the Deed of Sale;36 and that it could not be estopped because
the Deed of Sale with Amethyst and the deeds of sale with its other
buyers contained a uniform provision to the effect that "any inaction,
delay or tolerance by OCLP (Ortigas) in respect to violation of any of
the covenants and restrictions committed by these buyers shall not bar
or estop the institution of an action to enforce them."37
In asserting its right to rescind, Ortigas insists that the petitioner was
bound by the covenants of the Deed of Sale annotated on TCT No. PT-
10597 in the name of the petitioner;38 and that the petitioner's privity
to the Deed of Sale was by virtue of its being the successor-in-interest
or assignee of Amethyst.39
After evaluating the parties' arguments and the records of the case, the
Court holds that Ortigas could not validly demand the reconveyance of
the property, or the demolition of the structures thereon through
rescission.
The Deed of Assignment in Liquidation executed between Amethyst and
the petitioner expressly stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers and conveys unto the
ASSIGNEE, its successors and assigns, free from any lien or
encumbrance except those that are duly annotated on the Transfer
Certificate of Title (TCT), one parcel of real property (with
improvements). x x x.
xxxx
The ASSIGNEE in turn in consideration of the foregoing assignment of
assets to it, hereby surrenders to ASSIGNOR, Amethyst Pearl
Corporation, Stock Certificate Nos. (006, 007, 008, 009, 010, 011),
covering a total of TEN THOUSAND SHARES (10,000) registered in the
name of the ASSIGNEE and its nominees in the books of ASSIGNOR,
receipt of which is hereby acknowledged, and in addition hereby
releases ASSIGNOR from any and all
claims.40ChanRoblesVirtualawlibrary
The express terms of the Deed of Assignment in Liquidation, supra,
indicate that Amethyst transferred to the petitioner only the tangible
asset consisting of the parcel of land covered by TCT No. PT-94175
registered in the name of Amethyst. By no means did Amethyst assign
the rights or duties it had assumed under the Deed of Sale. The
petitioner thus became vested with the ownership of the parcel of land
"free from any lien or encumbrance except those that are duly
annotated on the [title]" from the time Amethyst executed the Deed of
Assignment in Liquidation.
Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon, or any rights
thereto, shall not be transferred, sold or encumbered before the final
completion of the building as herein provided unless it is with the prior
express written approval of ORTIGAS.41
xxxx
The VENDEE hereby agrees that, for the time being, this Deed will not
be registered and that its title shall not be issued until the satisfactory
construction of the contemplated Office Building and VENDEE's
compliance with all conditions herein. x x x42ChanRoblesVirtualawlibrary
Ortigas apparently recognized without any reservation the issuance of
the new certificate of title in the name of Amethyst and the subsequent
transfer by assignment from Amethyst to the petitioner that resulted in
the issuance of the new certificate of title under the name of the
petitioner. As such, Ortigas was estopped from assailing the petitioner's
acquisition and ownership of the property.
The application of estoppel was appropriate. The doctrine of estoppel
was based on public policy, fair dealing, good faith and justice, and its
purpose was to forbid a party to speak against his own act or omission,
representation, or commitment to the injury of another to whom the
act, omission, representation, or commitment was directed and who
reasonably relied thereon. The doctrine sprang from equitable
principles and the equities in the case, and was designed to aid the law
in the administration of justice where without its aid injustice would
result. Estoppel has been applied by the Court wherever and whenever
special circumstances of the case so demanded.43
Yet, the query that persists is whether or not the covenants annotated
on TCT No. PT-10597 bound the petitioner to the performance of the
obligations assumed by Amethyst under the Deed of Sale.
We agree with Ortigas that the annotations on TCT No. PT-10597
bound the petitioner but not to the extent that rendered the petitioner
liable for the non-performance of the covenants stipulated in the Deed
of Sale.
Section 39 of Act No. 496 (The Land Registration Act) requires that
every person receiving a certificate of title in pursuance of a decree of
registration, and every subsequent purchaser of registered land who
takes a certificate of title for value in good faith shall hold the same
free of all encumbrances except those noted on said certificate. An
encumbrance in the context of the provision is "anything that impairs
the use or transfer of property; anything which constitutes a burden on
the title; a burden or charge upon property; a claim or lien upon
property."44 It denotes "any right to, or interest in, land which may
subsist in another to the diminution of its value, but consistent with the
passing of the fee by conveyance."45 An annotation, on the other hand,
is "a remark, note, case summary, or commentary on some passage of
a book, statutory provision, court decision, of the like, intended to
illustrate or explain its meaning."46 The purpose of the annotation is to
charge the purchaser or title holder with notice of such burden and
claims.47 Being aware of the annotation, the purchaser must face the
possibility that the title or the real property could be subject to the
rights of third parties.48
By acquiring the parcel of land with notice of the covenants contained
in the Deed of Sale between the vendor (Ortigas) and the vendee
(Amethyst), the petitioner bound itself to acknowledge and respect the
encumbrance. Even so, the petitioner did not step into the shoes of
Amethyst as a party in the Deed of Sale. Thus, the annotation of the
covenants contained in the Deed of Sale did not give rise to a liability
on the part of the petitioner as the purchaser/successor-in-interest
without its express assumption of the duties or obligations subject of
the annotation. As stated, the annotation was only the notice to the
purchaser/successor-in-interest of the burden, claim or lien subject of
the annotation. In that respect, the Court has observed in Garcia v.
Villar:49
The sale or transfer of the mortgaged property cannot affect or release
the mortgage; thus the purchaser or transferee is necessarily bound to
acknowledge and respect the encumbrance.
xxxx
x x x However, Villar, in buying the subject property with notice that it
was mortgaged, only undertook to pay such mortgage or allow the
subject property to be sold upon failure of the mortgage creditor to
obtain payment from the principal debtor once the debt matures. Villar
did not obligate herself to replace the debtor in the principal obligation,
and could not do so in law without the creditors consent. Article 1293
of the Civil Code provides:
Art. 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in
articles 1236 and 1237.
Therefore, the obligation to pay the mortgage indebtedness remains
with the original debtors Galas and Pingol. x x x
To be clear, contractual obligations, unlike contractual rights or
benefits, are generally not assignable. But there are recognized means
by which obligations may be transferred, such as by sub-contract and
novation. In this case, the substitution of the petitioner in the place of
Amethyst did not result in the novation of the Deed of Sale. To start
with, it does not appear from the records that the consent of Ortigas to
the substitution had been obtained despite its essentiality to the
novation. Secondly, the petitioner did not expressly assume Amethyst's
obligations under the Deed of Sale, whether through the Deed of
Assignment in Liquidation or another document. And, thirdly, the
consent of the new obligor (i.e., the petitioner), which was as essential
to the novation as that of the obligee (i.e., Ortigas), was not obtained.50
Even if we would regard the petitioner as the assignee of Amethyst as
far as the Deed of Sale was concerned, instead of being the buyer only
of the subject property, there would still be no express or implied
indication that the petitioner had assumed Amethyst's obligations. In
short, the burden to perform the covenants under the Deed of Sale, or
the liability for the non-performance thereof, remained with Amethyst.
As held in an American case:
The mere assignment of a bilateral executory contract may not be
interpreted as a promise by the assignee to the assignor to assume the
performance of the assignor's duties, so as to have the effect of
creating a new liability on the part of the assignee to the other party to
the contract assigned. The assignee of the vendee is under no personal
engagement to the vendor where there is no privity between them.
(Champion v. Brown, 6 Johns. Ch. 398; Anderson v. N. Y. & H. R. R. Co.,
132 App. Div. 183, 187, 188; Hugel v. Habel, 132 App. Div. 327, 328.)
The assignee may, however, expressly or impliedly, bind himself to
perform the assignor's duties. This he may do by contract with the
assignor or with the other party to the contract. It has been held
(Epstein v. Gluckin, 233 N. Y. 490) that where the assignee of the
vendee invokes the aid of a court of equity in an action for specific
performance, he impliedly binds himself to perform on his part and
subjects himself to the conditions of the judgment appropriate thereto.
"He who seeks equity must do equity." The converse of the
proposition, that the assignee of the vendee would be bound when the
vendor began the action, did not follow from the decision in that case.
On the contrary, the question was wholly one of remedy rather than
right and it was held that mutuality of remedy is important only so far
as its presence is essential to the attainment of the ends of justice. This
holding was necessary to sustain the decision. No change was made in
the law of contracts nor in the rule for the interpretation of an
assignment of a contract.
A judgment requiring the assignee of the vendee to perform at the suit
of the vendor would operate as the imposition of a new liability on the
assignee which would be an act of oppression and injustice, unless the
assignee had, expressly or by implication, entered into a personal and
binding contract with the assignor or with the vendor to assume the
obligations of the assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover the subject
property from the petitioner?
The Civil Code uses rescission in two different contexts, namely: (1)
rescission on account of breach of contract under Article 1191; and (2)
rescission by reason of lesion or economic prejudice under Article 1381.
Cogently explaining the differences between the contexts of rescission
in his concurring opinion in Universal Food Corp. v. Court of
Appeals,52 the eminent Justice J.B.L. Reyes observed:
x x x The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party plaintiff but on
the breach of faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action, and Article 1191 may
be scanned without disclosing anywhere that the action for rescission
thereunder is subordinated to anything; other than the culpable breach
of his obligations by the defendant. This rescission is in principal action
retaliatory in character, it being unjust that a party be held bound to
fulfill his promises when the other violates his, as expressed in the old
Latin aphorism: "Non servanti fidem, non est fides servanda." Hence,
the reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or economic
prejudice, the cause of action is subordinated to the existence of that
prejudice, because it is the raison d'etre as well as the measure of the
right to rescind. Hence, where the defendant makes good the damages
caused, the action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission for lesion enumerated in
Article 1381 of the Civil Code of the Philippines, and does not apply to
cases under Article 1191.
Based on the foregoing, Ortigas' complaint was predicated on Article
1191 of the Civil Code, which provides:
Article 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Rescission under Article 1191 of the Civil Code is proper if one of the
parties to the contract commits a substantial breach of its provisions. It
abrogates the contract from its inception and requires the mutual
restitution of the benefits received;53 hence, it can be carried out only
when the party who demands rescission can return whatever he may
be obliged to restore.
Considering the foregoing, Ortigas did not have a cause of action
against the petitioner for the rescission of the Deed of Sale. Under
Section 2, Rule 2 of the Rules of Court, a cause of action is the act or
omission by which a party violates a right of another. The essential
elements of a cause of action are: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the defendant not to violate such right; and
(3) an act or omission on the part of the defendant in violation of the
right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action
for recovery of damages or other relief. It is only upon the occurrence
of the last element that the cause of action arises, giving the plaintiff
the right to file an action in court for the recovery of damages or other
relief.54
The second and third elements were absent herein. The petitioner was
not privy to the Deed of Sale because it was not the party obliged
thereon. Not having come under the duty not to violate any covenant
in the Deed of Sale when it purchased the subject property despite the
annotation on the title, its failure to comply with the covenants in
the Deed of Sale did not constitute a breach of contract that gave rise
to Ortigas' right of rescission. It was rather Amethyst that defaulted on
the covenants under the Deed of Sale; hence, the action to enforce the
provisions of the contract or to rescind the contract should be against
Amethyst. In other words, rescission could not anymore take place
against the petitioner once the subject property legally came into the
juridical possession of the petitioner, who was a third party to the Deed
of Sale.55
In view of the outcome, we consider to be superfluous any discussion
of the other matters raised in the petition, like the effects of the
petitioner's corporate rehabilitation and whether Ortigas was guilty of
laches.
WHEREFORE, the Court GRANTS the petition for review
on certiorari; ANNULS and REVERSES the amended decision
promulgated on January 9, 2012 and the resolution promulgated on
July 26, 2012 by the Court of Appeals in C.A.-G.R. CV No.
94997; DISMISSES Civil Case No. 67978 for lack of cause of action;
and ORDERS respondent ORTIGAS & COMPANY LIMITED
PARTNERSHIP to pay the costs of suit.

SO ORDERED.

G.R. No. 205113, August 26, 2015

HONORLITA ASCANO-CUPINO AND FLAVIANA ASCANO-

COLOCADO, Petitioners, v. PACIFIC REHOUSE
CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review on certiorari  under Rule 45 of the
Rules of Court seeking to reverse the Decision1 dated 17 July 2012 and
Resolution2 dated 8 January 2013 of the Court of Appeals (CA) in CA-G.R.
CV No. 90568. The CA reversed and set aside the Decision3 dated 15 April
2005 of the Regional Trial Court (RTC) of Trece Martires City, Cavite,
Branch 23, in Civil Case No. TM-936.

The Facts

On 1 October 1994. Honorlita Ascano-Cupino4 and Flaviana Ascano-

Colocado (petitioners), and their sister, Noeminia Ascano, (collectively, the
Ascanos)5 entered into a Deed of Conditional Sale with Pacific Rehouse
Corporation (Pacific). The latter obliged itself to purchase from the Ascanos
a parcel of land with an area of 59,753 square meters located in General
Trias, Cavite for P5,975,300.

Following the terms of the Deed of Conditional Sale, Pacific paid a down
payment of P1,792,590 leaving a balance of P4,182,710, to be paid upon
the fulfillment of certain conditions, namely: (1) the completion of all
documents necessary for the transfer of the certificate of title of the land;
(2) the vendors (the Ascanos) shall guarantee removal of the tenants,
squatters and other occupants on the land, with the disturbance
compensation to said tenants to be paid by vendors; and (3) submission
by vendors to Pacific of the Affidavit of Non-Tenancy and the land
operation transfer documents.6 redarclaw
In November 1994, petitioners asked for an additional P600,000 to be
deducted from the purchase price, which Pacific paid.7
In 1995, petitioners asked for another P1,000,000, again deductible from
the purchase price, purportedly to be used to fulfill the conditions in the
Deed of Conditional Sale. Pacific paid the amount.8 redarclaw
On 13 February 1995, petitioners submitted to Pacific a Barangay Agrarian
Reform Council Certification stating that the property was untenanted.
They also informed Pacific that the other necessary documents were being
processed and more expected to be completed the following month.9
The following month, however, petitioners failed to submit the necessary
documents despite several demands from Pacific to do so. Instead, they
informed Pacific that they wanted to rescind the contract and refused to
accept Pacific's tender of additional payments amounting to P1,005,180.10
In the latter part of March 1995, Pacific, through Melecio P. Fortuno, Jr.
(Fortuno), opened a savings account with the Capitol Bank of General
Trias, Cavite, in the names of petitioners, depositing in said account the
amount of P1,005,180.11 Pacific then informed petitioners of the deposit
and that "they were authorized to withdraw the same at [their]
convenience."12redarclaw
Thereafter, Pacific learned that petitioners were negotiating the sale of the
property with other buyers allegedly for a higher consideration. In
September 1995, Pacific effected an annotation of an adverse claim on the
property's title.13 redarclaw
Pacific made several demands on petitioners to fulfill their obligations
under the Deed of Conditional Sale. Instead of heeding the demands,
petitioners, through a certain Atty. Fojas, began negotiating with Pacific for
the rescission of the Deed of Conditional Sale.14 redarclaw
On 11 February 1999, Pacific made another demand on petitioners to fulfill
all their obligations under the Deed of Conditional Sale or to return all
payments it had already made plus legal interest. Petitioners continued to
ignore the demand.15 redarclaw
On 2 September 1999, Pacific filed a Complaint for Cancellation of
Contract, Sum of Money and Damages before the RTC of Trece Martires
City. However, before pre-trial, Pacific discovered that petitioners had
withdrawn the PI,005,180 it had deposited with Capitol Bank of General
Trias.16
redarclaw
In view of petitioners' action, Pacific filed an Amended
redarclaw Complaint17 changing its cause of action from cancellation to specific
performance.
On the other hand, petitioners alleged that it was Pacific that defaulted in
its payment. They maintained that the real purchase price they agreed
upon was P200 per square meter, or a total of P11,950,600, and that
allegedly the much lower amount stated in the Deed of Conditional Sale
was put there at Pacific's request in order to lower the taxes they would
need to pay.18 redarclaw
redarclaw
Petitioners further alleged that in October 2004, the parties had executed
an Addendum to Deed of Conditional Sale,19 with item "2" of the original
deed amended to read as follows: LawlibraryofCRAlaw
redarclaw That full payment of the balance of P4,182,710.00 shall be paid in full to
the Vendors by the Vendees within six (6) months from the date of the
Deed of Conditional Sale, otherwise, in case of default, the sale shall
automatically be cancelled and all monies received by the Vendors shall be
refunded to the Vendee, minus the amount of P792,590.00 taken by the
representative of the Vendee for payment of disturbance compensation to
ten[a]nts.
Petitioners insisted that the Addendum clearly stated that Pacific undertook
the obligation to pay the tenants' disturbance compensation with the
P792,590 taken by Fortuno as Pacific's authorized representative.
However, petitioners averred that the amount was never paid to the
tenants, who remained in the subject property, in violation of the
conditions set in the deed.20 redarclaw
Pacific, however, refused to acknowledge the Addendum because the same
was allegedly not signed by its authorized representative, Dee Hua T.
Gatchalian, who was the signatory in the original Deed of Conditional Sale.
Pacific also denied that the price they agreed upon was P11,950,600.21 redarclaw
The Decision of the RTC
On 15 April 2005, the RTC promulgated its decision, the dispositive portion
of which reads: LawlibraryofCRAlaw
WHEREFORE, judgment is hereby rendered cancelling the contract and the
addendum to it entered into by the plaintiff and defendants dated October
1, 1994 and ordering defendants Honorlita Ascaño, Noeminia Ascaño and
Flaviana Ascaño to return the amount of Two Million Six Hundred Two
Thousand (P2,602,000.00) Pesos to the plaintiff; while Plaintiff is hereby
ordered to pay defendants who incurred the following in defending their
rights:
LawlibraryofCRAlaw
1. The amount of One Hundred Fifty Thousand (P150,000.00) Pesos as
damages;
2. The amount of One Hundred Thousand (P100,000.00) Pesos as
attorney's fees; and
3. The litigation expenses.
SO ORDERED.22
The RTC held: LawlibraryofCRAlaw
In this case, parties admitted that there was a Deed of Conditional Sale
and an addendum to it executed by the parties. That based on this
contract, plaintiff paid defendant the amount of One Million Seven Hundred
Ninety Two Thousand Five Hundred Ninety (PI ,792,590.00) [Pesos] (Exh.
"K"), Six Hundred Thousand (P600,000.00) Pesos (Exh. "M"), One Million
(PI,000,000.00) Pesos (Exh[.] "Q") and Five Hundred Five Thousand One
Hundred Eighty (P505,[180].00) Pesos (Exh. "Q") and those payments
were all received by defendants, that when Plaintiff deposited the balance
of One Million (P1,000,000.00) pesos as full payment for the property,
defendants refused to withdraw it from the bank until plaintiff for failure of
the defendants] to withdraw their tender of payment, withdraw the
amount deposited.
Defendants in their defense alleged that they refused to withdraw the
amount as full payment since plaintiff failed to pay their tenants and the
latter were still occupying their property. With respect to this, plaintiff
alleged that it is the duty of the party defendants to pay their tenants as
per their agreement but defendants countered that as per their addendum,
which was incorporated in their Contract to Sell, a part of what they
received from the plaintiff was given to Mr. Melecio Fortuno to pay the
tenants amounting to Seven Hundred Ninety Two Thousand (P792,000.00)
Pesos; that with respect to the claims of the defendants], plaintiff denied
that Mr. Melecio Fortuno (now deceased) is not their (sic) authorized agent
to transact in behalf of the plaintiff.
With respect to this, the Court can very well see that this claim of the
plaintiff cannot be given merit. Plaintiff cannot deny that in their letter
addressed to Honorlita and Flaviano (sic) Ascaiio (Exhibit "G"), the
signature of Melecio Fortuno appeared as authorized representative of the
plaintiff and this cannot be denied by plaintiff. The fact that it was this
person who received the amount of P792,000.00 as payment for the
tenant shov/s that defendants cannot be faulted when they refused to
accept the full payment for their property considering that the tenants are
still occupying defendants' land despite the latter giving the amount to be
paid to the tenant.
However, plaintiff in his (sic) complaint prays for the rescission or
cancellation of contract and to this allegation, the Court has no recourse
but to grant this prayer since parties are no longer willing to proceed with
their contract and in rescission, the parties are duty bound to return what
they received. With respect to damages, expenses and attorney's fees
alleged by the parties, the Court from the pieces of evidence submitted so
maintains that plaintiff is not entitled since defendants] [are] not at fault.23
Pacific filed a motion for reconsideration of the RTC's decision. However,
the motion was denied in an Order24 dated 9 May 2006, prompting it to
file an appeal before the CA.25
The Decision of the CA
In the assailed decision dated 17 July 2012, the CA granted the appeal,
thus:LawlibraryofCRAlaw
WHEREFORE, premises considered, the instant Appeal is GRANTED. The
appealed Decision dated 15 April 2005 is hereby REVERSED and SET
ASIDE. Accordingly, this Court ORDERS: LawlibraryofCRAlaw
(1) the plaintiff-appellant to pay the defendants-appellees the amount of
One Million Five Hundred Seventy Seven Thousand Five Hundred Thirty
Pesos (P1,577,530.00), upon the execution by the defendants-appellees of
the Deed of Absolute Sale in favor of the plaintiff-appellant and delivery to
the latter all documents necessary for the transfer of the title to the
subject property; and
(2) the defendants-appellees shall, at their expense, commence the
necessary proceedings for the eviction of the tenants and/or informal
settlers in the property until the same is cleared of the same.
No pronouncement as to costs.
SO ORDERED.26
The CA held that "the trial court erred in deciding the case on the basis of
the original complaint." The CA noted that Pacific amended its complaint
from cancellation of contract to specific performance, which was done with
leave of and allowed by the RTC.27 redarclaw
The CA also held that rescission was not warranted in this case. It ruled
that petitioners "were clearly the ones who failed in their obligation under
the contract."28 Pacific then is the injured party entitled to choose between
rescission of the contract and fulfillment of the obligation. Pacific chose the
latter, as stated in their Amended Complaint for specific performance.29
Lastly, the CA found that it was proven and undisputed that a total of
P4,497,770 had already been paid by Pacific leaving only a balance of
P4,577,530.
Petitioners filed a motion for reconsideration, which was denied in a
Resolution dated 8 January 2013.30 redarclaw
Petition for Review with Prayer for TRO 
Petitioners filed the present petition for review asking the Court to verse
the decision of the CA and reinstate the decision of the RTC with the
deletion of the order to return the payments received.31 redarclaw
Petitioners also prayed for the issuance of a temporary restraining order
(TRO) arguing that Pacific was likely to move for a writ of execution once
the CA issues an entry of judgment, causing them grave and irreparable
damage.
In its Resolution dated 4 March 2013, the Court granted the request for
TRO upon payment of a cash or surety bond in the amount of P4.4
million.32 However, petitioners later withdrew their application for TRO
'ecause they could no longer afford to pay or secure a surety bond.33 redarclaw
Petitioners' Arguments
Petitioners aver that the CA erred in ordering specific performance instead
of rescission, arguing that the cancellation of the Deed of Conditional Sale
was justified because Pacific was indeed remiss in its obligation as
vendee.34 Petitioners further argue that they, and not Pacific, are the
injured parties in this case.
Petitioners assert that Pacific is bound by the Deed of Conditional Sale and
its Addendum because Fortuno was its authorized representative. They
emphasized that Fortuno, along with Pacific's liaison officer Purita Mendez,
signed the Deed of Conditional Sale and Addendum, while Dee Hua T.
Gatchalian did not.35 As further proof, they pointed to a letter dated 5 April
1995 where Fortuno himself clearly stated that he was the company's
authorized representative.36 redarclaw
Petitioners also insist that Pacific has not paid the entire purchase price
agreed upon. They underscore that the real purchase price agreed upon
was P200 per square meter or P11,950,600. However, Pacific only
acknowledges the purchase price to be P5,975,300, the amount stated in
redarclaw the Deed of Conditional Sale. In any case, petitioners insist that since the
total amount paid by Pacific only totals P3,605,180,37there remains a
balance to be paid whether the purchase price is that stated in the Deed of
Conditional Sale or P11,950,600.
Petitioners also allege that Pacific has not complied with its contractual
obligation to pay the tenants' disturbance compensation. Despite receiving
P792,590 through its authorized representative, Pacific never paid the
tenants who continue to occupy the property.38 redarclaw
Thus, petitioners contend that they are the injured parties in this case, and
therefore, entitled to ask for the rescission of the Deed of Conditional
Sale.39
redarclaw
Respondent's Arguments
In its Comment/Opposition,40 Pacific presents a different version of the
facts. It alleges that the purchase price agreed upon is that stated in the
Deed of Conditional Sale, which is P5,975,300. Pacific paid the down
payment amounting to P1,792,590, leaving a balance of P4,182,710. The
balance, as stipulated in the deed, was to be paid "upon completion by the
VENDORS of the pertinent documents that are necessary for the transfer of
trie Certificate of Title of the above mentioned parcel of land unto the
VENDEE[.]" Likewise, the deed stated that the vendors guaranteed to pay
the tenants disturbance compensation to rid the property of squatters and
other occupants.41redarclaw
In November 1994, petitioners requested from Pacific an additional partial
payment of P600,000 purportedly to be used to fulfill the conditions in the
Deed of Conditional Sale. Thereafter, petitioners asked for another
P1,000,000, again to be considered as partial payment, which Pacific
agreed tj) pay on the conditions that, first, petitioners submit a Barangay
Agrarian Reform Council Certification that the property was untenanted,
and second, deliver all the necessary documents, certifications and
clearances necessary to consummate the sale. On 13 February 1995,
petitioners submitted to Pacific a Barangay Agrarian Reform Council
Certification that the land was untenanted. They also assured Pacific that
the other documents needed to complete the sale were being processed.42 redarclaw
However, by March 1995, petitioners were still unable to deliver the
necessary documents, certifications and clearances. Pacific also heard from
Fortuno that petitioners were contemplating on rescinding the Deed of
Conditional Sale.
This prompted Pacific to tender to petitioners the payment for the balance
of the purchase price by opening a savings account in petitioners' names
and depositing the amount in said account. Pacific informed petitioners of
the deposit and told them that the amount was at their disposal.
Petitioners still failed to comply with their obligations under the Deed of
Conditional Sale.43 redarclaw
Pacific was then constrained to effect an annotation of adverse claim on
the property's transfer certificate of title.44 Thereafter, Pacific sent several
demand letters to petitioners,45 which remained unheeded.
When Pacific was about to initiate legal action, petitioners' lawyer
commenced negotiations for the rescission of the Deed of Conditional Sale.
However, in December 1998, the lawyer informed Pacific that his services
lad been terminated and he would no longer negotiate for petitioners.46 redarclaw
On 11 February 1999, Pacific again demanded that petitioners fulfill their
obligations under the Deed of Conditional Sale.47 The demand was again
unheeded. Hence, Pacific filed the Complaint48 for rescission/cancellation of
contract and damages before the RTC.
Pacific argues that the petition raises questions of fact and should be
denied. Moreover, Pacific avers that the issues raised by petitioners have
already been decided by the CA. In particular, Pacific emphasizes that the
argument regarding Fortuno's authority has been conclusively passed upon
by the CA.49redarclaw
Pacific also maintains that it is not the party guilty of failing to comply with
the obligations under the Deed of Conditional Sale. It maintains that it is
simply not true that the purchase price agreed upon is P200 per square
meter. For one, it says, being a corporation, it is in its best interest that
the true and correct purchase price be recorded in its books as an
expense. In fact, it further says, the party that will most benefit from
reducing the price will be petitioners themselves.50 redarclaw
Likewise, Pacific points out that the Addendum, which states, "[t]hat we,
the above-named Vendors, hereby amend item 2 of the said Deed of
Conditional Sale to read as follows x x x," proves that the amendment was
a "unilateral act" and without Pacific's consent.51 redarclaw
Based on the foregoing arguments, Pacific insists that it is the injured
party in this case. As it has clearly asked for specific performance in its
Amended Complaint, the CA correctly overturned the RTC's decision.52 redarclaw
The Issue
Petitioners raise this sole issue: LawlibraryofCRAlaw
WITH ALL DUE RESPECT, TO DECLARE THAT SPECIFIC PERFORMANCE IS
WARRANTED IN THE CASE AT BAR, INSTEAD OF RESCISSION, THE COURT
OF APPEALS HAS DECIDED IN A WAY PROBABLY NOT IN ACCORD WITH
LAW AND/OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT. ON THE CONTRARY, CANCELLATION OF THE DEED OF
CONDITIONAL SALE IS JUSTIFIED BECAUSE [RESPONDENT] WAS INDEED
REMISS [IN] ITS OBLIGATION AS VENDEE.53
The Court's Ruling
The petition is denied. The Court affirms the assailed decision and
resolution of the CA.
The RTC erred in deciding 
based on the original complaint.
It is clear that the RTC erred in deciding the case based on the original
complaint and not on the Amended Complaint, thus: LawlibraryofCRAlaw
[Pacific] in [its] complaint prays for the rescission or cancellation of
contract and to this allegation, the Court has no recourse but to grant this
prayer x x x.
WHEREFORE, judgment is hereby rendered cancelling (sic) the contract
and the addendum to it entered into by [Pacific] and [petitioners] on
October 1, 1994 x x x."54
The RTC failed to consider the Amended Complaint filed by Pacific which
changed Pacific's cause of action from cancellation/rescission of the
Conditional Deed of Sale55 into one for specific performance. In particular,
he Amended Complaint modified Pacific's prayer to read: LawlibraryofCRAlaw
WHEREFORE, in view of the foregoing premises, plaintiff respectfully prays
that judgment be rendered in favor of plaintiff and against defendants: LawlibraryofCRAlaw
a) Directing defendants to sign and deliver to plaintiff a Deed of Absolute
Sale covering the subject property and compel said defendants [to] comply
with their undertaking with plaintiff as embodied in the Conditional Deed of
Sale marked as Annex C.
x x x x56 (Underscoring in the original)
Section 8, Rule 10 of the Rules of Court provides: LawlibraryofCRAlaw
SEC. 8. Effect of amended pleadings. - An amended pleading
supersedes the pleading that it amends. However, admissions in
superseded pleadings may be received in evidence against the pleader;
and claims or defenses alleged therein not incorporated in the amended
pleading shall be deemed waived. (Emphasis supplied)
With Pacific's filing of the Amended Complaint, the original one must be
deemed to have been abandoned and to have become functus
officio.57 Thus, this Court has ruled:
LawlibraryofCRAlaw
When a pleading is amended, the original pleading is deemed abandoned.
The original ceases to perform any further function as a pleading. The case
stands for trial on the amended pleading only.58
Therefore, the Amended Compliant, to which petitioners filed an Amended
Answer with Counterclaim,59should have been the basis for the RTC's
decision.
The parties' obligations under
the Deed of Conditional Sale
Considering that Pacific seeks specific performance, particularly for
petitioners to execute a Deed of Absolute Sale and fulfill their obligations
under the Deed of Conditional Sale, it is prudent to re-examine the terms
of said deed to understand each party's obligations.
In particular, the terms and conditions under the Deed of Conditional Sale
are:LawlibraryofCRAlaw
1. That the VENDEE shall pay unto the VENDORS the sum of PESOS: ONE
MILLION SEVEN HUNDRED NINETY TWO THOUSAND FIVE HUNDRED
NINETY (P1,792,590.00), as downpayment for the purchase of the
aforesaid parcel of land, which the VENDORS acknowledged receipt hereof
upon the execution of this Conditional Sale;
2.  That full payment of the balance of PESOS: FOUR MILLION ONE
HUNDRED EIGHTY TWO THOUSAND SEVEN HUNDRED TEN ONLY
(P4,182,710.00), shall be made by the VENDEE unto the VENDORS  upon 
completion  by  the  VENDORS  of the  pertinent documents that are
necessary for the transfer of the [Transfer of] Certificate of Title of the
above mentioned parcel of land unto the VENDEE;
3.  That the VENDORS shall guarantee the removal of any tenant/s,
squatters and other occupants on the said parcel of land. Payments for the
tenants' disturbance compensation shall be shouldered by the VENDORS;
4.  That the VENDORS shall furnish the VENDEE the Affidavit of Non-
Tenancy and the Land operation transfer document;
x x x x60
In summary, Pacific's obligations are: (1) to pay the down payment of
P1,892,590, which it did; and (2) to pay the balance of the purchase price
"upon completion by the VENDORS of the pertinent documents that are
necessary for the transfer of the Transfer Certificate of Title of the above
mentioned parcel of land unto the VENDEE[.]"
On the other hand, the Ascanos undertook the following: (1) to furnish
Pacific with all "pertinent documents that are necessary for the transfer of
the Transfer Certificate of Title" to the subject property; (2) to guarantee
removal of tenants and shoulder the full amount of the tenants'
disturbance compensation; and (3) to furnish Pacific the certificate of non-
tenancy and land operation transfer document.
Likewise, as ruled by the CA, the Addendum relied upon by petitioners
cannot prevail over the original Deed of Conditional Sale entered into by
the parties.61 As the CA found, the Addendum was not signed by any of
Pacific's officers or authorized representatives. Pacific's authorized
representative, Dee Hua T. Gatchalian, did not sign the Addendum.
Moreover, Fortuno, the person purported to be Pacific's representative,
signed as a mere witness.62 redarclaw
A witness is not a party to the contract and is not automatically converted
to a party simply because, under some other extraneous document or
circumstance, he has presented himself as the corporation's authorized
representative.63 Likewise, such act of signing as a witness cannot be taken
as evidence of that person's authority.
Thus, the Addendum did not alter the parties' obligations under the original
Deed of Conditional Sale.
Pacific is entitled to ask
for specific performance.
Article 1191 of the Civil Code states: LawlibraryofCRAlaw
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.
The injured party may choose between fulfillment and the rescission of the
obligation, with payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
As previously discussed, the Deed of Conditional Sale clearly spells out the
obligations of each party. Based on the allegations of the parties and the
findings of the lower courts, Pacific has already partially fulfilled its
obligation while petitioners have not.
The obligation of petitioners under the Deed of Conditional Sale is to
"guarantee removal of tenants" and not merely to pay disturbance
compensation. It is an undertaking specifically given to petitioners under
the Deed of Conditional Sale, considering that Pacific is not yet the owner
of the property and will have no personality to evict the property's present
occupants. Petitioners failed to fulfill this obligation, as well as the
obligation to deliver the necessary documents to complete the sale.
As previously held by the Court, "the injured party is the party who has
faithfully fulfilled his obligation or is ready and willing to perform his
obligation."64 From the foregoing, it is clear that Pacific is the injured party,
entitled to elect between rescinding of the contract and exacting fulfillment
of the obligation. It has opted for the remedy of specific performance, as
embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of petitioners, since they
themselves failed to perform their obligations under the Deed of
Conditional Sale.65 redarclaw
As to the purchase price, both the RTC and the CA held that, given no
other evidence to conclude otherwise, the true purchase price agreed upon
by the parties is P5,975,300, the amount stipulated in the Deed of
Conditional Sale.
The Court agrees.
The RTC's Pre-trial Order66 is instructive. Specifically, item "2" of the
stipulations reads: LawlibraryofCRAlaw
STIPULATIONS
The parties have agreed on the following: LawlibraryofCRAlaw
xxxx
2. That on October 1, 1994, plaintiff and defendants] entered into a Deed
of Conditional Sale whereby plaintiff obliged itself to purchase the property
belonging to defendants for a sum of P5,975,300.00;
x x x x67
Likewise, in the check vouchers issued by Pacific for each of its payments,
the consideration under the contract was stated as P100 per square meter.
These check vouchers were acknowledged and signed by petitioners.68 redarclaw
Finally, records show, and petitioners do not dispute, that the following
amounts have already been paid by Pacific: LawlibraryofCRAlaw
(1) down payment of PI,792,590, receipt evidenced by Check Voucher No.
0863;69 redarclaw
(2) additional payment of P600,000, receipt evidenced by Check Voucher
No. 0968;70 redarclaw
(3) additional payment of P1,000,000, receipt evidenced by Check Voucher
No. 1113;71 redarclaw
(4) additional payments of P505,18072 and P500,000 deposited at Capitol
Bank of General Trias in Cavite.73
Pacific, therefore, has a balance of P1,577,530 to be paid upon the
fulfillment by petitioners of their obligations under the Deed of Conditional
Sale. Thereafter, petitioners are to execute the Deed of Absolute Sale in
favor of Pacific and deliver all the necessary documents to consummate
the sale.
WHEREFORE, the petition is DENIED for lack of merit. The Decision
dated 17 July 2012 and Resolution dated 8 January 2013 of the Court of
Appeals in CA-G.R. CV No. 90568 are AFFIRMED.
SO ORDERED. cralawlawlibrary
 G.R. No. 210215, December 09, 2015

ROGELIO S. NOLASCO, NICANORA N. GUEVARA, LEONARDA N.

ELPEDES, HEIRS OF ARNULFO S. NOLASCO, AND REMEDIOS M.
NOLASCO, REPRESENTED BY ELENITA M. NOLASCO Petitioners,
v.  CELERINO S. CUERPO, JOSELITO ENCABO, JOSEPH ASCUTIA,
AND DOMILO LUCENARIO, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated

June 17, 2013 and the Resolution3 dated November 19, 2013 of the Court
of Appeals (CA) in CA-G.R. CV No. 95353, which affirmed in toto the
Decision4 dated March 1, 2010 of the Regional Trial Court of Quezon City,
Branch 81 (RTC) in Civil Case No. Q-08-63860 ordering the rescission of
the Contract to Sell executed by herein parties and the return of the
amounts already paid by respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents) to petitioners Rogelio
S. Nolasco, Nicanora N. Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S.
Nolasco, and Remedios M. Nolasco, represented by Elenita M. Nolasco
(petitioners), as well as the remaining post-dated checks issued by
respondent Celerino S. Cuerpo representing the remaining monthly
amortizations, all in connection with the said contract.

The Facts

On July 22, 2008, petitioners and respondents entered into a Contract to

Sell5 (subject contract) over a 165,775-square meter parcel of land located
in Barangay San Isidro, Rodriguez, Rizal covered by Original Certificate of
Title No. 152 (subject land).6 The subject contract provides, inter alia,
that: (a) the consideration for the sale is P33,155,000.00 payable as
follows: down payment in the amount of P11,604,250.00 inclusive of the
amount of P2,000,000.00 previously paid by respondents as earnest
money/reservation fee, and the remaining balance of P21,550,750.00
payable in 36 monthly installments, each in the amount of P598,632.00
through post-dated checks; (b) in case any of the checks is dishonored,
the amounts already paid shall be forfeited in petitioners' favor, and the
latter shall be entitled to cancel the subject contract without judicial
recourse in addition to other appropriate legal action; (c) respondents are
not entitled to possess the subject land until full payment of the purchase
price; (d) petitioners shall transfer the title over the subject land from a
certain Edilberta N. Santos to petitioners' names, and, should they fail to
do so, respondents may cause the said transfer and charge the costs
incurred against the monthly amortizations; and (e) upon full payment of
the purchase price, petitioners shall transfer title over the subject land to
respondents.7 However, respondents sent petitioners a letter8 dated
November 7, 2008 seeking to rescind the subject contract on the ground of
financial difficulties in complying with the same. They also sought the
return of the amount of P12,202,882.00 they had paid to petitioners.9 As
their letter went unheeded, respondents filed the instant complaint10 for
rescission before the RTC.11
In their defense,12 petitioners countered that respondents' act is a
unilateral cancellation of the subject contract as the former did not consent
to it. Moreover, the ground of financial difficulties is not among the
grounds provided by law to effect a valid rescission.13
In view of petitioners' failure to file the required pre-trial brief, they were
declared "as in default" and, consequently, respondents were allowed to
present their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in favor of respondents
and, accordingly, ordered: (a) the rescission of the subject contract; and
(b) the return of the amounts already paid by respondents to petitioners,
as well as the remaining post-dated checks issued by respondent Celerino
S. Cuerpo representing the remaining monthly amortizations.16
It found petitioners to have substantially breached paragraph 7 of the
subject contract which states that "[t]he [petitioners] shall, within ninety
(90) days from the signing of [the subject contract] cause the completion
of the transfer of registration of title of the property subject of [the said
contract], from Edilberta N. Santos to their names, at [petitioners'] own
expense."17 As such, respondents were entitled to rescission under Article
1191 of the Civil Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
In a Decision20 dated June 17, 2013, the CA affirmed the RTC ruling. It
agreed with the RTC that petitioners substantially breached paragraph 7 of
the subject contract when they did not effect the transfer of the subject
land from Edilberta N. Santos to petitioners' names within ninety (90) days
from the execution of said contract, thus, entitling respondents to rescind
the same. In this relation, the CA held that under the present
circumstances, the forfeiture of the payments already made by
respondents to petitioners is clearly improper and unwarranted.21
Aggrieved, petitioners moved for reconsideration,22 which was denied in a
Resolution23 dated November 19, 2013; hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not the CA correctly
affirmed the rescission of the subject contract and the return of the
amounts already paid by respondents to petitioners, as well as the
remaining post-dated checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or more appropriately,
resolve - the contract upon the other party's substantial breach of the
obligation/s he had assumed thereunder.24 This is expressly 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.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
"More accurately referred to as resolution, the right of rescission under
Article 1191 is predicated on a breach of faith that violates the reciprocity
between the parties to the contract. This retaliatory remedy is given to the
contracting party who suffers the injurious breach on the premise that it is
'unjust that a party be held bound to fulfill his promises when the other
violates his.'"25 Note that the rescission (or resolution) of a contract will not
be permitted for a slight or casual breach, but only for such substantial
and fundamental violations as would defeat the very object of the parties
in making the agreement.26Ultimately, the question of whether a breach of
contract is substantial depends upon the attending circumstances.27
In the instant case, both the RTC and the CA held that petitioners were in
substantial breach of paragraph 7 of the subject contract as they did not
cause the transfer of the property to their names from one Edilberta N.
Santos within 90 days from the execution of said contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the signing of [the
subject contract], cause the completion of the transfer of registration of
title of the property subject of [the subject contract], from Edilberta N.
Santos to their names, at [petitioners'] own expense. Failure on the part
of [petitioners] to undertake the foregoing within the prescribed
period shall automatically authorize [respondents] to undertake
the same in behalf of [petitioners] and charge the costs incidental
to the monthly amortizations upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the subject contract reveals that while
the RTC and the CA were indeed correct in finding that petitioners failed to
perform their obligation to effect the transfer of the title to the subject land
from one Edilberta N. Santos to their names within the prescribed period,
said courts erred in concluding that such failure constituted a substantial
breach that would entitle respondents to rescind (or resolve) the subject
contract. To reiterate, for a contracting party to be entitled to rescission
(or resolution) in accordance with Article 1191 of the Civil Code, the other
contracting party must be in substantial breach of the terms and conditions
of their contract. A substantial breach of a contract, unlike slight and
casual breaches thereof, is a fundamental breach that defeats the object of
the parties in entering into an agreement.29 Here, it cannot be said that
petitioners' failure to undertake their obligation under paragraph 7 defeats
the object of the parties in entering into the subject contract, considering
that the same paragraph provides respondents contractual recourse in the
event of petitioners' non-performance of the aforesaid obligation, that is,
to cause such transfer themselves in behalf and at the expense of
petitioners.
Indubitably, there is no substantial breach of paragraph 7 on the part of
petitioners that would necessitate a rescission (or resolution) of the subject
contract. As such, a reversal of the rulings of the RTC and the CA is in
order.
The foregoing notwithstanding, the Court cannot grant petitioners' prayer
in the instant petition to order the cancellation of the subject contract and
the forfeiture of the amounts already paid by respondents on account of
the latter's failure to pay its monthly amortizations,30 simply because in
their Answer with Compulsory Counterclaim and Motion for Summary
Judgment31 filed before the RTC, petitioners neither prayed for this specific
relief nor argued that they were entitled to the same. Worse, petitioners
were declared "as in default" for failure to file the required pre-trial brief
and, thus, failed to present any evidence in support of their defense.32 It is
settled that "[w]hen a party deliberately adopts a certain theory and the
case is decided upon that theory in the court below, he will not be
permitted to change the same on appeal, because to permit him to do so
would be unfair to the adverse party."33 The Court's pronouncement
in Peña v. Spouses Tolentino34 is instructive on this matter, to wit:
Indeed, the settled rule in this jurisdiction, according to Mon v. Court of
Appeals, is that a party cannot change his theory of the case or his cause
of action on appeal. This rule affirms that "courts of justice have no
jurisdiction or power to decide a question not in issue." Thus, a judgment
that goes beyond the issues and purports to adjudicate something on
which the court did not hear the parties is not only irregular but also
extrajudicial and invalid. The legal theory under which the
controversy was heardand decided in the trial court should be
the same theory under which the review on appeal is conducted.
Otherwise, prejudice will result to the adverse party. We stress
that points of law, theories, issues, and arguments not adequately
brought to the attention of the lower court will not be ordinarily
considered by a reviewing court, inasmuch as they cannot be
raised for the first time on appeal. This would be offensive to the
basic rules of fair play, justice, and due process. 35(Emphasis and
underscoring supplied)
WHEREFORE, the petition is PARTIALLY GRANTED. Accordingly, the
Decision dated June 17, 2013 and the Resolution dated November 19,
2013 of the Court of Appeals in CA-G.R. CV No. 95353 are
hereby REVERSED and SET ASIDE. The Contract to Sell executed by the
parties on July 22, 2008 remains VALID and SUBSISTING.
SO ORDERED. chanroblesvirtuallawlibrary

G.R. No. 3019            February 9, 1907

LA COMPAÑIA GENERAL DE TABACOS DE FILIPINA, plaintiff-appellee, 

vs.
VICENTE ARAZA, defendant-appellant. 

this action in the court below to foreclose a mortgage for 8,000 pesos
upon certain land in the Province of Leyte. A demurrer to the complaint
was overruled, but to the order overruling it the defendant did not
except. The defendant answered, alleging that the document, the basis
of the plaintiff's claim, was executed through error on his part and
through fraud on the part of the plaintiff. A trial was had and judgment
was entered for the plaintiff as prayed for in its complaint. The
defendant moved for a new trial on the ground that the decision was
not justified by the evidence, this motion was denied, to its denial the
defendant excepted, and he has brought the case here for review. 

Upon the questions of fact raised by the answer, the findings of the
court below are sustained by the evidence, in no event they can be said
to be plainly and manifestly against the weight of the evidence. Those
findings include a finding that there was no fraud on the part of the
plaintiff, no mistake on the part of the defendant, and that there was a
sufficient consideration for the contract, As has been said, there was in The judgment is set aside and the case is remanded to the court below
the case to support all of these conclusions.  with directions to determine the amount due in accordance with the
views hereinbefore expressed and to enter judgment for such amount.
Upon one point, however, we think that the judgment was erroneous. No costs will be allowed to either party in this court. So ordered. 
The contract send upon was executed on the 11th day of June, 1901. By
terms thereof the defendant promised to pay the plaintiff 8,000 pesos
as follows: 500 pesos on the 30th of June, 1901, and the remainder at
the rate of 100 pesos a month, payable on the 30th day of each month,
until the entire 8,000 pesos was paid. The defendant paid 400 pesos
and no more.  G.R. No. L-12611            August 7, 1918

This suit was commenced on the 12th day of June, 1903. There was no FELIPE AGONCILLO, and his wife, MARCELA MARIÑO, plaintiff-
provision in the contract by which, upon failure to pay one installment appellees, 
of the debt, the whole debt should thereupon become at once payable. vs.
We are of the opinion that the obligation can be enforced in this action CRISANTO JAVIER, administrator of the estate of the late Anastasio
for only the amount due and payable on the 12th day of June, 1903.  Alano. FLORENCIO ALANO and JOSE ALANO, defendants-appellants.

The court below gave no credit for the payment of 400 pesos admitted
by the complaint to have been received by the plaintiff. It is allowed
interest upon the entire debt from the 1st day of July, 1901. The
contract does not provide for the payment of any interest. There is no
provision in it declaring expressly that the failure to pay when due
should put the debtor in default. There was therefore no default which
would make him liable for interest until a demand was made. (Civil
Code, art. 1100; Manresa, Com. on Civil Code, vol 8, p. 56.) The
transaction did not constitute a mercantile loan and article 316 of the
Code of Commerce is not applicable. There was no evidence any
demand prior to the presentation of the complaint. The plaintiff is
therefore entitled to interest only from the commencement of the
action.  the sum of P2,730.50, Philippine currency, this being the present
On the twenty-seventh day of February, 1904, Anastasio Alano, Jose
Alano, and Florencio Alano executed in favor of the plaintiff, Da.
Marcela Mariño, a document of the following tenor:
We, the undersigned, Jose Alano and Florencio Alano (on our own
behalf), and Anastasio Alano (on behalf of his children Leonila,
Anastasio and Leocadio), the former and the latter testamentary heirs
of the Rev. Anastasio C. Cruz, deceased, hereby solemnly promise
under oath:
1. We will pay to Da. Marcela Mariño within one year from this date
together with interest thereon at the rate of 12 per cent per annum,
amount of indebtedness incurred in favor of that lady on the 20th of
April 1897, by our testator, the Rev. Anastasio C. Cruz;
2. To secure the payment of this debt we mortgage to the said Da.
Marcela Mariño the house and lot bequeathed to us by the deceased,
situated in this town, on calle Evangelista, formerly Asturias, recorded
in the register of deeds on the twenty-second of April, 1895, under
number 730;
3. In case of insolvency on our part, we cede by virtue of these presents
the said house and lot to Da. Marcela Mariño, transferring to her all our
rights to the ownership and possession of the lot; and if the said
property upon appraisal at the time of the maturity of this obligation
should not be of sufficient value to cover the total amount of this
indebtedness, I, Anastasio Alano, also mortgage to the said lady my
four parcels of land situated in the barrio of San Isidro, to secure the
balance, if any; the title deeds of said property, as well as the title
deeds of the said house and lot are this day delivered to Sr. Vicente
Ilustre, general attorney-in-fact of Da. Marcela Mariño.
In witness whereof we have signed these presents in Batangas, this
twenty-seventh day of February, 1904.
(Sgd.) JOSE ALANO.
(Sgd.) ANASTASIO ALANO.
(Sgd.) FLORENCIO ALANO.
No part of the interest or of the principal due upon this undertaking
has been paid, except the sum of P200 paid in the year 1908 by the late
Anastasio Alano.
In 1912, Anastasio Alano died intestate. At the instance of one of his
creditors, proceedings upon the administration of his estate were had
in the Court of First Instance of Batangas. By order dated August 8,
1914, the court appointed an administrator and a committee to hear
claims. Notices were published, as required, in a newspaper of general
circulation, to inform the creditors of the time and place at which they
might appear to present their claims against the estate of the deceased
(Exhibit No. 1). The time designated in the notice for the presentation
of claims expired on March 24, 1915. It appears that no claims
whatever were presented to the committee, and it having been shown
to the court, by the statement of the administrator, that the claim of
the creditor at whose instance the administration proceeding was
commenced, had been settled by the heirs, the administrator was
discharged and the proceeding terminated by order dated November 8,
1915.
On April 27, 1916, at the instance of the plaintiff, Da. Marcela Mariño,
and upon the statement, made on her behalf, that she was a creditor of
the deceased and that her claim was secured by mortgage upon real
estate belonging to the said deceased, the court reopened the intestate
proceeding, and appointed one Javier to be administrator of the estate.
No request was made for a renewal of the commission of the
committee on claims. The appellants Jose and Florencio Alano objected
to the appointment of Javier, but their objection was overruled by the
court. 
On March 17, 1916, the plaintiffs filed the complaint in this action
against Javier, as administrator of the estate of Anastasio Alano and
against Florencio Alano and Jose Alano personally. The action is based
upon the execution of the document of February 27, 1904, above set
forth, which is transcribed literally in the complaint. It is averred that
defendants have paid no part of the indebtedness therein
acknowledged, with the exception of the P200 paid on account in 1908.
It is further averred that on April 22, 1910, the debtors promised in
writing that they would pay the debt in 1911, but that they had failed
to do so. The prayer of the complaint is that, unless defendants pay the
debt for the recovery of which the action was brought, they be
required to convey to plaintiffs the house and lot described in
paragraph two of the said document; that this property be appraised;
and that if its value is found to be less than the amount of the debt,
with the accrued interest at the stipulated rate, judgment be rendered
in favor of the plaintiffs for the balance. No relief is requested with
respect to the undertaking of Anastasio Alano expressed in the third
paragraph of the document in suit, as guarantor for the payment of the
difference, if any, between the value of the said house and lot and the
total amount of the indebtedness.  the law and the facts.
The defendants answered denying generally the facts alleged in the
complaint, and setting up, as special defenses that (1) any cause of
action which plaintiff might have had against the estate of Anastasio
Alano has been barred by failure of the plaintiff to present her claim to
the committee on claims for allowance; (2) that the document upon
which plaintiff relies does not constitute a valid mortgage; and (3) that
as to all of the defendants, the action is barred by the general statute
of limitations.  debt.
The findings of the trial court upon the evidence were substantially as
follows: 
1. That the document set forth in paragraph two of plaintiffs' complaint
was executed by the deceased, Anastasio Alano, and by the defendants
Javier and Jose Alano, as alleged; 
2. That one year after the execution of the document, plaintiffs made a
demand upon Anastasio Alano, deceased, and the other two
defendants herein, to comply with the terms of the agreement by the
execution of the conveyance of the house and lot, but that they
requested an extension of time for the payment of the debt, which was
granted them; 
3. That on March 27, 1908, the defendants paid P200 on account of the
debt. 
Upon these findings the court below gave judgment for plaintiffs, and
from that judgment the defendants have appealed to his court upon
 
The question raised by the appellants require us to analyze the
document upon which this action is based, and to determine its legal
effect. Appellants contend that the contract evidenced by that
instrument is merely a loan coupled with an ineffectual attempt to
create a mortgage to effect the payment of debt. The court below
regarded it as a conveyance of the house and lot described in the
contract, which took effect upon the failure of the debtors to pay the
 
The principal undertaking evidenced by the document is, obviously, the
payment of money. The attempt to create a mortgage upon the house
and lot described in the second clause of the contract is, of course,
invalid, as it is admitted that the so-called mortgage was never
recorded. Equally inefficacious, and for the same reasons, is the
purported mortgage by Anastasio Alano of his land in the barrio of San
Isidro described in the third paragraph of the document. (Compañia
General de Tabacos vs. Jeanjaquet, 12 Phil. Rep., 195.) 
The agreement to convey the house and lot at an appraised valuation
in the event of failure to pay the debt in money a t its maturity is,
however, in our opinion, perfectly valid. It is simply an undertaking that
if the debt is not paid in money, it will be paid in another way. As we
read the contract, the agreement is not open to the objection that the
stipulation is a pacto comisorio. It is not an attempt to permit the
creditor to declare a forfeiture of the security upon the failure of the
debtor to pay the debt at maturity. It is simply provided that if the debt
is not paid in money it shall be paid in another specific was by the
transfer of property at a valuation. Of course, such an agreement,
unrecorded, creates no right in rem; but as between the parties it is
perfectly valid, and specific performance of its terms may be enforced,
unless prevented by the creation of superior rights in favor of third
persons.  solido arise only when it is expressly stipulated that they shall have this
The contract now under consideration is not susceptible of the
interpretation that the title to the house and lot in question was to be
transferred to the creditor ipso facto upon the mere failure of the
debtors to pay the debt at its maturity. The obligations assumed by the
debtors were alternative, and they had the right to elect which they
would perform (Civil Code, art. 1132). The conduct of the parties (Civil
Code, art. 1782) shows that it was not their understanding that the
right to discharge the obligation by the payment of money was lost to
the debtors by their failure to pay the debt at its maturity. The plaintiff
accepted a partial payment from Anastasio Alano in 1908, several years
after the debt matured. The prayer of the complaint is that the
defendants be required to execute a conveyance of the house and lot,
after its appraisal, "unless the defendants pay the plaintiff the debt
which is the subject of this action." 
It is quite clear, therefore, that under the terms of the contract, as we
read it, and as the parties themselves have interpreted it, the liability of
the defendants as to the conveyance of the house and lot is subsidiary
and conditional, being dependent upon their failure to pay the debt in
money. It must follow, therefore, that if the action to recover the debt
has prescribed, the action to compel a conveyance of the house and lot
is likewise barred, as the agreement to make such conveyance was not
an independent principal undertaking, but merely a subsidiary
alternative pact relating to the method by which the debt might be
paid. 
The undertaking to pay the debt, acknowledged by the contract in suit,
is indisputably conjoint (mancomunada). The concurrence of two or
more debtors does not in itself create a solidary liability. Obligations in
character (Civil Code, art. 1137). That being so, the debt must be
regarded as divided into as many equal parts as there are debtors, each
part constituting a debt distinct from the others. (Civil Code, art. 1138.)
The result of this principle is that the extinction of the debt of one of
the various debtors does not necessarily affect the debts of the others. 
It is contended on behalf of the administrator of the estate of Anastasio
Alano that the failure of the plaintiff to present her claim for allowance
to the committee on claims is a bar to her action so far as this
defendant is concerned. We are of the opinion that this objection is
well-taken. Section 695 of the Code of Civil Procedure expressly
requires that a claim of this kind be presented for allowance to the
committee, and declares that the failure to do so operates to extinguish
the claim. The operation of this statute and the absolute nature of the
bar which it interposes against the subsequent assertion of claims not
presented in accordance with its requirements have frequently been
considered by this court, and the doctrines announced need not be
here repeated. (Estate of De Dios, 24 Phil. Rep., 573;
Santos vs. Manarang, 27 Phil. Rep., 209). While it is true that under
certain circumstances and within the statutory limits (sec. 690 of the
Code of Civil Procedure) the probate court may renew the commission
of the committee on claims, and permit the presentation of belated
demands, in no case may a claim proper to be allowed by the
committee, such as is the one now under consideration, be enforced by
an original action against the executor or administrator of the state.
Our opinion is, therefore, that the objection to the action interposed on
behalf of the administrator of the estate of Anastasio Alano was well-
taken and that the court erred in rejecting it.  made by Anastasio was for the benefit of Jose or Florencio or that it
This conclusion makes it unnecessary to consider the effect of the
payment made by Anastasio Alano in 1908 as regards the interruption
of the period of prescription with respect to him. In this connection,
however, we feel constrained to remark that a careful reading of the
document makes it extremely doubtful whether Anastasio Alano was
ever personally bound by its terms. It will be noted that he purports to
have signed it only as the representative of his children, Leonina,
Anastasio, and Leocadio, who are not parties to this suit.  In his commentaries on article 1138 and 1139 of the Civil Code,
With respect to the defendants Florencio and Jose Alano, their original
liability admits of no dispute and the only question open for
consideration is that presented by their plea of prescription. The debt
matured February 27, 1905, and as the complaint was not filed within
ten years from that date (Code of Civil Procedure, sec. 43), it is obvious
that the plea of prescription is well-taken, unless the running of the
statute was interrupted. 
While it appears that some verbal and written demands for payment
were made upon these defendants, it has been recently decided, upon
mature consideration, that an extrajudicial demand is not sufficient,
under the law as it now stands, to stop the running of the statute.
(Pelaez vs. Abreu, 26 Phil. Rep., 415). There must be either (1) a partial
payment, (2) a written acknowledgment or (3) a written promise to pay
the debt. It is not contended that there has been any written
acknowledgment or promise on the part of the defendants Jose and
Florencio Alano, or either of them — plaintiff relies solely upon the
payment made in 1908 by Anastasio Alano. But there is not the
slightest foundation in the evidence for the belief that the payment
was authorized by either of them. Bearing in mind the express
declaration of article 1138 of the Civil Code that joint (mancomunada)
obligations are, as regard each of the debtors, to be reputed
as separate debts with respect to each of the debtors, it follows of
necessity that a payment or acknowledgment by one of such joint
debtors will not stop the running of the period of prescription as to the
others. That such is the law may be demonstrated by ample authority. 
Manresa says that one of the effects of the rule established by the code
that the debt is to be regarded as "divided into as many parts . . . as
there are debtors" is that "the interruption of prescription by the claim
of a creditor addressed to a single debtor or by an acknowledgment
made by one of the debtors in favor of one or more of the creditors is
not to be understood as prejudicial to or in favor of the other debtors
or creditors." (Manresa, Commentaries on the Civil Code, vol. 8, p.
182.)  Supreme Court of Louisiana said:
The same doctrine is recognized in the Italian Civil Law, as stated by
Giorgi in his work on Obligations as follows:  joint debtor, such acknowledgment does not interrupt the prescription
The obligation appears to be one, when as a matter of fact it is an
aggregate of as many separate and independent obligations as there
are creditors and debtors. Each creditor cannot demand more than his
part; each debtor cannot be required to pay more than his share.
Prescription, novation, merger, and any other cause of modification or
extinction does not extinguish or modify the obligation except with
respect to the creditor or debtor affected, without extending its
operation to any other part of the debt or of the credit. The obligation
is, in a word, pro rata, or in partes viriles. (Giorgi on Obligations, vol. 1,
p. 83, Spanish translation.) 
The same view is taken by the French law writers. In the article on
obligations in Dalloz' Encyclopedia (Jurisprudence Generale) vol. 33, p.
297, the author says:  is performed by some person other than the debtor, the burden rests
The conjoint (pro rata) obligation is divided by operation of law among
the non-solidary co-debtors. It is as though there were many debts as
there are persons bound. Hence it follows that if one of the debtors is
insolvent the loss falls upon the creditor and not upon the other
debtors, and that if prescription is interrupted with respect to one of
the debtors, it is not interrupted with respect to the others.
In the State of Louisiana, whose Civil Code, like ours, is largely taken
from the Code of Napoleon, the Supreme Court has established the
same doctrine on the subject of the interruption of prescription. 
In the case of Buard vs. Lemee, Syndic (12 Robinson's Reports, 243), the
 
It results . . . that when the acknowledgment of a debt is made by a
with regard to the others. Each is bound for his virile share of the debt;
and, therefore, each is at liberty to act for himself, and the effect of his
acts cannot be extended to the benefit or prejudice of his co-debtors;
so true is this that the law has never intended that a suit brought
against one of the several debtors should interrupt prescription with
regard to all, unless they be debtors in solido.
This doctrine was recognized and applied by the Supreme Court of
Louisiana in the subsequent cases of Succession of Cornelius Voorhies
(21 La. Ann., 659) and Smith vs. Coon (22 La. Ann., 445). 
There is no presumption that one conjoint ( pro-rata) debtor is
authorized to perform any act having the effect of stopping the running
of the statute of limitations as to the others. When the act relied upon
upon the plaintiff to show that it was expressly authorized. (17 R.C.L.,
911 and the cases there cited.) In this case there is no such evidence.
The statement in the letter of Da. Maria Lontok, to whom the P200
payment was made, is that it was a payment made on account of "the
debt of Anastasio Alano." (Plaintiffs' Exhibit D.) Da. Maria Lontok in her
testimony does not attempt to say that the payment was made for the
account of any one but Anastasio Alano, from whom she received it.
The statement that Florencio Alano was with Anastasio at the time is The judgment of the lower court is reversed and the action is dismissed
not in itself sufficient to constitute proof that the payment was made as to all the defendants. No costs will be allowed. So ordered. 
for his benefit. (Lichauco vs. Limjuco and Gonzalo, 19 Phil. Rep., 12.) 

Plaintiff argues that the undertaking to convey the house and lot
constitutes an indivisible obligation, and that even where the promise
is not in solidum, the concurrence of two or more debtors in an
obligation whose performance is indivisible creates such a relation
between them that the interruption of prescription as to one of
necessity interrupts it as to all. The distinction is one which is well-
established, although the authorities cited do not fully support
plaintiffs' contentions, but in this particular case the question is
academic, for the undertaking is in the alternative to pay a sum of
money — an essentially divisible obligation — or to convey the house.
As the alternative indivisible obligation is imposed only in the event
that the debtors fail to pay the money, it is subject to a suspensive
condition, and the prescription of the obligation whose non-
performance constitutes the condition effectively prevents the
condition from taking place. 

We are, therefore, constrained to hold with defendants and to reverse

the decision of the lower court. We do this most regretfully, as the
evidence in this case shows that plaintiff has been extremely lenient
with defendants and has refrained from pressing her claim against
them when it fell due, and for a long period of years thereafter, purely
out of consideration for them. The defense of prescription interposed,
particularly as regards Jose and Florencio Alano, is an indefensible from
the standpoint of fair dealing and honesty as it is unassailable from the
standpoint of legal technicality. However, the law, as we see it, is clear
and it is our duty to enforce it.  amount due on the policy of insurance issued by the defendant to the
G.R. No. L-21196             February 6, 1924
ONG GUAN CAN, plaintiff-appellee, 
vs.
THE CENTURY INSURANCE COMPANY, LTD., defendant-appellant.
The action was commenced in the Court of First Instance of the City of
Iloilo on the 15th day of May, 1923. Its purpose was to recover an
plaintiff. On the same day a copy of the complaint was served upon the
defendant, through its duly authorized representative in the City of
Iloilo, Messrs. Andrew & Co. The defendant filed its appearance with
the clerk of the court on the 7th day of June, 1923. The notice of
appearance, it is alleged and not denied, was mailed at the City of
Manila on the 2d day of June, 1923. On the 5th day of June, 1923, the
attorneys for the plaintiff presented a motion praying that a judgment
by default be rendered against the defendant. Said motion was granted
on the same day, and a judgment by default was duly entered. On the
8th day of June, 1923, the defendant, through its attorneys, filed a
motion praying that the judge set aside said judgment by default and
permit the defendant to answer. Said motion recited that the said
notice of appearance was mailed at the City of Manila on the 2nd day
of June, 1923, and that the steamship Vizcaya, carrying mails, including
the letter containing the notice of appearance on the 2d day of June,
did not arrive at Iloilo in the usual course until after the time had
expired for filing its appearance, or on the 7th day of June, 1923, due to
the fact that said ship encountered a storm at sea. The lower court
denied said motion on the 11th day of June, 1923, to which order the
defendant duly expected, and later presented another motion to the
same effect, alleging and asserting that it had a valid and meritorious
defense to the cause of action presented by the plaintiff. Later the
second motion was also denied, to which the defendant also excepted.
Some further proceedings were had in the lower court concerning the
judgment by default, which have no importance in the consideration of
the question presented.  Williams vs.Richmond, etc. Railroad Co., 110 N. C., 466; Chicago, etc.
From the judgment by default of the lower court the defendant
appealed and now alleges that it committed an error in not granting
the motions to set aside said judgment and permit the defendant to
answer. It is admitted that the plaintiff and defendant resided in the
same province. Under paragraph 2 of section 392 of Act No. 190 it
became the duty of the defendant to appear within twenty days from
the service of the summons. The summons was served on the 15th day
of May. The twenty days within which the defendant was required to
appear expired on the 5th day of June. No appearance was filed by the
defendant until perhaps the 7th day of June. It is admitted that the
defendant mailed its appearance in the City of Manila on the 2d day of
June, 1923. It is also a fact that mail, in the ordinary course, will arrive
at Iloilo from Manila in two days. The defendant mailed its appearance
at a time when in the ordinary course of events it would have reached
the hand of the clerk of the court on or before the expiration of the
time within which it was obliged to make its appearance. The reason
that the appearance did not reach its destination was due to a fact over
which the defendant had no control. The failure to make the
appearance within the time prescribed by law was due to no fault of
the defendant. The defendant evidently made an honest effort to
comply with the law. To render a judgment against it under these
circumstances would be to render a judgment against it without giving
it an opportunity to be heard. 
It has been frequently decided that, if pleadings or other papers
essential to a case are entrusted to the mails in due season and under
proper precaution and are lost or miscarried, it will be ground for
vacating a judgment by default. (Boyd vs. Williams and Overbaugh, 70
N.J. Law, 185; Corning vs. Tripp, 1 Howard's Practice [N.Y.], 14;
Railway Co. vs. Eastham, 30 L.R.A. [N.S.], 740; 23 Cyc., 943; 15 Ruling
Case Law, 708.) 
A delay of mail, such as occurred in the present case, in our opinion
amounts to accident or surprise for which judgments by default may be
set aside, especially when the defendant shows by affidavit or
otherwise that he has a valid and meritorious defense. The time fixed
for filing papers in a cause is generally directory and the court always
has it in its power, in the exercise of a proper discretion, to extend the
time fixed by law whenever the ends of justice would seem to demand
such an extension. (Wood vs. Fobes and Farnham, 5 Cal., 62.) 

Considering the causes which prevented the defendant from making its
appearance within the time prescribed by subparagraph 2 of article 392
of Act No. 190 and considering its showing that, if permitted to answer,
it has a meritorious defense, we are of the opinion, and so decide, that
the judgment by default rendered by the lower court should be and is
hereby set aside, and it is hereby ordered and decreed that the
defendant's appearance be admitted and that it be given ten days in
which to answer from notice of this decision. And without any findings
as to costs, it is so ordered.

G.R. No. 151953              June 29, 2007

SALVADOR P. ESCAÑO and MARIO M. SILOS, petitioner, 

vs.
RAFAEL ORTIGAS, JR., respondent.
On 28 April 1980, Private Development Corporation of the Philippines
(PDCP)1 entered into a loan agreement with Falcon Minerals, Inc.
(Falcon) whereby PDCP agreed to make available and lend to Falcon
the amount of US$320,000.00, for specific purposes and subject to
certain terms and conditions.2 On the same day, three stockholders-
officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas),
George A. Scholey and George T. Scholey executed an Assumption of
Solidary Liability whereby they agreed "to assume in [their] individual
capacity, solidary liability with [Falcon] for the due and punctual
payment" of the loan contracted by Falcon with PDCP.3 In the
meantime, two separate guaranties were executed to guarantee the
payment of the same loan by other stockholders and officers of Falcon,
acting in their personal and individual capacities. One Guaranty4 was
executed by petitioner Salvador Escaño (Escaño), while the other5 by
petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L.
Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez).
Two years later, an agreement developed to cede control of Falcon to
Escaño, Silos and Joseph M. Matti (Matti). Thus, contracts were
executed whereby Ortigas, George A. Scholey, Inductivo and the heirs
of then already deceased George T. Scholey assigned their shares of
stock in Falcon to Escaño, Silos and Matti.6 Part of the consideration
that induced the sale of stock was a desire by Ortigas, et al., to relieve
themselves of all liability arising from their previous joint and several
undertakings with Falcon, including those related to the loan with
PDCP. Thus, an Undertaking dated 11 June 1982 was executed by the
concerned parties,7 namely: with Escaño, Silos and Matti identified in
the document as "SURETIES," on one hand, and Ortigas, Inductivo and
the Scholeys as "OBLIGORS," on the other. The Undertaking reads in
part:
3. That whether or not SURETIES are able to immediately cause PDCP
and PAIC to release OBLIGORS from their said guarantees [sic],
SURETIES hereby irrevocably agree and undertake to assume all of
OBLIGORs’ said guarantees [sic] to PDCP and PAIC under the following
terms and conditions:
a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP
and/or PAIC for the payment of FALCON’s obligations with it, any of
[the] OBLIGORS shall immediately inform SURETIES thereof so that the
latter can timely take appropriate measures;
b. Should suit be impleaded by PDCP and/or PAIC against any and/or all
of OBLIGORS for collection of said loans and/or credit facilities,
SURETIES agree to defend OBLIGORS at their own expense, without
prejudice to any and/or all of OBLIGORS impleading SURETIES therein
for contribution, indemnity, subrogation or other relief in respect to
any of the claims of PDCP and/or PAIC; and
c. In the event that any of [the] OBLIGORS is for any reason made to
pay any amount to PDCP and/or PAIC, SURETIES shall reimburse
OBLIGORS for said amount/s within seven (7) calendar days from such
payment;
4. OBLIGORS hereby waive in favor of SURETIES any and all fees which
may be due from FALCON arising out of, or in connection with, their
said guarantees[sic].8
Falcon eventually availed of the sum of US$178,655.59 from the credit
line extended by PDCP. It would also execute a Deed of Chattel
Mortgage over its personal properties to further secure the loan.
However, Falcon subsequently defaulted in its payments. After PDCP
foreclosed on the chattel mortgage, there remained a subsisting
deficiency of ₱5,031,004.07, which Falcon did not satisfy despite
demand.9
On 28 April 1989, in order to recover the indebtedness, PDCP filed a
complaint for sum of money with the Regional Trial Court of Makati
(RTC) against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo. The
case was docketed as Civil Case No. 89-5128. For his part, Ortigas filed
together with his answer a cross-claim against his co-defendants
Falcon, Escaño and Silos, and also manifested his intent to file a third-
party complaint against the Scholeys and Matti.10 The cross-claim
lodged against Escaño and Silos was predicated on the 1982
Undertaking, wherein they agreed to assume the liabilities of Ortigas
with respect to the PDCP loan.
Escaño, Ortigas and Silos each sought to seek a settlement with PDCP.
The first to come to terms with PDCP was Escaño, who in December of
1993, entered into a compromise agreement whereby he agreed to pay
the bank ₱1,000,000.00. In exchange, PDCP waived or assigned in favor
of Escaño one-third (1/3) of its entire claim in the complaint against all
of the other defendants in the case.11 The compromise agreement was
approved by the RTC in a Judgment12 dated 6 January 1994.
Then on 24 February 1994, Ortigas entered into his own compromise
agreement13 with PDCP, allegedly without the knowledge of Escaño,
Matti and Silos. Thereby, Ortigas agreed to pay PDCP ₱1,300,000.00 as
"full satisfaction of the PDCP’s claim against Ortigas,"14 in exchange for
PDCP’s release of Ortigas from any liability or claim arising from the
Falcon loan agreement, and a renunciation of its claims against Ortigas.
In 1995, Silos and PDCP entered into a Partial Compromise Agreement
whereby he agreed to pay ₱500,000.00 in exchange for PDCP’s waiver
of its claims against him.15
In the meantime, after having settled with PDCP, Ortigas pursued his
claims against Escaño, Silos and Matti, on the basis of the 1982
Undertaking. He initiated a third-party complaint against Matti and
Silos,16 while he maintained his cross-claim against Escaño. In 1995,
Ortigas filed a motion for Summary Judgment in his favor against
Escaño, Silos and Matti. On 5 October 1995, the RTC issued the
Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas,
jointly and severally, the amount of ₱1,300,000.00, as well as
₱20,000.00 in attorney’s fees.17 The trial court ratiocinated that none of
the third-party defendants disputed the 1982 Undertaking, and that
"the mere denials of defendants with respect to non-compliance of
Ortigas of the terms and conditions of the Undertaking, unaccompanied
by any substantial fact which would be admissible in evidence at a
hearing, are not sufficient to raise genuine issues of fact necessary to
defeat a motion for summary judgment, even if such facts were raised
in the pleadings."18 In an Order dated 7 March 1996, the trial court
denied the motion for reconsideration of the Summary Judgment and
awarded Ortigas legal interest of 12% per annum to be computed from
28 February 1994.19
From the Summary Judgment, recourse was had by way of appeal to
the Court of Appeals. Escaño and Silos appealed jointly while Matti
appealed by his lonesome. In a Decision20 dated 23 January 2002, the
Court of Appeals dismissed the appeals and affirmed the Summary
Judgment. The appellate court found that the RTC did not err in
rendering the summary judgment since the three appellants did not
effectively deny their execution of the 1982 Undertaking. The special
defenses that were raised, "payment and excussion," were
characterized by the Court of Appeals as "appear[ing] to be merely
sham in the light of the pleadings and supporting documents and
affidavits."21Thus, it was concluded that there was no genuine issue
that would still require the rigors of trial, and that the appealed
judgment was decided on the bases of the undisputed and established
facts of the case.
Hence, the present petition for review filed by Escaño and Silos.22 Two
main issues are raised. First, petitioners dispute that they are liable to
Ortigas on the basis of the 1982 Undertaking, a document which they
do not disavow and have in fact annexed to their petition. Second, on
the assumption that they are liable to Ortigas under the 1982
Undertaking, petitioners argue that they are jointly liable only, and not
solidarily. Further assuming that they are liable, petitioners also submit
that they are not liable for interest and if at all, the proper interest rate
is 6% and not 12%.
Interestingly, petitioners do not challenge, whether in their petition or
their memorandum before the Court, the appropriateness of the
summary judgment as a relief favorable to Ortigas. Under Section 3,
Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may
avail if the pleadings, supporting affidavits, depositions and admissions
on file show that, except as to the amount of damages, there is no
genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law. Petitioner have not
attempted to demonstrate before us that there existed a genuine issue
as to any material fact that would preclude summary judgment. Thus,
we affirm with ease the common rulings of the lower courts that
summary judgment is an appropriate recourse in this case.
The vital issue actually raised before us is whether petitioners were
correctly held liable to Ortigas on the basis of the 1982 Undertaking in
this Summary Judgment. An examination of the document reveals
several clauses that make it clear that the agreement was brought forth
by the desire of Ortigas, Inductivo and the Scholeys to be released from
their liability under the loan agreement which release was, in turn, part
of the consideration for the assignment of their shares in Falcon to
petitioners and Matti. The whereas clauses manifest that Ortigas had
bound himself with Falcon for the payment of the loan with PDCP, and
that "amongst the consideration for OBLIGORS and/or their principals
aforesaid selling is SURETIES’ relieving OBLIGORS of any and all liability
arising from their said joint and several undertakings with
FALCON."23 Most crucial is the clause in Paragraph 3 of the Undertaking
wherein petitioners "irrevocably agree and undertake to assume all of
OBLIGORs’ said guarantees [sic] to PDCP x x x under the following
terms and conditions."24
At the same time, it is clear that the assumption by petitioners of
Ortigas’s "guarantees" [sic] to PDCP is governed by stipulated terms
and conditions as set forth in sub-paragraphs (a) to (c) of Paragraph 3.
First, upon receipt by "any of OBLIGORS" of any demand from PDCP for
the payment of Falcon’s obligations with it, "any of OBLIGORS" was to
immediately inform "SURETIES" thereof so that the latter can timely
take appropriate measures. Second, should "any and/or all of
OBLIGORS" be impleaded by PDCP in a suit for collection of its loan,
"SURETIES agree[d] to defend OBLIGORS at their own expense, without
prejudice to any and/or all of OBLIGORS impleading SURETIES therein
for contribution, indemnity, subrogation or other relief"25 in respect to
any of the claims of PDCP. Third, if any of the "OBLIGORS is for any
reason made to pay any amount to [PDCP], SURETIES [were to]
reimburse OBLIGORS for said amount/s within seven (7) calendar days
from such payment."26
Petitioners claim that, contrary to paragraph 3(c) of the Undertaking,
Ortigas was not "made to pay" PDCP the amount now sought to be
reimbursed, as Ortigas voluntarily paid PDCP the amount of ₱1.3
Million as an amicable settlement of the claims posed by the bank
against him. However, the subject clause in paragraph 3(c) actually
reads "[i]n the event that any of OBLIGORS is for any reason made to
pay any amount to PDCP x x x"27 As pointed out by Ortigas, the phrase
"for any reason" reasonably includes any extra-judicial settlement of
obligation such as what Ortigas had undertaken to pay to PDCP, as it is
indeed obvious that the phrase was incorporated in the clause to
render the eventual payment adverted to therein unlimited and
unqualified.
The interpretation posed by petitioners would have held water had the
Undertaking made clear that the right of Ortigas to seek
reimbursement accrued only after he had delivered payment to PDCP
as a consequence of a final and executory judgment. On the contrary,
the clear intent of the Undertaking was for petitioners and Matti to
relieve the burden on Ortigas and his fellow "OBLIGORS" as soon as
possible, and not only after Ortigas had been subjected to a final and
executory adverse judgment.
Paragraph 1 of the Undertaking enjoins petitioners to "exert all efforts
to cause PDCP x x x to within a reasonable time release all the
OBLIGORS x x x from their guarantees [sic] to PDCP x x x"28 In the event
that Ortigas and his fellow "OBLIGORS" could not be released from
their guaranties, paragraph 2 commits petitioners and Matti to cause
the Board of Directors of Falcon to make a call on its stockholders for
the payment of their unpaid subscriptions and to pledge or assign such
payments to Ortigas, et al., as security for whatever amounts the latter
may be held liable under their guaranties. In addition, paragraph 1 also
makes clear that nothing in the Undertaking "shall prevent OBLIGORS,
or any one of them, from themselves negotiating with PDCP x x x for
the release of their said guarantees [sic]."29
There is no argument to support petitioners’ position on the import of
the phrase "made to pay" in the Undertaking, other than an unduly
literalist reading that is clearly inconsistent with the thrust of the
document. Under the Civil Code, 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.30 Likewise
applicable is the provision that if some stipulation of any contract
should admit of several meanings, it shall be understood as bearing
that import which is most adequate to render it effectual.31 As a means
to effect the general intent of the document to relieve Ortigas from
liability to PDCP, it is his interpretation, not that of petitioners, that
holds sway with this Court.
Neither do petitioners impress us of the non-fulfillment of any of the
other conditions set in paragraph 3, as they claim. Following the
general assertion in the petition that Ortigas violated the terms of the
Undertaking, petitioners add that Ortigas "paid PDCP BANK the amount
of ₱1.3 million without petitioners ESCANO and SILOS’s knowledge and
consent."32 Paragraph 3(a) of the Undertaking does impose a
requirement that any of the "OBLIGORS" shall immediately inform
"SURETIES" if they received any demand for payment of FALCON’s
obligations to PDCP, but that requirement is reasoned "so that the
[SURETIES] can timely take appropriate measures"33 presumably to
settle the obligation without having to burden the "OBLIGORS." This
notice requirement in paragraph 3(a) is markedly way off from the
suggestion of petitioners that Ortigas, after already having been
impleaded as a defendant in the collection suit, was obliged under the
1982 Undertaking to notify them before settling with PDCP.
The other arguments petitioners have offered to escape liability to
Ortigas are similarly weak.
Petitioners impugn Ortigas for having settled with PDCP in the first
place. They note that Ortigas had, in his answer, denied any liability to
PDCP and had alleged that he signed the Assumption of Solidary
Liability not in his personal capacity, but as an officer of Falcon.
However, such position, according to petitioners, could not be justified
since Ortigas later voluntarily paid PDCP the amount of ₱1.3 Million.
Such circumstances, according to petitioners, amounted to estoppel on
the part of Ortigas.
Even as we entertain this argument at depth, its premises are still
erroneous. The Partial Compromise Agreement between PDCP and
Ortigas expressly stipulated that Ortigas’s offer to pay PDCP was
conditioned "without [Ortigas’s] admitting liability to plaintiff PDCP
Bank’s complaint, and to terminate and dismiss the said case as against
Ortigas solely."34 Petitioners profess it is "unthinkable" for Ortigas to
have voluntarily paid PDCP without admitting his liability,35 yet such
contention based on assumption cannot supersede the literal terms of
the Partial Compromise Agreement.
Petitioners further observe that Ortigas made the payment to PDCP
after he had already assigned his obligation to petitioners through the
1982 Undertaking. Yet the fact is PDCP did pursue a judicial claim
against Ortigas notwithstanding the Undertaking he executed with
petitioners. Not being a party to such Undertaking, PDCP was not
precluded by a contract from pursuing its claim against Ortigas based
on the original Assumption of Solidary Liability.
At the same time, the Undertaking did not preclude Ortigas from
relieving his distress through a settlement with the creditor bank.
Indeed, paragraph 1 of the Undertaking expressly states that "nothing
herein shall prevent OBLIGORS, or any one of them, from themselves
negotiating with PDCP x x x for the release of their said guarantees
[sic]."36 Simply put, the Undertaking did not bar Ortigas from pursuing
his own settlement with PDCP. Neither did the Undertaking bar Ortigas
from recovering from petitioners whatever amount he may have paid
PDCP through his own settlement. The stipulation that if Ortigas was
"for any reason made to pay any amount to PDCP[,] x x x SURETIES
shall reimburse OBLIGORS for said amount/s within seven (7) calendar
days from such payment"37makes it clear that petitioners remain liable
to reimburse Ortigas for the sums he paid PDCP.
We now turn to the set of arguments posed by petitioners, in the
alternative, that is, on the assumption that they are indeed liable.
Petitioners submit that they could only be held jointly, not solidarily,
liable to Ortigas, claiming that the Undertaking did not provide for
express solidarity. They cite Article 1207 of the New Civil Code, which
states in part that "[t]here is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity."
Ortigas in turn argues that petitioners, as well as Matti, are jointly and
severally liable for the Undertaking, as the language used in the
agreement "clearly shows that it is a surety agreement"38 between the
obligors (Ortigas group) and the sureties (Escaño group). Ortigas points
out that the Undertaking uses the word "SURETIES" although the
document, in describing the parties. It is further contended that the
principal objective of the parties in executing the Undertaking cannot
be attained unless petitioners are solidarily liable "because the total
loan obligation can not be paid or settled to free or release the
OBLIGORS if one or any of the SURETIES default from their obligation in
the Undertaking."39
In case, there is a concurrence of two or more creditors or of two or
more debtors in one and the same obligation, Article 1207 of the Civil
Code states that among them, "[t]here is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." Article 1210 supplies further caution
against the broad interpretation of solidarity by providing: "The
indivisibility of an obligation does not necessarily give rise to solidarity.
Nor does solidarity of itself imply indivisibility."
These Civil Code provisions establish that in case of concurrence of two
or more creditors or of two or more debtors in one and the same
obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the
obligation is only joint. It thus becomes incumbent upon the party
alleging that the obligation is indeed solidary in character to prove such
fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the
petitioners agreed "to bind themselves jointly and severally" in their
obligations to the Ortigas group, or any such terms to that effect.
Hence, such obligation established in the Undertaking is presumed only
to be joint. Ortigas, as the party alleging that the obligation is in fact
solidary, bears the burden to overcome the presumption of jointness of
obligations. We rule and so hold that he failed to discharge such
burden.
Ortigas places primary reliance on the fact that the petitioners and
Matti identified themselves in the Undertaking as "SURETIES", a term
repeated no less than thirteen (13) times in the document. Ortigas
claims that such manner of identification sufficiently establishes that
the obligation of petitioners to him was joint and solidary in nature.
The term "surety" has a specific meaning under our Civil Code. Article
2047 provides the statutory definition of a surety agreement, thus:
Art. 2047. By guaranty a person, called the guarantor, binds himself to
the creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case the contract is called a suretyship. [Emphasis supplied]40
As provided in Article 2047 in a surety agreement the surety
undertakes to be bound solidarily with the principal debtor. Thus, a
surety agreement is an ancillary contract as it presupposes the
existence of a principal contract. It appears that Ortigas’s argument
rests solely on the solidary nature of the obligation of the surety under
Article 2047. In tandem with the nomenclature "SURETIES" accorded to
petitioners and Matti in the Undertaking, however, this argument can
only be viable if the obligations established in the
Undertaking do partake of the nature of a suretyship as defined under
Article 2047 in the first place. That clearly is not the case here,
notwithstanding the use of the nomenclature "SURETIES" in the
Undertaking.
Again, as indicated by Article 2047, a suretyship requires a principal
debtor to whom the surety is solidarily bound by way of an ancillary
obligation of segregate identity from the obligation between the
principal debtor and the creditor. The suretyship does bind the surety
to the creditor, inasmuch as the latter is vested with the right to
proceed against the former to collect the credit in lieu of proceeding
against the principal debtor for the same obligation.41 At the same time,
there is also a legal tie created between the surety and the principal
debtor to which the creditor is not privy or party to. The moment the
surety fully answers to the creditor for the obligation created by the
principal debtor, such obligation is extinguished.42 At the same time,
the surety may seek reimbursement from the principal debtor for the
amount paid, for the surety does in fact "become subrogated to all the
rights and remedies of the creditor."43
Note that Article 2047 itself specifically calls for the application of the
provisions on joint and solidary obligations to suretyship
contracts.44 Article 1217 of the Civil Code thus comes into play,
recognizing the right of reimbursement from a co-debtor (the principal
debtor, in case of suretyship) in favor of the one who paid (i.e., the
surety).45However, a significant distinction still lies between a joint and
several debtor, on one hand, and a surety on the other. Solidarity
signifies that the creditor can compel any one of the joint and several
debtors or the surety alone to answer for the entirety of the principal
debt. The difference lies in the respective faculties of the joint and
several debtor and the surety to seek reimbursement for the sums they
paid out to the creditor.
Dr. Tolentino explains the differences between a solidary co-debtor and
a surety:
A guarantor who binds himself in solidum with the principal debtor
under the provisions of the second paragraph does not become a
solidary co-debtor to all intents and purposes. There is a difference
between a solidary co-debtor and a fiador in solidum (surety). The
latter, outside of the liability he assumes to pay the debt before the
property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the
fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil
Code.
The second paragraph of [Article 2047] is practically equivalent to the
contract of suretyship. The civil law suretyship is, accordingly, nearly
synonymous with the common law guaranty; and the civil law
relationship existing between the co-debtors liable in solidum is similar
to the common law suretyship.46
In the case of joint and several debtors, Article 1217 makes plain that
the solidary debtor who effected the payment to the creditor "may
claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made." Such solidary debtor
will not be able to recover from the co-debtors the full amount already
paid to the creditor, because the right to recovery extends only to the
proportional share of the other co-debtors, and not as to the particular
proportional share of the solidary debtor who already paid. In contrast,
even as the surety is solidarily bound with the principal debtor to the
creditor, the surety who does pay the creditor has the right to recover
the full amount paid, and not just any proportional share, from the
principal debtor or debtors. Such right to full reimbursement falls
within the other rights, actions and benefits which pertain to the surety
by reason of the subsidiary obligation assumed by the surety.
What is the source of this right to full reimbursement by the surety?
We find the right under Article 2066 of the Civil Code, which assures
that "[t]he guarantor who pays for a debtor must be indemnified by
the latter," such indemnity comprising of, among others, "the total
amount of the debt."47 Further, Article 2067 of the Civil Code likewise
establishes that "[t]he guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the debtor."48
Articles 2066 and 2067 explicitly pertain to guarantors, and one might
argue that the provisions should not extend to sureties, especially in
light of the qualifier in Article 2047 that the provisions on joint and
several obligations should apply to sureties. We reject that argument,
and instead adopt Dr. Tolentino’s observation that "[t]he reference in
the second paragraph of [Article 2047] to the provisions of Section 4,
Chapter 3, Title I, Book IV, on solidary or several obligations, however,
does not mean that suretyship is withdrawn from the applicable
provisions governing guaranty."49 For if that were not the implication,
there would be no material difference between the surety as defined
under Article 2047 and the joint and several debtors, for both classes of
obligors would be governed by exactly the same rules and limitations.
Accordingly, the rights to indemnification and subrogation as
established and granted to the guarantor by Articles 2066 and 2067
extend as well to sureties as defined under Article 2047. These rights
granted to the surety who pays materially differ from those granted
under Article 1217 to the solidary debtor who pays, since the
"indemnification" that pertains to the latter extends "only [to] the
share which corresponds to each [co-debtor]." It is for this reason that
the Court cannot accord the conclusion that because petitioners are
identified in the Undertaking as "SURETIES," they are consequently
joint and severally liable to Ortigas.
In order for the conclusion espoused by Ortigas to hold, in light of the
general presumption favoring joint liability, the Court would have to be
satisfied that among the petitioners and Matti, there is one or some of
them who stand as the principal debtor to Ortigas and another as
surety who has the right to full reimbursement from the principal
debtor or debtors. No suggestion is made by the parties that such is the
case, and certainly the Undertaking is not revelatory of such intention.
If the Court were to give full fruition to the use of the term "sureties"
as conclusive indication of the existence of a surety agreement that in
turn gives rise to a solidary obligation to pay Ortigas, the necessary
implication would be to lay down a corresponding set of rights and
obligations as between the "SURETIES" which petitioners and Matti did
not clearly intend.
It is not impossible that as between Escaño, Silos and Matti, there was
an agreement whereby in the event that Ortigas were to seek
reimbursement from them per the terms of the Undertaking, one of
them was to act as surety and to pay Ortigas in full, subject to his right
to full reimbursement from the other two obligors. In such case, there
would have been, in fact, a surety agreement which evinces a solidary
obligation in favor of Ortigas. Yet if there was indeed such an
agreement, it does not appear on the record. More consequentially, no
such intention is reflected in the Undertaking itself, the very document
that creates the conditional obligation that petitioners and Matti
reimburse Ortigas should he be made to pay PDCP. The mere utilization
of the term "SURETIES" could not work to such effect, especially as it
does not appear who exactly is the principal debtor whose obligation is
"assured" or "guaranteed" by the surety.
Ortigas further argues that the nature of the Undertaking requires
"solidary obligation of the Sureties," since the Undertaking expressly
seeks to "reliev[e] obligors of any and all liability arising from their said
joint and several undertaking with [F]alcon," and for the "sureties" to
"irrevocably agree and undertake to assume all of obligors said
guarantees to PDCP."50 We do not doubt that a finding of solidary
liability among the petitioners works to the benefit of Ortigas in the
facilitation of these goals, yet the Undertaking itself contains no
stipulation or clause that establishes petitioners’ obligation to Ortigas
as solidary. Moreover, the aims adverted to by Ortigas do not by
themselves establish that the nature of the obligation requires
solidarity. Even if the liability of petitioners and Matti were adjudged as
merely joint, the full relief and reimbursement of Ortigas arising from
his payment to PDCP would still be accomplished through the complete
execution of such a judgment.
Petitioners further claim that they are not liable for attorney’s fees
since the Undertaking contained no such stipulation for attorney’s fees,
and that the situation did not fall under the instances under Article
2208 of the Civil Code where attorney’s fees are recoverable in the
absence of stipulation.
We disagree. As Ortigas points out, the acts or omissions of the
petitioners led to his being impleaded in the suit filed by PDCP. The
Undertaking was precisely executed as a means to obtain the release of
Ortigas and the Scholeys from their previous obligations as sureties of
Falcon, especially considering that they were already divesting their
shares in the corporation. Specific provisions in the Undertaking
obligate petitioners to work for the release of Ortigas from his surety
agreements with Falcon. Specific provisions likewise mandate the
immediate repayment of Ortigas should he still be made to pay PDCP
by reason of the guaranty agreements from which he was ostensibly to
be released through the efforts of petitioners. None of these provisions
were complied with by petitioners, and Article 2208(2) precisely allows
for the recovery of attorney’s fees "[w]hen the defendant’s act or
omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest."
Finally, petitioners claim that they should not be liable for interest since
the Undertaking does not contain any stipulation for interest, and
assuming that they are liable, that the rate of interest should not be
12% per annum, as adjudged by the RTC.
The seminal ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals51 set forth the rules with respect to the manner of computing
legal interest:
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.52
Since what was the constituted in the Undertaking consisted of a
payment in a sum of money, the rate of interest thereon shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand. The interest rate imposed by the RTC is thus
proper. However, the computation should be reckoned from judicial or
extrajudicial demand. Per records, there is no indication that Ortigas
made any extrajudicial demand to petitioners and Matti after he paid
PDCP, but on 14 March 1994, Ortigas made a judicial demand when he
filed a Third-Party Complaint praying that petitioners and Matti be
made to reimburse him for the payments made to PDCP. It is the filing
of this Third Party Complaint on 14 March 1994 that should be
considered as the date of judicial demand from which the computation
of interest should be reckoned.53 Since the RTC held that interest
should be computed from 28 February 1994, the appropriate
redefinition should be made.
WHEREFORE, the Petition is GRANTED in PART. The Order of the
Regional Trial Court dated 5 October 1995 is modified by declaring that
petitioners and Joseph M. Matti are only jointly liable, not jointly and
severally, to respondent Rafael Ortigas, Jr. in the amount of
₱1,300,000.00. The Order of the Regional Trial Court dated 7 March
1996 is MODIFIED in that the legal interest of 12% per annum on the
amount of ₱1,300,000.00 is to be computed from 14 March 1994, the
date of judicial demand, and not from 28 February 1994 as directed in
the Order of the lower court. The assailed rulings are affirmed in all
other respects. Costs against petitioners.
SO ORDERED.

G.R. No. 105774            April 25, 2002
GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG
LIN, petitioners,  payable to "New Asian Emp.", and the last three were payable to cash.
vs.
THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT
CORPORATION, respondents.
Great Asian is engaged in the business of buying and selling general
merchandise, in particular household appliances. On March 17, 1981,
the board of directors of Great Asian approved a resolution authorizing
its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for
brevity) to secure a loan from Bancasia in an amount not to exceed
P1.0 million. The board resolution also authorized Arsenio to sign all
papers, documents or promissory notes necessary to secure the loan.
On February 10, 1982, the board of directors of Great Asian approved a
second resolution authorizing Great Asian to secure a discounting line
with Bancasia in an amount not exceeding P2.0 million. The second
board resolution also designated Arsenio as the authorized signatory to
sign all instruments, documents and checks necessary to secure the
discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of
Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia.
On January 29, 1982, Tan Chong Lin signed a Comprehensive and
Continuing Surety Agreement in favor of Bancasia to guarantee,
solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin
signed two surety agreements ("Surety Agreements" for brevity) in
favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio,
signed four (4) Deeds of Assignment of Receivables ("Deeds of
Assignment" for brevity), assigning to Bancasia fifteen (15) postdated
checks. Nine of the checks were payable to Great Asian, three were
Various customers of Great Asian issued these postdated checks in
payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on
January 12, 1982 covering four postdated checks with a total face value
of P244,225.82, with maturity dates not later than March 17, 1982. Of
these four postdated checks, two were dishonored. Great Asian and
Bancasia signed the second Deed of Assignment also on January 12,
1982 covering four postdated checks with a total face value of
P312,819.00, with maturity dates not later than April 1, 1982. All these
four checks were dishonored. Great Asian and Bancasia signed the third
Deed of Assignment on February 11, 1982 covering eight postdated
checks with a total face value of P344,475.00, with maturity dates not
later than April 30, 1982. All these eight checks were dishonored. Great
Asian and Bancasia signed the fourth Deed of Assignment on March 5,
1982 covering one postdated check with a face value of P200,000.00,
with maturity date on March 18, 1982. This last check was also
dishonored. Great Asian assigned the postdated checks to Bancasia at a
discount rate of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name
at the back of the checks. Eight of the dishonored checks bore the
endorsement of Arsenio below the stamped name of "Great Asian Sales
Center", while the rest of the dishonored checks just bore the signature
of Arsenio. The drawee banks dishonored the fifteen checks on
maturity when deposited for collection by Bancasia, with any of the
following as reason for the dishonor: "account closed", "payment
stopped", "account under garnishment", and "insufficiency of funds".
The total amount of the fifteen dishonored checks is P1,042,005.00.
Below is a table of the fifteen dishonored checks:
After the drawee bank dishonored Check No. 097480 dated March 16,
1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes,
who sent by registered mail to Tan Chong Lin a letter dated March 18,
1982, notifying him of the dishonor and demanding payment from him.
Subsequently, Bancasia sent by personal delivery a letter dated June 16,
1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen
checks and demanding payment from him. Neither Great Asian nor Tan
Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance
of Manila a petition for insolvency, verified under oath by its Corporate
Secretary, Mario Tan. Attached to the verified petition was a "Schedule
and Inventory of Liabilities and Creditors of Great Asian Sales Center
Corporation," listing Bancasia as one of the creditors of Great Asian in
the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of
money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan
Chong Lin because of the Surety Agreements he signed in favor of
Bancasia. In its answer, Great Asian denied the material allegations of
the complaint claiming it was unfounded, malicious, baseless, and
unlawfully instituted since there was already a pending insolvency
proceedings, although Great Asian subsequently withdrew its petition
for voluntary insolvency. Great Asian further raised the alleged lack of
authority of Arsenio to sign the Deeds of Assignment as well as the
absence of consideration and consent of all the parties to the Surety
Agreements signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the
following findings and conclusions:
"From the foregoing facts and circumstances, the Court finds that the
plaintiff has established its causes of action against the defendants. The
Board Resolution (Exh. "T"), dated March 17, 1981, authorizing Arsenio
Lim Piat, Jr., general manager and treasurer of the defendant Great
Asian to apply and negotiate for a loan accommodation or credit line
with the plaintiff Bancasia in an amount not exceeding One Million
Pesos (P1,000,000.00), and the other Board Resolution approved on
February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for
defendant Asian Center a discounting line with Bancasia at prevailing
discounting rates in an amount not to exceed Two Million Pesos
(P2,000,000.00), both of which were intended to secure money from
the plaintiff financing firm to finance the business operations of
defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was
able to have the aforementioned fifteen (15) checks totaling
P1,042,005.00 discounted with the plaintiff, which transactions were
obviously known by the beneficiary thereof, defendant Great Asian, as
in fact, in its aforementioned Schedule and Inventory of Liabilities and
Creditors (Exh. DD, DD-1) attached to its Verified Petition for
Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian
admitted an existing liability to the plaintiff, in the amount of
P1,243,632.00, secured by it, by way of ‘financing accommodation,’
from the said financing institution Bancasia Finance and Investment
Corporation, plaintiff herein, sufficiently establish the liability of the
defendant Great Asian to the plaintiff for the amount of P1,042,005.00
sought to be recovered by the latter in this case.5  "I", and "R") and the Board Resolutions of the appellant corporation’s
xxx
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the two (2) defendants ordering the latter, jointly and severally,
to pay the former:
(a) The amount of P1,042,005.00, plus interest thereon at the legal rate
from the filing of the complaint until the same is fully paid;
(b) Attorney’s fees equivalent to twenty per cent (20%) of the total
amount due; and
(c) The costs of suit.
SO ORDERED."6  be collected, approximates the same (Exhs. "CC", "DD" and "DD-1").7
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the decision of the lower
court, deleting only the award of attorney’s fees, as follows:
"As against appellants’ bare denial of it, the Court is more inclined to
accept the appellee’s version, to the effect that the subject deeds of
assignment are but individual transactions which -- being collectively
evidentiary of the loan accommodation and/or credit line it granted the
appellant corporation -- should not be taken singly and distinct
therefrom. In addition to its plausibility, the proposition is, more
importantly, adequately backed by the documentary evidence on
record. Aside from the aforesaid Deeds of Assignment (Exhs. "A", "D",
Board of Directors (Exhs. "T", "U" and "V"), the appellee -- consistent
with its theory -- interposed the Surety Agreements the appellant Tan
Chong Lin executed (Exhs. "W" and "X"), as well as the demand letters
it served upon the latter as surety (Exhs. "Y" and "Z"). It bears emphasis
that the second Resolution of the appellant corporation’s Board of
Directors (Exh. "V") even closely coincides with the execution of the
February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. "I"
and "R"). Were the appellants’ posturings true, it seems rather strange
that the appellant Tan Chong Lin did not even protest or, at least, make
known to the appellee what he -- together with the appellant
corporation -- represented to be a corporate larceny to which all of
them supposedly fell prey. In the petition for voluntary insolvency it
filed, the appellant corporation, instead, indirectly acknowledged its
indebtedness in terms of financing accommodations to the appellee, in
an amount which, while not exactly matching the sum herein sought to
 
xxx
The appellants contend that the foregoing warranties enlarged or
increased the surety’s risk, such that appellant Tan Chong Lin should be
released from his liabilities (pp. 37-44, Appellant’s Brief). Without
saying more, the appellants’ position is, however, soundly debunked by
the undertaking expressed in the Comprehensive and Continuing Surety
Agreements (Exhs. "W" and "X"), to the effect that the "xxx surety/ies,
jointly and severally among themselves and likewise with the principal,
hereby agree/s and bind/s himself to pay at maturity all the notes,
drafts, bills of exchange, overdrafts and other obligations which the
principal may now or may hereafter owe the creditor xxx." With the
possible exception of the fixed ceiling for the amount of loan
obtainable, the surety undertaking in the case at bar is so
comprehensive as to contemplate each and every condition, term or
warranty which the principal parties may have or may be minded to
agree on. Having affixed his signature thereto, the appellant Tan Chong
Lin is expected to have, at least, read and understood the same.
xxx
With the foregoing disquisition, the Court sees little or no reason to go
into the appellants’ remaining assignments of error, save the matter of
attorney’s fees. For want of a statement of the rationale therefore in
the body of the challenged decision, the trial court’s award of
attorney’s fees should be deleted and disallowed (Abrogar vs.
Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the
trial court’s award of attorney’s fees. The rest is AFFIRMED in toto.
SO ORDERED."8  assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of
The Issues
The petition is anchored on the following assigned errors:
"1. The respondent Court erred in not holding that the proper parties
against whom this action for collection should be brought are the
drawers and indorser of the checks in question, being the real parties in
interest, and not the herein petitioners.
2. The respondent Court erred in not holding that the petitioner-
corporation is discharged from liability for failure of the private
respondent to comply with the provisions of the Negotiable
Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation and interpretation of
the effect and legal consequences of the signing of the deeds of
assignment and the subsequent indorsement of the checks by Arsenio
Lim Piat, Jr. in his individual and personal capacity and without stating
or indicating the name of his supposed principal.
4. The respondent Court erred in holding that the assignment of the
checks is a loan accommodation or credit line accorded by the private
respondent to petitioner-corporation, and not a purchase and sale
thereof.
5. The respondent Court erred in not holding that there was a material
alteration of the risk assumed by the petitioner-surety under his surety
agreement by the terms, conditions, warranties and obligations
assignment or receivables.
6. The respondent Court erred in holding that the petitioner-
corporation impliedly admitted its liability to private respondent when
the former included the latter as one of its creditors in its petition for
voluntary insolvency, although no claim was filed and proved by the
private respondent in the insolvency court.
7. The respondent Court erred in holding the petitioners liable to
private respondent on the transactions in question."9 
The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF
ASSIGNMENT AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS
OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL
CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE
SURETY AGREEMENTS.
The Court’s Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of Assignment and
indorsed the checks in his personal capacity. The primordial question
that must be resolved is whether Great Asian authorized Arsenio to
sign the Deeds of Assignment. If Great Asian so authorized Arsenio,
then Great Asian is bound by the Deeds of Assignment and must honor
its terms.  Corporation, and likewise to sign any and all papers, documents, and/or
The Corporation Code of the Philippines vests in the board of directors
the exercise of the corporate powers of the corporation, save in those
instances where the Code requires stockholders’ approval for certain
specific acts. Section 23 of the Code provides:
"SEC. 23.  The Board of Directors or Trustees. Unless otherwise provided
in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of directors or
trustees x x x."
In the ordinary course of business, a corporation can borrow funds or
dispose of assets of the corporation only on authority of the board of
directors. The board of directors normally designates one or more
corporate officers to sign loan documents or deeds of assignment for
the corporation.
To secure a credit accommodation from Bancasia, the board of
directors of Great Asian adopted two board resolutions on different
dates, the first on March 17, 1981, and the second on February 10,
1982. These two board resolutions, as certified under oath by Great
Asian’s Corporate Secretary Mario K. Tan, state:
First Board Resolution
"RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat,
Jr., be authorized as he is authorized to apply for and negotiate for
a loan accommodation or credit line in the amount not to exceed ONE
MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment
promissory notes in connection with said loan accommodation or credit
line, including the power to mortgage such properties of the
corporation as may be needed to effectuate the same."10 (Emphasis
supplied)
Second Board Resolution
"RESOLVED that Great Asian Sales Center Corp. obtain a discounting
line with BANCASIA FINANCE & INVESTMENT CORPORATION, at
prevailing discounting rates, in an amount not to exceed** TWO
MILLION PESOS ONLY (P2,000,000),** Philippine Currency.
RESOLVED FURTHER, that the corporation secure such other forms of
credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in
an amount not to exceed** TWO MILLION PESOS ONLY
(P2,000,000.00),** PESOS, under such terms and conditions as the
signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be authorized
individually, jointly or collectively to sign, execute and deliver any and
all instruments, documents, checks, sureties, etc. necessary or
incidental to secure any of the foregoing obligation:
(signed)
Specimen Signature
1. ARSENIO LIM PIAT, JR.             
2. _______________________
3. _______________________
4. _______________________
PROVIDED FINALLY that this authority shall be valid, binding and
effective until revoked by the Board of Directors in the manner
prescribed by law, and that BANCASIA FINANCE & INVESTMENT
CORPORATION shall not be bound by any such revocation until such
time as it is noticed in writing of such revocation."11 (Emphasis supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of
Great Asian, to apply for a "loan accommodation or credit line" with
Bancasia for not more than P1.0 million. Also, the first resolution
explicitly authorizes Arsenio to sign any document, paper or promissory
note, including mortgage deeds over properties of Great Asian, to
secure the loan or credit line from Bancasia.
The second board resolution expressly authorizes Great Asian to secure
a "discounting line" from Bancasia for not more than P2.0 million. The
second board resolution also expressly empowers Arsenio, as the
authorized signatory of Great Asian, "to sign, execute and deliver any
and all documents, checks x x x necessary or incidental to secure" the
discounting line. The second board resolution specifically authorizes
Arsenio to secure the discounting line "under such terms and conditions
as (he) x x x may deem fit and proper."
As plain as daylight, the two board resolutions clearly authorize Great
Asian to secure a loan or discounting linefrom Bancasia. The two board
resolutions also categorically designate Arsenio as the authorized
signatory to sign and deliver all the implementing documents, including
checks, for Great Asian. There is no iota of doubt whatsoever about the
purpose of the two board resolutions, and about the authority of
Arsenio to act and sign for Great Asian. The second board resolution
even gave Arsenio full authority to agree with Bancasia on the terms
and conditions of the discounting line. Great Asian adopted the correct
and proper board resolutions to secure a loan or discounting line from
Bancasia, and Bancasia had a right to rely on the two board resolutions
of Great Asian. Significantly, the two board resolutions specifically refer
to Bancasia as the financing institution from whom Great Asian will
secure the loan accommodation or discounting line.
Armed with the two board resolutions, Arsenio signed the Deeds of
Assignment selling, and endorsing, the fifteen checks of Great Asian to
Bancasia. On the face of the Deeds of Assignment, the contracting
parties are indisputably Great Asian and Bancasia as the names of these
entities are expressly mentioned therein as the assignor and assignee,
respectively. Great Asian claims that Arsenio signed the Deeds of
Assignment in his personal capacity because Arsenio signed above his
printed name, below which was the word "Assignor", thereby making
Arsenio the assignor. Great Asian conveniently omits to state that the
first paragraph of the Deeds expressly contains the following words:
"the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x
herein represented by its Treasurer Arsenio Lim Piat, Jr." The assignor is
undoubtedly Great Asian, represented by its Treasurer, Arsenio. The
only issue to determine is whether the Deeds of Assignment are indeed
the transactions the board of directors of Great Asian authorized
Arsenio to sign under the two board resolutions.
Under the Deeds of Assignment, Great Asian sold fifteen postdated
checks at a discount, over three months, to Bancasia. The Deeds of
Assignment uniformly state that Great Asian, –
"x x x for valuable consideration received, does hereby SELL, TRANSFER,
CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE &
INVESTMENT CORP., a domestic corporation x x x, the following
ACCOUNTS RECEIVABLES due and payable to it, having an aggregate
face value of x x x."
The Deeds of Assignment enabled Great Asian to generate instant cash
from its fifteen checks, which were still not due and demandable then.
In short, instead of waiting for the maturity dates of the fifteen
postdated checks, Great Asian sold the checks to Bancasia at less than
the total face value of the checks. In exchange for receiving an amount
less than the face value of the checks, Great Asian obtained
immediately much needed cash. Over three months, Great Asian
entered into four transactions of this nature with Bancasia, showing
that Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term "discounting line" means a credit
facility with a financing company or bank, which allows a business
entity to sell, on a continuing basis, its accounts receivable at a
discount.12 The term "discount" means the sale of a receivable at less
than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out of its receivables which are
still to mature at future dates. The financing company or bank which
buys the receivables makes its profit out of the difference between the
face value of the receivable and the discounted price. Thus, Section 3
(a) of the Financing Company Act of 1998 provides:
"Financing companies" are corporations x x x primarily organized for
the purpose of extending credit facilities to consumers and to industrial,
commercial or agricultural enterprises by discounting or factoring
commercial papers or accounts receivable, or by buying and
selling contracts, leases, chattel mortgages, or other evidences of
indebtedness, or by financial leasing of movable as well as immovable
property." (Emphasis supplied)
This definition of "financing companies" is substantially the same
definition as in the old Financing Company Act (R.A. No. 5980).13  disowning the Deeds of Assignment signed by its own Treasurer, after
Moreover, Section 1 (h) of the New Rules and Regulations adopted by
the Securities and Exchange Commission to implement the Financing
Company Act of 1998 states:
"Discounting" is a type of receivables financing whereby evidences of
indebtedness of a third party, such as installment contracts, promissory
notes and similar instruments, are purchased by, or assigned to, a
financing company in an amount or for a consideration less than their
face value." (Emphasis supplied)
Likewise, this definition of "discounting" is an exact reproduction of the
definition of "discounting" in the implementing rules of the old Finance
Company Act.
Clearly, the discounting arrangements entered into by Arsenio under
the Deeds of Assignment were the very transactions envisioned in the
two board resolutions of Great Asian to raise funds for its business.
Arsenio acted completely within the limits of his authority under the
two board resolutions. Arsenio did exactly what the board of directors
of Great Asian directed and authorized him to do.
Arsenio had all the proper and necessary authority from the board of
directors of Great Asian to sign the Deeds of Assignment and to
endorse the fifteen postdated checks. Arsenio signed the Deeds of
Assignment as agent and authorized signatory of Great Asian under an
authority expressly granted by its board of directors. The signature of
Arsenio on the Deeds of Assignment is effectively also the signature of
the board of directors of Great Asian, binding on the board of directors
and on Great Asian itself. Evidently, Great Asian shows its bad faith in
receiving valuable consideration for the checks assigned under the
Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasia’s complaint against Great Asian is founded on the latter’s
breach of contract under the Deeds of Assignment. The Deeds of
Assignment uniformly stipulate14 as follows:
"If for any reason the receivables or any part thereof cannot be paid by
the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to
pay the same, assuming the liability to pay, by way of penalty three per
cent (3%) of the total amount unpaid, for the period of delay until the
same is fully paid.
In case of any litigation which the ASSIGNEE may institute to enforce
the terms of this agreement, the ASSIGNOR shall be liable for all the
costs, plus attorney’s fees equivalent to twenty-five (25%) per cent of
the total amount due. Further thereto, the ASSIGNOR agrees that any
and all actions which may be instituted relative hereto shall be filed
before the proper courts of the City of Manila, all other appropriate
venues being hereby waived.
The last Deed of Assignment15 contains the following added stipulation:
"xxx Likewise, it is hereby understood that the warranties which the
ASSIGNOR hereby made are deemed part of the consideration for this
transaction, such that any violation of any one, some, or all of said
warranties shall be deemed as deliberate misrepresentation on the part
of the ASSIGNOR. In such event, the monetary obligation herein
conveyed unto the ASSIGNEE shall be conclusively deemed defaulted,
giving rise to the immediate responsibility on the part of the ASSIGNOR
to make good said obligation, and making the ASSIGNOR liable to pay
the penalty stipulated hereinabove as if the original obligor/s of the
receivables actually defaulted. xxx"
Obviously, there is one vital suspensive condition in the Deeds of
Assignment. That is, in case the drawers fail to pay the checks on
maturity, Great Asian obligated itself to pay Bancasia the full face value
of the dishonored checks, including penalty and attorney’s fees. The
failure of the drawers to pay the checks is a suspensive condition,16 the
happening of which gives rise to Bancasia’s right to demand payment
from Great Asian. This conditional obligation of Great Asian arises from
its written contracts with Bancasia as embodied in the Deeds of
Assignment. Article 1157 of the Civil Code provides that -
"Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
By express provision in the Deeds of Assignment, Great Asian
unconditionally obligated itself to pay Bancasia the full value of the
dishonored checks. In short, Great Asian sold the postdated checks on
with recourse basis against itself. This is an obligation that Great Asian
is bound to faithfully comply because it has the force of law as between
Great Asian and Bancasia. Article 1159 of the Civil Code further
provides that -
"Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."
Great Asian and Bancasia agreed on this specific with
recourse stipulation, despite the fact that the receivables were
negotiable instruments with the endorsement of Arsenio. The
contracting parties had the right to adopt the with recourse stipulation
which is separate and distinct from the warranties of an endorser
under the Negotiable Instruments Law. Article 1306 of the Civil Code
provides that –
"The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy."
The explicit with recourse stipulation against Great Asian effectively
enlarges, by agreement of the parties, the liability of Great Asian
beyond that of a mere endorser of a negotiable instrument. Thus,
whether or not Bancasia gives notice of dishonor to Great Asian, the
latter remains liable to Bancasia because of the with
recourse stipulation which is independent of the warranties of an
endorser under the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or in the Financing
Company Act (old or new), that prohibits Great Asian and Bancasia
parties from adopting the with recourse stipulation uniformly found in
the Deeds of Assignment. Instead of being negotiated, a negotiable
instrument may be assigned.17 Assignment of a negotiable instrument is
actually the principal mode of conveying accounts receivable under the
Financing Company Act. Since in discounting of receivables the assignee
is subrogated as creditor of the receivable, the endorsement of the
negotiable instrument becomes necessary to enable the assignee to
collect from the drawer. This is particularly true with checks because
collecting banks will not accept checks unless endorsed by the payee.
The purpose of the endorsement is merely to facilitate collection of the
proceeds of the checks.
The purpose of the endorsement is not to make the assignee finance
company a holder in due course because policy considerations militate
against according finance companies the rights of a holder in due
course.18 Otherwise, consumers who purchase appliances on
installment, giving their promissory notes or checks to the seller, will
have no defense against the finance company should the appliances
later turn out to be defective. Thus, the endorsement does not operate
to make the finance company a holder in due course. For its own
protection, therefore, the finance company usually requires the
assignor, in a separate and distinct contract, to pay the finance
company in the event of dishonor of the notes or checks.
As endorsee of Great Asian, Bancasia had the option to proceed against
Great Asian under the Negotiable Instruments Law. Had it so
proceeded, the Negotiable Instruments Law would have governed
Bancasia’s cause of action. Bancasia, however, did not choose this
route. Instead, Bancasia decided to sue Great Asian for breach of
contract under the Civil Code, a right that Bancasia had under the
express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for breach of contract
under the Civil Code will not leave Great Asian holding an empty bag.
Great Asian, after paying Bancasia, is subrogated back as creditor of the
receivables. Great Asian can then proceed against the drawers who
issued the checks. Even if Bancasia failed to give timely notice of
dishonor, still there would be no prejudice whatever to Great Asian.
Under the Negotiable Instruments Law, notice of dishonor is not
required if the drawer has no right to expect or require the bank to
honor the check, or if the drawer has countermanded payment.19 In the
instant case, all the checks were dishonored for any of the following
reasons: "account closed", "account under garnishment", insufficiency
of funds", or "payment stopped". In the first three instances, the
drawers had no right to expect or require the bank to honor the
checks, and in the last instance, the drawers had countermanded
payment.
Moreover, under common law, delay in notice of dishonor, where such
notice is required, discharges the drawer only to the extent of the loss
caused by the delay.20 This rule finds application in this jurisdiction
pursuant to Section 196 of the Negotiable Instruments Law which
states, "Any case not provided for in this Act shall be governed by the
provisions of existing legislation, or in default thereof, by the rules of
the Law Merchant." Under Section 186 of the Negotiable Instruments
Law, delay in the presentment of checks discharges the drawer.
However, Section 186 refers only to delay in presentment of checks but
is silent on delay in giving notice of dishonor. Consequently, the
common law or Law Merchant can supply this gap in accordance with
Section 196 of the Negotiable Instruments Law.
One other issue raised by Great Asian, that of lack of consideration for
the Deeds of Assignment, is completely unsubstantiated. The Deeds of
Assignment uniformly provide that the fifteen postdated checks were
assigned to Bancasia "for valuable consideration." Moreover, Article
1354 of the Civil Code states that, "Although the cause is not stated in
the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary." The record is devoid of any showing on
the part of Great Asian rebutting this presumption. On the other hand,
Bancasia’s Loan Section Manager, Cynthia Maclan, testified that
Bancasia paid Great Asian a consideration at the discount rate of less
than 24% of the face value of the postdated checks.21 Moreover, in its
verified petition for voluntary insolvency, Great Asian admitted its debt
to Bancasia when it listed Bancasia as one of its creditors, an extra-
judicial admission that Bancasia proved when it formally offered in
evidence the verified petition for insolvency.22 The Insolvency Law
requires the petitioner to submit a schedule of debts that must
"contain a full and true statement of all his debts and liabilities."23 The
Insolvency Law even requires the petitioner to state in his verification
that the schedule of debts contains "a full, correct and true discovery of
all my debts and liabilities x x x."24 Great Asian cannot now claim that
the listing of Bancasia as a creditor was not an admission of its debt to
Bancasia but merely an acknowledgment that Bancasia had sent a
demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of the checks is not
a loan accommodation but a sale of the checks. With the sale,
ownership of the checks passed to Bancasia, which must now,
according to Great Asian, sue the drawers and indorser of the check
who are the parties primarily liable on the checks. Great Asian forgets
that under the Deeds of Assignment, Great Asian expressly undertook
to pay the full value of the checks in case of dishonor. Again, we
reiterate that this obligation of Great Asian is separate and distinct
from its warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the assignment of the
checks is a sale, or more properly a discounting, of the checks and not a
loan accommodation. However, it is precisely because the transaction
is a sale or a discounting of receivables, embodied in separate Deeds of
Assignment, that the relevant provisions of the Civil Code are
applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction between a discounting
line and a loan accommodation. If the accounts receivable, like
postdated checks, are sold for a consideration less than their face
value, the transaction is one of discounting, and is subject to the
provisions of the Financing Company Act. The assignee is immediately
subrogated as creditor of the accounts receivable. However, if the
accounts receivable are merely used as collateral for the loan, the
transaction is only a simple loan, and the lender is not subrogated as
creditor until there is a default and the collateral is foreclosed. 
In summary, Great Asian’s four contracts assigning its fifteen postdated
checks to Bancasia expressly stipulate the suspensive condition that in
the event the drawers of the checks fail to pay, Great Asian itself will
pay Bancasia. Since the common condition in the contracts had
transpired, an obligation on the part of Great Asian arose from the four
contracts, and that obligation is to pay Bancasia the full value of the
checks, including the stipulated penalty and attorney’s fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being sued in his
personal capacity based on the Surety Agreements he signed wherein
he solidarily held himself liable with Great Asian for the payment of its
debts to Bancasia. The Surety Agreements contain the following
common condition:
"Upon failure of the Principal to pay at maturity, with or without
demand, any of the obligations above mentioned, or in case of the
Principal’s failure promptly to respond to any other lawful demand
made by the Creditor, its successors, administrators or assigns, both
the Principal and the Surety/ies shall be considered in default and the
Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and
whether held by the Creditor as Principal or agent, and it is agreed that
a certified statement by the Creditor as to the amount due from the
Principal shall be accepted by the Surety/ies as correct and final for all
legal intents and purposes."
Indisputably, Tan Chong Lin explicitly and unconditionally bound
himself to pay Bancasia, solidarily with Great Asian, if the drawers of
the checks fail to pay on due date. The condition on which Tan Chong
Lin’s obligation hinged had happened. As surety, Tan Chong Lin
automatically became liable for the entire obligation to the same
extent as Great Asian.
Tan Chong Lin, however, contends that the following warranties in the
Deeds of Assignment enlarge or increase his risks under the Surety
Agreements:
"The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported
by appropriate documents;
3. that said receivables are genuine, valid and subsisting;
4. that said receivables represent bona fide sale of goods, merchandise,
and/or services rendered in the ordinary course of its business
transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose
of said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally transferable, and that
the obligor/s therein will not interpose any objection to this
assignment, and has in fact given his/their consent hereto."
Tan Chong Lin maintains that these warranties in the Deeds of
Assignment materially altered his obligations under the Surety
Agreements, and therefore he is released from any liability to Bancasia.
Under Article 1215 of the Civil Code, what releases a solidary debtor is
a "novation, compensation, confusion or remission of the debt" made
by the creditor with any of the solidary debtors. These warranties,
however, are the usual warranties made by one who discounts
receivables with a financing company or bank. The Surety Agreements,
written on the letter head of "Bancasia Finance & Investment
Corporation," uniformly state that "Great Asian Sales Center x x x has
obtained and/or desires to obtain loans, overdrafts, discounts and/or
other forms of credits from" Bancasia. Tan Chong Lin was clearly on
notice that he was holding himself as surety of Great Asian which was
discounting postdated checks issued by its buyers of goods and
merchandise. Moreover, Tan Chong Lin, as President of Great Asian,
cannot feign ignorance of Great Asian’s business activities or
discounting transactions with Bancasia. Thus, the warranties do not
increase or enlarge the risks of Tan Chong Lin under the Surety
Agreements. There is, moreover, no novation of the debt of Great
Asian that would warrant release of the surety.
In any event, the provisions of the Surety Agreements are broad
enough to include the obligations of Great Asian to Bancasia under the
warranties. The first Surety Agreement states that:
"x x x herein Surety/ies, jointly and severally among themselves and
likewise with principal, hereby agree/s and bind/s himself/themselves to
pay at maturity all the notes, drafts, bills of exchange, overdraft and
other obligations of every kind which the Principal may now or may
hereafter owe the Creditor, including extensions or renewals thereof in
the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00), Philippine
Currency, plus stipulated interest thereon at the rate of sixteen percent
(16%) per annum, or at such increased rate of interest which the
Creditor may charge on the Principal’s obligations or renewals or the
reduced amount thereof, plus all the costs and expenses which the
Creditor may incur in connection therewith.
xxx
Upon failure of the Principal to pay at maturity, with or without
demand, any of the obligations above mentioned, or in case of the
Principal’s failure promptly to respond to any other lawful demand
made by the Creditor, its successors, administrators or assigns, both the
Principal and the Surety/ies shall be considered in default and
the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and
whether held by the Creditor as Principal or agent, and it is agreed that
a certified statement by the Creditor as to the amount due from the
Principal shall be accepted by the Surety/ies as correct and final for all
legal intents and purposes. (Emphasis supplied)
The second Surety Agreement contains the following provisions:
"x x x herein Surety/ies, jointly and severally among themselves and
likewise with PRINCIPAL, hereby agree and bind themselves to pay at
maturity all the notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the PRINCIPAL may now or may
hereafter owe the Creditor, including extensions and/or renewals
thereof in the principal sum not to exceed TWO MILLION
(P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest
thereon, or such increased or decreased rate of interest which the
Creditor may charge on the principal sum outstanding pursuant to the
rules and regulations which the Monetary Board may from time to time
promulgate, together with all the cost and expenses which the
CREDITOR may incur in connection therewith.
If for any reason whatsoever, the PRINCIPAL should fail to pay at
maturity any of the obligations or amounts due to the CREDITOR, or if
for any reason whatsoever the PRINCIPAL fails to promptly respond to
and comply with any other lawful demand made by the CREDITOR, or if
for any reason whatsoever any obligation of the PRINCIPAL in favor of
any person or entity should be considered as defaulted, then both the
PRINCIPAL and the SURETY/IES shall be considered in default under the
terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to
pay jointly and severally with the PRINCIPAL, all outstanding obligations
of the CREDITOR, whether due or not due, and whether owing to the
PRINCIPAL in its personal capacity or as agent of any person, endorsee,
assignee or transferee. x x x. (Emphasis supplied)
Article 1207 of the Civil Code provides, "xxx There is a solidary liability
only when the obligation expressly so states, or when the law or nature
of the obligation requires solidarity." The stipulations in the Surety
Agreements undeniably mandate the solidary liability of Tan Chong Lin
with Great Asian. Moreover, the stipulations in the Surety Agreements
are sufficiently broad, expressly encompassing "all the notes, drafts,
bills of exchange, overdraft and other obligations of every kind which
the PRINCIPAL may now or may hereafter owe the Creditor".
Consequently, Tan Chong Lin must be held solidarily liable with Great
Asian for the nonpayment of the fifteen dishonored checks, including
penalty and attorney’s fees in accordance with the Deeds of
Assignment.
The Deeds of Assignment stipulate that in case of suit Great Asian shall
pay attorney’s fees equivalent to 25% of the outstanding debt. The
award of attorney’s fees in the instant case is justified,25 not only
because of such stipulation, but also because Great Asian and Tan
Chong Lin acted in gross and evident bad faith in refusing to pay
Bancasia’s plainly valid, just and demandable claim. We deem it just
and equitable that the stipulated attorney’s fee should be awarded to
Bancasia.
The Deeds of Assignment also provide for a 3% penalty on the total
amount due in case of failure to pay, but the Deeds are silent on
whether this penalty is a running monthly or annual penalty. Thus, the
3% penalty can only be considered as a one-time penalty. Moreover,
the Deeds of Assignment do not provide for interest if Great Asian fails
to pay. We can only award Bancasia legal interest at 12% interest per
annum, and only from the time it filed the complaint because the
records do not show that Bancasia made a written demand on Great
Asian prior to filing the complaint.26 Bancasia made an extrajudicial
demand on Tan Chong Lin, the surety, but not on the principal debtor,
Great Asian.
WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R.
CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners are
ordered to pay, solidarily, private respondent the following amounts:
(a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total
outstanding amount in item (a) at the legal rate of 12% per annum
from the filing of the complaint until the same is fully paid, (c)
attorney’s fees equivalent to 25% of the total amount in item (a),
including interest at 12% per annum on the outstanding amount of the
attorney’s fees from the finality of this judgment until the same is fully
paid, and (c) costs of suit.
SO ORDERED.

G.R. No. L-41423 February 23, 1989
LUIS JOSEPH, petitioner  defendant Domingo Villa tried to overtake a tricycle likewise
vs.
HON. CRISPIN V. BAUTISTA, PATROCINIO PEREZ, ANTONIO SIOSON,
JACINTO PAGARIGAN, ALBERTO CARDENO and LAZARO
VILLANUEVA, respondents.
Petitioner herein is the plaintiff in Civil Case No. 50-V-73 entitled "Luis
Joseph vs. Patrocinio Perez, Domingo Villa y de Jesus, Rosario Vargas,
Antonio Sioson, Lazaro Villanueva and Jacinto Pagarigan", filed before
the Court of First Instance of Bulacan, Branch III, and presided over by
respondent Judge Crispin V. Bautista; while private respondents
Patrocinio Perez, Antonio Sioson, Jacinto Pagarigan and Lazaro
Villanueva are four of the defendants in said case. Defendant Domingo
Villa y de Jesus did not answer either the original or the amended
complaint, while defendant Rosario Vargas could not be served with
summons; and respondent Alberto Cardeno is included herein as he
was impleaded by defendant Patrocinio Perez, one of respondents
herein, in her cross-claim.
The generative facts of this case, as culled from the written submission
of the parties, are as follows: 
Respondent Patrocinio Perez is the owner of a cargo truck with Plate
No. 25-2 YT Phil. '73 for conveying cargoes and passengers for a
consideration from Dagupan City to Manila. On January 12, 1973, said
cargo truck driven by defendant Domingo Villa was on its way to
Valenzuela, Bulacan from Pangasinan. Petitioner, with a cargo of
livestock, boarded the cargo truck at Dagupan City after paying the sum
of P 9.00 as one way fare to Valenzuela, Bulacan. While said cargo truck
was negotiating the National Highway proceeding towards Manila,
proceeding in the same direction. At about the same time, a pick-up
truck with Plate No. 45-95 B, supposedly owned by respondents
Antonio Sioson and Jacinto Pagarigan, then driven by respondent
Lazaro Villanueva, tried to overtake the cargo truck which was then in
the process of overtaking the tricycle, thereby forcing the cargo truck
to veer towards the shoulder of the road and to ram a mango tree. As a
result, petitioner sustained a bone fracture in one of his legs. 1
The following proceedings thereafter took place: 2
Petitioner filed a complaint for damages against respondent Patrocinio
Perez, as owner of the cargo truck, based on a breach of contract of
carriage and against respondents Antonio Sioson and Lazaro Villanueva,
as owner and driver, respectively, of the pick-up truck, based on quasi-
delict.
Respondent Sioson filed his answer alleging that he is not and never Consequently, respondents Sioson, Pagarigan, Cardeno and Villanueva
was an owner of the pick-up truck and neither would he acquire filed a "Motion to Exonerate and Exclude Defs/ Cross defs. Alberto
ownership thereof in the future.  Cardeno, Lazaro Villanueva, Antonio Sioson and Jacinto Pagarigan on
the Instant Case", alleging that respondents Cardeno and Villanueva
On September 24, 1973, petitioner, with prior leave of court, filed his already paid P 7,420.61 by way of damages to respondent Perez, and
amended complaint impleading respondents Jacinto Pagarigan and a alleging further that respondents Cardeno, Villanueva, Sioson and
certain Rosario Vargas as additional alternative defendants. Petitioner Pagarigan paid P 1,300.00 to petitioner by way of amicable settlement. 
apparently could not ascertain who the real owner of said cargo truck
was, whether respondents Patrocinio Perez or Rosario Vargas, and who Thereafter, respondent Perez filed her "Opposition to Cross-defs.'
was the real owner of said pick-up truck, whether respondents Antonio motion dated Dec. 2, 1974 and Counter Motion" to dismiss. The so-
Sioson or Jacinto Pagarigan.  called counter motion to dismiss was premised on the fact that the
release of claim executed by petitioner in favor of the other
Respondent Perez filed her amended answer with crossclaim against respondents inured to the benefit of respondent Perez, considering
her co-defendants for indemnity and subrogation in the event she is that all the respondents are solidarity liable to herein petitioner. 
ordered to pay petitioner's claim, and therein impleaded cross-
defendant Alberto Cardeno as additional alternative defendant.  On July 8, 1975, respondent judge issued the questioned order
dismissing the case, and a motion for the reconsideration thereof was
On September 27, 1974, respondents Lazaro Villanueva, Alberto denied. Hence, this appeal, petitioner contending that respondent
Cardeno, Antonio Sioson and Jacinto Pagarigan, thru their insurer, judge erred in declaring that the release of claim executed by petitioner
Insurance Corporation of the Philippines, paid petitioner's claim for in favor of respondents Sioson, Villanueva and Pagarigan inured to the
injuries sustained in the amount of P 1,300.00. By reason thereof, benefit of respondent Perez; ergo, it likewise erred in dismissing the
petitioner executed a release of claim releasing from liability the case. 
following parties, viz: Insurance Corporation of the Philippines, Alberto
Cardeno, Lazaro Villanueva, Antonio Sioson and Jacinto Pagarigan. We find the present recourse devoid of merit.

On December 2, 1974, respondents Lazaro Villanueva, Alberto Cardeno The argument that there are two causes of action embodied in
and their insurer, the Insurance Corporation of the Philippines, paid petitioner's complaint, hence the judgment on the compromise
respondent Patrocinio Perez' claim for damages to her cargo truck in agreement under the cause of action based on quasi-delict is not a bar
the amount of P 7,420.61. to the cause of action for breach of contract of carriage, is untenable. 
A cause of action is understood to be the delict or wrongful act or
omission committed by the defendant in violation of the primary rights
of the plaintiff. 3 It is true that a single act or omission can be violative
of various rights at the same time, as when the act constitutes
juridically a violation of several separate and distinct legal obligations.
However where there is only one delict or wrong, there is but a single
cause of action regardless of the number of rights that may have been
violated belonging to one person. 4
The singleness of a cause of action lies in the singleness of the- delict or
wrong violating the rights of one person. Nevertheless, if only one
injury resulted from several wrongful acts, only one cause of action
arises. 5 In the case at bar, there is no question that the petitioner
sustained a single injury on his person. That vested in him a single
cause of action, albeit with the correlative rights of action against the
different respondents through the appropriate remedies allowed by
law.  Perez is both incredible and unsubstantiated. There is nothing in the
The trial court was, therefore, correct in holding that there was only
one cause of action involved although the bases of recovery invoked by
petitioner against the defendants therein were not necessarily Identical
since the respondents were not identically circumstanced. However, a
recovery by the petitioner under one remedy necessarily bars recovery
under the other. This, in essence, is the rationale for the proscription in
our law against double recovery for the same act or omission which,
obviously, stems from the fundamental rule against unjust enrichment. 
There is no question that the respondents herein are solidarily liable to
petitioner. On the evidence presented in the court below, the trial
court found them to be so liable. It is undisputed that petitioner, in his
amended complaint, prayed that the trial court hold respondents
jointly and severally liable. Furthermore, the allegations in the
amended complaint clearly impleaded respondents as solidary debtors.
We cannot accept the vacuous contention of petitioner that said
allegations are intended to apply only in the event that execution be
issued in his favor. There is nothing in law or jurisprudence which
would countenance such a procedure. 
The respondents having been found to be solidarity liable to petitioner,
the full payment made by some of the solidary debtors and their
subsequent release from any and all liability to petitioner inevitably
resulted in the extinguishment and release from liability of the other
solidary debtors, including herein respondent Patrocinio Perez. 
The claim that there was an agreement entered into between the
parties during the pre-trial conference that, after such payment made
by the other respondents, the case shall proceed as against respondent
records to show, either by way of a pre-trial order, minutes or a
transcript of the notes of the alleged pre-trial hearing, that there was
indeed such as agreement. 
WHEREFORE, the challenged orders of the respondent judge are hereby
AFFIRMED. 
SO ORDERED. 

G.R. No. 171820               December 13, 2007
DIAMOND BUILDERS CONGLOMERATION, ROGELIO S. ACIDRE,
TERESITA P. ACIDRE, GRACE C. OSIAS, VIOLETA S. FAIYAZ and EMMA S.
CUTILLAR, Petitioners,  of the complaint, which required full compliance of the structural
vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.
Before us is a petition for review on certiorari to annul the Decision1 of
the Court of Appeals (CA) in CA-G.R. C.V. No. 48603, which reversed the
Decision2 of the Regional Trial Court, Branch 7, Manila (RTC Manila) in
Civil Case No. 92-62029 and granted respondent Country Bankers
Insurance Corporation’s (Country Bankers’) prayer for a sum of money
against the petitioners.
The controversy originated from a civil case3 pending before the
Regional Trial Court, Branch 125, Caloocan City (RTC Caloocan) filed by
Marceliano Borja (Borja) against Rogelio S. Acidre (Rogelio) for the
latter’s breach of his obligation to construct a residential and
commercial building. Rogelio is the sole proprietor of petitioner
Diamond Builders Conglomeration (DBC).
To put an end to the foregoing litigation, the parties entered into a
Compromise Agreement4 which provided, in part:
COMPROMISE AGREEMENT
1. x x x
a. In lieu of rescission, the parties have mutually agreed, subject to the
provisions hereunder, to fully implement the building contract dated
October 1, 1990 and supplemented on October 2, 1990 with an
additional scope of work marked as Annex "A" of the complaint and the
Letter-Agreement dated November 16, 1991 signed by the [petitioner
Rogelio] and plaintiff’s son(,) Ferdinand A. Borja, marked as Annex "B"
design of Engr. Ramos and explicit reminders in the constructing of the
residential/commercial building and the additional works therein
specified for the added consideration of ₱100,000.00 as alleged in
paragraphs 2 and 3 of the complaint, Annex "C" hereof.
b. [Petitioner Rogelio] admits full payment of plaintiff to him the
amount of ₱1,530,000.00 leaving the balance of ₱570,000.00 of the
contractual price of ₱2,100,000.00 for the construction of the buildings
aforementioned.
c. [Petitioner Rogelio] agrees to fully complete the construction of the
residential/commercial building mentioned in paragraph 1 hereof
provided plaintiff would pay to him, subject to hereunder terms, the
aforesaid amount of ₱570,000.00.
d. The plaintiff agrees to pay [petitioner Rogelio] the amount of
₱570,000.00 subject to the terms hereunder set forth and subject
strictly to the condition that [petitioner Rogelio] will finish the building
above-described pursuant to the agreements [Annex(es) "A" and "B"]
set forth in paragraph 1 hereof.
e. Plaintiff shall pay [petitioner Rogelio] the amount of ₱570,000.00 as
follows:
i. ₱370,000.00 – the 5th day from approval of this compromise
agreement by this Honorable Court and to coincide (with) the start of
the 75 days for [petitioner Rogelio] to complete the construction of the
building.
ii. ₱200,000.00 – When the aforedescribed building is fully constructed
pursuant to agreements stated in paragraph 1 hereof.
iii. Said building must be fully finished pursuant to the agreement
stated in paragraph 1 hereof within 75 days (excluding Sundays and
Holidays) counted from receipt of payment of ₱370,000.00. The date of
receipt to be issued by [petitioner Rogelio] will control. The 75th day
will be 12:00 noon of the 75th day.
iv. From receipt of the aforesaid amount of ₱370,000.00, [petitioner
Rogelio] shall submit in favor of plaintiff a performance or surety bond
in the equivalent amount of ₱370,000.00 – to answer or indemnify
plaintiff in the event the building is not finished on the 75th day.
v. In the event the building is finished within 75 days as heretofore
stated and pursuant to the agreements set forth in paragraph 1 hereof,
in addition to the amount of ₱200,000.00, the plaintiff shall also pay
[petitioner Rogelio] the amount of ₱90,000.00 by way of [bonus].
However, in the event [petitioner Rogelio] shall fail to fully complete
the construction of the building pursuant to the agreements set forth in
paragraph 1 hereof within 75 days as heretofore stated, [petitioner
Rogelio] shall not be entitled to any further payments and the
performance or surety bond above-mentioned shall be fully
implemented by way of penalizing [petitioner Rogelio] and/or as award
for damages in favor of plaintiff.
xxxx
f. x x x
g. That the construction herein contemplated shall not extend beyond
75 days. Said period shall commence five days from the date of the
final approval hereof by this Honorable Court.
i. That any violation and/or avoidance of the terms and conditions of
this Compromise Agreement by either of the parties herein shall
forthwith entitle the aggrieved party to an immediate execution hereof
and to the necessary and corresponding reliefs and remedies therefore.
(Emphasis supplied.)
The RTC Caloocan approved the Compromise Agreement and rendered
a Decision5 in accordance with the terms and conditions contained
therein.
In compliance with the Compromise Agreement, Rogelio obtained a
Surety Bond6 from Country Bankers in favor of the spouses Borja.7 In
this regard, Rogelio and his spouse, petitioner Teresita P. Acidre,
together with DBC employees Grace C. Osias, Violeta S. Faiyaz and
Emma S. Cutillar (the other petitioners herein), signed an Indemnity
Agreement8 consenting to their joint and several liability to Country
Bankers should the surety bond be executed upon.
On April 23, 1992, Country Bankers received a Motion for Execution9 of
the surety bond filed by Borja with the RTC Caloocan for Rogelio’s
alleged violation of the Compromise Agreement. Consequently, Country
Bankers, in a letter10 dated May 13, 1992, advised petitioners that in
the event it is constrained to pay under the surety bond to Borja, it
shall proceed against petitioners for reimbursement.
In turn, petitioners wrote Country Bankers informing the latter of the
filing of an Opposition to Borja’s Motion for Execution.11 In spite of the
opposition, however, the RTC Caloocan issued a Writ of Execution12 on
May 25, 1992. Petitioners then filed a motion for reconsideration.
On May 29, 1992, Sheriff Perceverando Pangan of RTC Caloocan served
Country Bankers a copy of the writ. Posthaste, Country Bankers, in
writing, requested Sheriff Pangan for a 10-day grace period within
which to settle the claim.13
Subsequently, Rogelio filed an Urgent Omnibus Motion14 to suspend the
Writ of Execution and to resolve the Motion for Reconsideration dated
June 3, 1992. Upon receipt of the Omnibus Motion, Country Bankers
forthwith wrote Sheriff Pangan and requested that the implementation
of the Writ of Execution be held in abeyance so as not to render moot
and academic the RTC Caloocan’s resolution on the Omnibus Motion.15
Nonetheless, on June 9, 1992, Country Bankers was served a Notice of
Levy/Sheriff’s Sale16 with a list of its personal properties to be sold at
the scheduled public auction on June 15, 1992.
The next day, or on June 10, 1992, Country Bankers verified with the
RTC Caloocan the status of petitioners’ Omnibus Motion. It was
informed that the motion had yet to be acted upon. On the same date,
Sheriff Pangan arrived at Country Bankers’ office, and the latter was
thus constrained to pay the amount of the surety bond.17
Significantly, on June 22, 1992, twelve (12) days after the satisfaction of
judgment in Civil Case No. C-14745, Rogelio filed a Petition for
Certiorari and Prohibition with Preliminary Injunction and Restraining
Order18 with the CA, docketed as CA-G.R. SP No. 28205. Although the
appellate court issued a Temporary Restraining Order (TRO), the
petition was eventually denied due course and dismissed outright for
being fait accompli, as what it sought to enjoin or prohibit had already
been fully satisfied and executed.19
In the meantime, after Country Bankers was compelled to pay the
amount of the surety bond, it demanded reimbursement from the
petitioners under the Indemnity Agreement.20 However, petitioners
refused to reimburse Country Bankers.
In addition, upon the dismissal of their petition in CA-G.R. SP No.
28205, petitioners wrote Country Bankers and informed the latter that
the voluntary payment of the bond effectively prevented them from
contesting the validity of the issuance of the Writ of Execution.21
As a result, Country Bankers filed a complaint for sum of money against
the petitioners which, as previously stated, the RTC Manila dismissed. It
disposed of the case, thus:
WHEREFORE, and considering the foregoing, judgment is hereby
rendered:
1. Dismissing the complaint for lack of merit;
2. On the counterclaim, ordering [Country Bankers] to pay [petitioners]
attorney’s fees of ₱50,000.00, plus the costs of suit.
SO ORDERED.
On appeal, the CA reversed and set aside the decision of the RTC
Manila, to wit:
WHEREFORE, premises considered, the Appeal is GRANTED and the
Decision dated November 2, 1992 of Branch 7 of the Regional Trial
Court of Manila is hereby REVERSED and a new one entered, ordering
[petitioners] to pay [Country Bankers] the sum of THREE HUNDRED
SEVENTY THOUSAND PESOS (₱370,000.00), as reimbursement or actual
damages, plus interest thereon at the rate of 12% per annum
computed from the date of judicial demand, or from July 24, 1992, the
date of filing of the complaint until the said amount has been fully paid.
SO ORDERED.
In reversing the trial court, the CA ruled that Country Bankers, as surety
of Rogelio’s loan obligation, did not effect voluntary payment on the
bond. The appellate court found that what Country Bankers paid was
an obligation legally due and demandable. It declared that Country
Bankers acted upon compulsion of a writ of execution, which appears
to have been regularly, and validly issued, and, by its very nature, is
immediately enforceable.
Hence, this appeal positing a sole issue for our resolution, to wit:
Whether petitioners should indemnify Country Bankers for the
payment of the surety bond.
In fine, petitioners contend that Country Bankers is not entitled to
reimbursement when it voluntarily paid the surety bond considering it
knew full well the remedies availed of by petitioners to stay the
execution of the compromise judgment. Thus, Country Bankers must
bear the loss or damage arising from its voluntary act.
We deny the appeal and affirm the appellate court’s ruling. Country
Bankers should be reimbursed for the ₱370,000.00 it paid to Borja
under the surety bond.
In impugning the CA’s decision, petitioners invoke their pending
Omnibus Motion to stay the execution of the compromise judgment.
Petitioners’ theory is that, although the RTC Caloocan had already
issued a writ of execution and Country Bankers had been served a
Notice of Levy/Sheriff’s Sale of its properties at the impending public
auction, the payment made by Country Bankers to Borja is a voluntary
act. Petitioners push their theory even further, and deign to suggest
that Country Bankers should have itself intervened in the proceedings
before the RTC Caloocan to stay the writ of execution.
We reject this preposterous suggestion. Petitioners ought to be
reminded of the nature of a judgment on a compromise and a writ of
execution issued in connection therewith.
A compromise judgment is a decision rendered by a court sanctioning
the agreement between the parties concerning the determination of
the controversy at hand. Essentially, it is a contract, stamped with
judicial imprimatur, between two or more persons, who, for preventing
or putting an end to a lawsuit, adjust their difficulties by mutual
consent in the manner which they agree on, and which each of them
prefers in the hope of gaining, balanced by the danger of losing.22 Upon
court approval of a compromise agreement, it transcends its identity as
a mere contract binding only upon the parties thereto, as it becomes a
judgment that is subject to execution in accordance with Rule 39 of the
Rules of Court.23
Ordinarily, a judgment based on compromise is not appealable. It
should not be disturbed except upon a showing of vitiated consent or
forgery. The reason for the rule is that when both parties enter into an
agreement to end a pending litigation and request that a decision be
rendered approving said agreement, it is only natural to presume that
such action constitutes an implicit, as undeniable as an express, waiver
of the right to appeal against said decision.24 Thus, a decision on a
compromise agreement is final and executory, and is conclusive
between the parties.25
It is beyond cavil that if a party fails or refuses to abide by a
compromise agreement, the other party may either enforce the
compromise or regard it as rescinded and insist upon his original
demand.26 Following this mandatory rule, the RTC Caloocan granted
Borja’s motion, and subsequently issued an order to the sheriff to
execute the compromise judgment. Notwithstanding the foregoing,
petitioners still maintain that since they had taken steps to stay the
execution of the compromise judgment, Country Bankers, with full
knowledge of their active opposition to the execution thereof, should
not have readily complied with the RTC Caloocan Order.
Petitioners’ argument contemplates a brazen defiance of a validly
issued court order, which had not been restrained by the appellate
court or this Court. The argument is unacceptable.
The Compromise Agreement between Borja and Rogelio explicitly
provided that the latter’s failure to complete construction of the
building within the stipulated period27 shall cause the full
implementation of the surety bond as a penalty for the default, and as
an award of damages to Borja. Furthermore, the Compromise
Agreement contained a default executory clause in case of a violation
or avoidance of the terms and conditions thereof. Therefore, the
payment made by Country Bankers to Borja was proper, as failure to
pay would have amounted to contumacious disobedience of a valid
court order.
Clearly, even without the aforesaid default clause, the compromise
judgment remained executory as against Rogelio, as the principal
obligor (co-debtor), and Country Bankers as surety of the obligation.
Section 4, Rule 39 of the Rules of Court provides:
SEC. 4. Judgments not stayed by appeal. – Judgments in actions for
injunction, receivership, accounting and support, and such other
judgments as are now or may hereafter be declared to be immediately
executory, shall be enforceable after their rendition and shall not be
stayed by an appeal taken therefrom, unless otherwise ordered by the
trial court. On appeal therefrom, the appellate court in its discretion
may make an order suspending, modifying, restoring or granting the
injunction, receivership, accounting, or award of support.
The stay of execution shall be upon such terms as to bind or otherwise
as may be considered proper for the security or protection of the rights
of the adverse party.
Other judgments in actions declared to be immediately executory and
not stayed by the filing of an appeal are for: (1) compromise,28 (2)
forcible entry and unlawful detainer,29 (3) direct contempt,30 and (4)
expropriation.31
Likewise, Section 9, paragraph (a),32 of the same Rule outlines the
procedure for execution of judgments for money, thus:
SEC. 9 Execution of judgments for money, how enforced. –
(a) Immediate payment on demand. – The officer shall enforce an
execution of a judgment for money by demanding from the judgment
obligor the immediate payment of the full amount stated in the writ of
execution and all lawful fees. The judgment obligor shall pay in case,
certified bank check payable to the judgment oblige, or any other form
of payment acceptable to the latter, the amount of the judgment debt
under proper receipt directly to the judgment oblige or his authorized
representative if present at the time of payment. The lawful fees shall
be handed under proper receipt to the executing sheriff who shall turn
over the said amount within the same day to the clerk of court of the
court that issued the writ.
As Rogelio’s obligation under the compromise agreement, and
approved by the RTC Caloocan, had a penal clause33 which is monetary
in nature,34 the writ of execution availed of by Borja, and paid by
Country Bankers, strictly complied with the rules on execution of
money judgments.
It is true that the petitioners did not directly question the compromise
judgment. What was pending before the Caloocan RTC was petitioners’
Omnibus Motion praying for a stay in the implementation of the writ of
execution. However, the bottom line issue raised in the Omnibus
Motion is, actually, a question on the compromise judgment, since its
resolution would require an inquiry into the stipulations contained in
the Compromise Agreement, particularly the provision on immediate
execution.
Thus, when the RTC Manila ruled that the payment on the bond made
by Country Bankers was voluntary, the lower court effectively
disregarded the rule on the non-appealable nature and the
immediately executory character of a judgment on a compromise.
Moreover, it has not escaped our attention that petitioners belatedly
filed a Petition for Certiorari and Prohibition with prayer for a TRO with
the CA, ostensibly to stop the execution of the compromise judgment.
Not only was the filing thereof late, it was done twelve (12) days after
the satisfaction of the compromise judgment. We are, therefore,
perplexed why, despite the urgency of the matter, petitioners merely
banked on a pending motion for reconsideration to stay the
enforcement of an already issued writ of execution. Petitioners’ total
reliance thereon was certainly misplaced.
Admittedly, the general rule is that certiorari will not lie unless a
motion for reconsideration is first filed before the respondent tribunal
to allow it an opportunity to correct the imputed errors.35 Nonetheless,
the rule admits of exceptions, thus:
(a) where the order is a patent nullity, as where the court a quo has no
jurisdiction;
(b) where the questions raised in the certiorari proceedings have been
duly raised and passed upon by the lower court, or are the same as
those raised and passed upon in the lower court;
(c) where there is an urgent necessity for the resolution of the question
and any further delay would prejudice the interests of the Government
or of the petitioner or the subject matter of the action is perishable;
(d) where, under the circumstances, a motion for reconsideration
would be useless;
(e) where petitioner was deprived of due process and there is extreme
urgency for relief;
(f) where, in a criminal case, relief from an order of arrest is urgent and
the granting of such relief by the trial court is improbable;
(g) where the proceedings in the lower court are a nullity for lack of
due process;
(h) where the proceedings was ex-parte or in which the petitioner had
no opportunity to object; and
(i) where the issue raised is one purely of law or where public interest
is involved.36
Evidently, it would not have been premature for petitioners to have
filed a petition before the CA, upon the issuance by the RTC Caloocan
of a writ of execution, because the RTC Caloocan already denied their
Opposition to Borja’s Motion for Execution on the surety bond. If, as
petitioners insist, they had a meritorious challenge to the satisfaction of
the writ of execution, they should have immediately filed a Petition for
Certiorari with the CA and therein alleged the exceptional circumstance
warranting the non-filing of a motion for reconsideration. Petitioners
should not have persisted on waiting for the resolution of their
Omnibus Motion.
We have consistently ruled that an order for the issuance of a writ of
execution is ordinarily not appealable. The reason for this is that the
merits of the case should not be delved into anew after a
determination has been made thereon with finality.37 Otherwise, there
would be practically no end to litigation since the losing party would
always try to thwart execution by appealing from every order granting
the writ. In this case, this aphorism should apply. Rogelio, after
agreeing to an amicable settlement with Borja to put an end to the
case before the RTC Caloocan, cannot flout compliance of the court
order of execution by refusing to reimburse Country Bankers, the
surety of his obligation in the compromise agreement.
Still, petitioners stubbornly refuse to pay Country Bankers, contending
that the CA itself, in CA-G.R. SP No. 28205, declared that the payment
effected was voluntary.
We are not persuaded.
Article 2047 of the Civil Code specifically calls for the application of the
provisions on solidary obligations to suretyship contracts. In particular,
Article 1217 of the Civil Code recognizes the right of reimbursement
from a co-debtor (the principal co-debtor, in case of suretyship) in
favor of the one who paid (i.e., the surety).38 In contrast, Article 1218 of
the Civil Code is definitive on when reimbursement is unavailing, such
that only those payments made after the obligation has prescribed or
became illegal shall not entitle a solidary debtor to reimbursement.
Nowhere in the invoked CA Decision does it declare that a surety who
pays, by virtue of a writ of execution, is not entitled to reimbursement
from the principal co-debtor. The CA Decision was confined to the
mootness of the issue presented and petitioners’ preclusion from the
relief it prayed for, i.e., a stay of the writ of execution, considering that
the writ had already been satisfied.
More importantly, the Indemnity Agreement signed by Rogelio and the
other petitioners explicitly provided for an incontestability clause on
payments made by Country Bankers.1âwphi1 The said clause reads:
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: - Any
payment or disbursement made by [Country Bankers] on account of
the above-mentioned Bond, its renewals, extensions, alterations or
substitutions either in the belief that [Country Bankers] was obligated
to make such payment or in the belief that said payment was necessary
or expedient in order to avoid greater losses or obligations for which
[Country Bankers] might be liable by virtue of the terms of the above-
mentioned Bond, its renewals, extensions, alterations, or substitutions,
shall be final and shall not be disputed by the undersigned, who hereby
jointly and severally bind themselves to indemnify [Country Bankers] of
any and all such payments, as stated in the preceding clauses.
In case [Country Bankers] shall have paid, settled or compromised any
liability, loss, costs, damages, attorney’s fees, expenses, claims,
demands, suits, or judgments as above-stated, arising out of or in
connection with said bond, an itemized statement thereof, signed by an
officer of [Country Bankers] and other evidence to show said payment,
settlement or compromise, shall be prima facie evidence of said
payment, settlement or compromise, as well as the liability of
[petitioners] in any and all suits and claims against [petitioners] arising
out of said bond or this bond application.
Ineluctably, petitioners are obligated to reimburse Country Bankers the
amount of ₱370,000.00.
Finally, petitioners desperately attempt to inveigle out of this burden,
which is of their own making, by imputing a lack of initiative on Country
Banker’s part to intervene in the execution proceedings before the
RTC.
This contention, as with the rest of petitioners’ arguments, deserves
scant consideration. Suffice it to state that Country Bankers is a surety
of the obligation with a penal clause, constituted in the compromise
judgment; it is not a joint and solidary co-debtor of Rogelio.
In the recent case of Escaňo v. Ortigas,39 we elucidated on the
distinction between a surety as a co-debtor under a suretyship
agreement and a joint and solidary co-debtor, thus:
(A)s indicated by Article 2047, a suretyship requires a principal debtor
to whom the surety is solidarily bound by way of an ancillary obligation
of segregate identity from the obligation between the principal debtor
and the creditor. The suretyship does not bind the surety to the
creditor, inasmuch as the latter is vested with the right to proceed
against the former to collect the credit in lieu of proceeding against the
principal debtor for the same obligation. At the same time, there is also
a legal tie created between the surety and the principal debtor to
which the creditor is not privy or party to. The moment the surety fully
answers to the creditor for the obligation created by the principal
debtor, such obligation is extinguished. At the same time, the surety
may seek reimbursement from the principal debtor for the amount
paid, for the surety does in fact "become subrogated to all the rights
and remedies of the creditor."
WHEREFORE, the Petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. C.V. No. 48603 is hereby AFFIRMED. Costs against
the petitioner.
SO ORDERED.
G.R. No. L-25704             April 24, 1968
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,  from the loan; that said amount of P1,048.15 should therefore be
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Plaintiff corporation filed suit in the Court of First Instance of Manila on
May 29, 1964 against the partnership Chelda Enterprises and David
Syjueco, its capitalist partner, for recovery of alleged unpaid loans in
the total amount of P20,880.00, with legal interest from the filing of the
complaint, plus attorney's fees of P5,000.00. Alleging that post dated
checks issued by defendants to pay said account were dishonored, that
defendants' industrial partner, Chellaram I. Mohinani, had left the
country, and that defendants have removed or disposed of their
property, or are about to do so, with intent to defraud their creditors,
preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from
plaintiff in the total amount of P26,500.00, of which P5,620.00 had
been paid, leaving a balance of P20,880.00; that plaintiff charged and
deducted from the loan usurious interests thereon, at rates of 2% and
2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the
law. A counterclaim for P2,000.00 attorney's fees was interposed.
Plaintiff filed on June 25, 1964 an answer to the counterclaim,
specifically denying under oath the allegations of usury.
After trial, decision was rendered, on November 10, 1965. The court
found that there remained due from defendants an unpaid principal
amount of P20,287.50; that plaintiff charged usurious interests, of
which P1,048.15 had actually been deducted in advance by plaintiff
deducted from the unpaid principal of P20,287.50, leaving a balance of
P19,247.351 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred
from collecting the principal of the loan or its balance of P19,247.35.
Accordingly, it stated, in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant
partnership to pay to the plaintiff the amount of P19,247.35, with legal
interest thereon from May 29, 1964 until paid, plus an additional sum
of P2,000.00 as damages for attorney's fee; and, in case the assets of
defendant partnership be insufficient to satisfy this judgment in full,
ordering the defendant David Syjueco to pay to the plaintiff one-half
(1/2) of the unsatisfied portion of this judgment.
With costs against the defendants.1äwphï1.ñët
Appealing directly to Us, defendants raise two questions of law: (1) In a
loan with usurious interest, may the creditor recover the principal of
the loan? (2) Should attorney's fees be awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid
down by this Court in Lopez v. El Hogar Filipino, 47 Phil. 249, holding
that a contract of loan with usurious interest is valid as to the loan but
void as to the usurious interest, appellants argue that in light of the
New Civil Code provisions said doctrine no longer applies. In support
thereof, they cite the case decided by the Court of Appeals in Sebastian
v. Bautista, 58 O.G. No. 15, p. 3146.
The Sebastian case was an action for recovery of a parcel of land. The
Court of First Instance therein decided in plaintiff's favor, on the ground
that the so-called sale with pacto de retro of said land was in fact only
an equitable mortgage. In affirming the trial court, the writer of the
opinion of the Court of Appeals went further to state the view that the
loan secured by said mortgage was usurious in nature, and, thus, totally
void. Such reasoning of the writer, however, was not concurred in by
the other members of the Court, who concurred in the result and voted
for affirmance on the grounds stated by the trial court. Furthermore,
the affirmance of the existence of equitable mortgage necessarily
implies the existence of a valid contract of loan, because the former is
an accessory contract to the latter.
Great reliance is made by appellants on Art. 1411 of the New Civil Code
which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes criminal offense, both
parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but
the innocent one may claim what he has given, and shall not be bound
to comply with his promise.
Since, according to the appellants, a usurious loan is void due to
illegality of cause or object, the rule of pari delictoexpressed in Article
1411, supra, applies, so that neither party can bring action against each
other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code),
allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to
the rule; hence, he cannot recover on the contract. So — they continue
— the New Civil Code provisions must be upheld as against the Usury
Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: "Usurious contracts
shall be governed by the Usury Law and other special laws, so far as
they are not inconsistent with this Code." (Emphasis ours.)
We do not agree with such reasoning. Article 1411 of the New Civil
Code is not new; it is the same as Article 1305 of the Old Civil Code.
Therefore, said provision is no warrant for departing from previous
interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to
the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari
delicto applies where a contract's nullity proceeds from illegality of the
cause or object of said contract.
However, appellants fail to consider that a contract of loan with
usurious interest consists of principal and accessory stipulations; the
principal one is to pay the debt; the accessory stipulation is to pay
interest thereon.2
And said two stipulations are divisible in the sense that the former can
still stand without the latter. Article 1273, Civil Code, attests to this:
"The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to
payment of interest likewise renders a nullity the legal terms as to
payments of the principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter may be
enforced."
In simple loan with stipulation of usurious interest, the prestation of
the debtor to pay the principal debt, which is the cause of the contract
(Article 1350, Civil Code), is not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the Usury
Law. Under the latter, in Sec. 6, any person who for a loan shall have
paid a higher rate or greater sum or value than is allowed in said law,
may recover the whole interest paid. The New Civil Code, in Article
1413 states: "Interest paid in excess of the interest allowed by the
usury laws may be recovered by the debtor, with interest thereon from
the date of payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole
usurious interest; that is, in a loan of P1,000, with interest of P20% per
annum P200 for one year, if the borrower pays said P200, the whole
P200 is the usurious interest, not just that part thereof in excess of the
interest allowed by law. It is in this case that the law does not
allow division. The whole stipulation as to interest is void, since
payment of said interest is the cause or object and said interest is
illegal. The only change effected, therefore, by Article 1413, New Civil
Code, is not to provide for the recovery of the interest paid in excess of
that allowed by law, which the Usury Law already provided for, but to
add that the same can be recovered "with interest thereon from the
date of payment."
The foregoing interpretation is reached with the philosophy of usury
legislation in mind; to discourage stipulations on usurious interest, said
stipulations are treated as wholly void, so that the loan becomes one
without stipulation as to payment of interest. It should not, however,
be interpreted to mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the lender.
Furthermore, penal sanctions are available against a usurious lender, as
a further deterrence to usury.
The principal debt remaining without stipulation for payment of
interest can thus be recovered by judicial action. And in case of such
demand, and the debtor incurs in delay, the debt earns interest from
the date of the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none, the same
being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to
pay interest by way of damages (Art. 2209, Civil Code). The court a
quo therefore, did not err in ordering defendants to pay the principal
debt with interest thereon at the legal rate, from the date of filing of
the complaint.

As regards, however, the attorney's fees, the court a quo stated no

basis for its award, beyond saying that as a result of defendants' refusal
to pay the amount of P19,247.35 notwithstanding repeated demands,
plaintiff was obliged to retain the services of counsel. The rule as to
attorney's fees is that the same are not recoverable, in the absence of
stipulation. Several exceptions to this rule are provided (Art. 2208, Civil
Code). Unless shown to fall under an exception, the act of plaintiff in
engaging counsel's services due to refusal of defendants to pay his
demand, does not justify award of attorney's fees (Estate of Buan v.
Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover, had
reason to resist the claim, since there was yet no definite ruling of this
Court on the point of law involved herein in light of the New Civil Code.
Said award should therefore be deleted.

WHEREFORE, with the modification that the award of attorney's fees in

plaintiff's favor is deleted therefrom, and the correction of the clerical
error as to the principal still recoverable, from P19,247.35 to
P19,239.35, the appealed judgment is hereby affirmed. No costs. So
ordered.
 Ceferino Hilario for appellants. 
No appearance for appellees. 

STREET, J.:

This action was instituted in the Court of First Instance of Pampanga by

Santiago Navarro, Sabas Magtoto, and Victorino Calara, as trustees
(mandatarios) of the inhabitants of the barrio of San Vicente, in the
municipality of Macabebe, to compel the defendants, Felix Mallari, as
principal, and Leon Tolentino and Ignacio Tolentino, as sureties, to
comply with the contract for the construction of a chapel to the patron
saint of the barrio, or in the alternative to require the same defendants
to return the sum of P12,000 paid to them, upon said contract,
together with the sum of P4,000 as stipulated damages for failure to
construct the chapel according to the specifications. The defendant
Pedro Mercado appears to have been one of the four trustees or
agents selected for the purposes of procuring the chapel to be built but
as he refused to join with his associates in instituting the present
action, he was impleaded as a defendant. 

In their answer the defendants admitted the execution of the contract

G.R. No. 20586             October 13, 1923 (Exhibit A), relied upon by the plaintiffs, but set forth that Felix Mallari
was a mere figurehead in the contract and that the person to whom
SANTIAGO NAVARRO, ET AL., plaintiffs-appellant,  the building of the chapel was really confided was one Jose Mallari, a
vs. son of Felix Mallari. The defendants claim in short that the chapel was
FELIX MALLARI, ET AL., defendant-appellees. constructed in conformity with the contract and plan, was turned over
to the committee and accepted by it. The defendants accordingly, by
way of counterclaim, ask that the plaintiff be required to pay the
balance due upon the agreed price for the construction of the chapel,
together with certain damages resulting from non-performance of the
contract.  the four trustees on the other, whereby Felix Mallari, in consideration
At the trial of the cause his Honor, Judge Guillermo B. Guevara, after
hearing the evidence, came to the conclusion that the chapel had been
built according to contract and that the defendants were entitled to
recover the sum of P4,000 upon their counterclaim, the same being the
balance due upon the contract price. Judgment was accordingly
entered absolving the defendants from the complaint and requiring the
plaintiffs to pay the sum of P4,000 to Felix Mallari and to pay the costs
of proceedings. From this judgment the plaintiffs appealed.  contract was executed, leaving the sum of P4,000 to be paid when the
It appears in evidence that in the year 1920, certain inhabitants of the
barrio of San Vicente, in the municipality of Macabebe, Pampanga,
raised the sum of P16,000 for the purpose of erecting suitable chapel in
honor of San Vicente Ferrer, the patron saint of the barrio. This fund
was placed in the hands of the four trustees or agents already named,
in order that they might let the contract for the building of the chapel.
While this matter was under consideration, a clerk employed in the
drafting division of the Bureau of Public Works, named Jose Mallari,
came to San Vicente on a visit, and he gave the four trustees above-
mentioned to understand that he was a competent person to do the
work which they had in mind and that he was not averse to assuming
the task.  contractor or builder by profession and knows nothing about
One obstacle to the letting of the contract to Jose was that he was in
the Government service, and it was contrary to Government
regulations to allow employees to do outside work. This obstacle was
overcome by the expedient of having the contract made in the name of
his father, Felix Mallari; and with the consent of Felix, this recourse was
adopted. Accordingly on June 11, 1920, the contract (Exhibit A) was
entered into between Felix Mallari, as contractor, on the one part, and
of the sum of P16,000, paid and to be paid, obligated himself to
construct within the period of one year a chapel to the patron saint of
the barrio, San Vicente Ferrer, according to the plan accompanying the
contract and made a part thereof. It was provided that first-class iron
should be used, for the roof, that the best of cement should also be
used, and that the woods should be of bulaon (molave), dungon, guijo,
and nothing else. Of the price of P16,000 stipulated to be paid for the
building of the chapel, the sum of P12,000 was paid at the time the
work should be finished and accepted to the satisfaction of the
trustees, acting in representation of the inhabitants of the barrio. For
the better assurance of the faithful and exact performance of the
contract, it was agreed that if either party should fail to comply with
any of its conditions or stipulations, such party should pay to the other
by way of indemnity the sum of P4,000. 
Concurrently with the execution of said contract Leon Tolentino and
Ignacio Tolentino, also residents of municipality of Macabebe, obligated
themselves in collateral contract of guaranty (Exhibit C) to respond
solidarily for the faithful and true performance of the contract Exhibit A
on the part of Felix Mallari. Felix Mallari, it may be stated, is not a
constructing houses. His son Jose, although he supposed himself to
have some knowledge of the art, was but little better versed in such
matters than his father; and he appears to have had but little skill even
in the art of drafting. 1awph!l.net
As might have been expected from the lack of technical knowledge on damages. The result is that the damages to which the plaintiffs are
the part of the "contractor," a botch was made of the job. The chapel entitled under the last clause of the contract (Exhibit A) must be set off
was indeed constructed somewhat in the external shape indicated in against the portion of the contract price which has been retained in the
the design, but the work was done with complete want of knowledge hands of the plaintiffs, with the result that neither party can recover
of the art of construction and of the material employed. These words anything of the other. 
we take from the report of a competent engineer, Señor Emilio Maria
de Moreta, of Manila, who made a special examination and careful Judgment will therefore be reversed and both parties absolved from
report upon the condition of the structure. In concluding his report the complaint of the other, without special pronouncement as to costs
(Exhibit E) Señor Moreta says that the plans were drawn by a person of either instance. So ordered.
completely ignorant not only of all knowledge of the resisting power of
materials and of descriptive geometry, as well as of technical
knowledge in general, but that he did not even possess sufficient
instruction in the drawing of plans. Señor Moreta concludes his report
with the observation that the building threatens ruin for want of proper
foundation and that upon the slightest tremor of the earth it might
come down. The photographs in evidence as Exhibit I prepare one for
the conclusion stated in Señor Moreta's report. 

We do not encumber the opinion with the details stated at pages 2-6 of
said report but will merely say that by that report and the testimony
adduced at the trial, the case stated in the complaint is in our opinion
completely demonstrated; and the plaintiffs are without doubt entitled
to recover the stipulated damages for failure of the contracting parties
to construct a chapel in conformity with the fundamental principles of
the art of building and in accordance with the specifications of the
contract. 

But the chapel, such as it is, appears to be in use for the purpose for
which it was intended, and we are of the opinion that the plaintiffs are
not entitled to confiscate the sum of P4,000 which is as yet unpaid
upon the purchase price and at the same time to claim the stipulated
 THE BACHRACH MOTOR CO., INC., plaintiff-appellee, 
vs.
FAUSTINO ESPIRITU, defendant-appellant. 

These two cases, Nos. 28497 and 28948, were tried together. 

It appears, in connection with case 28497; that on July 28, 1925 the
defendant Faustino Espiritu purchased of the plaintiff corporation a
two-ton White truck for P11,983.50, paying P1,000 down to apply on
account of this price, and obligating himself to pay the remaining
P10,983.50 within the periods agreed upon. To secure the payment of
this sum, the defendants mortgaged the said truck purchased and,
besides, three others, two of which are numbered 77197 and 92744
respectively, and all of the White make (Exhibit A). These two trucks
had been purchased from the same plaintiff and were fully paid for by
the defendant and his brother Rosario Espiritu. The defendant failed to
pay P10,477.82 of the price secured by this mortgage. 

In connection with case 28498, it appears that on February 18, 1925 the
defendant bought a one-ton White truck of the plaintiff corporation for
the sum of P7,136.50, and after having deducted the P500 cash
payment and the 12 per cent annual interest on the unpaid principal,
obligated himself to make payment of this sum within the periods
agreed upon. To secure this payment the defendant mortgaged to the
plaintiff corporation the said truck purchased and two others,
numbered 77197 and 92744, respectively, the same that were
mortgaged in the purchase of the other truck referred to in the other
case. The defendant failed to pay P4,208.28 of this sum. 
G.R. No. L-28497             November 6, 1928
In both sales it was agreed that 12 per cent interest would be paid
upon the unpaid portion of the price at the executon of the contracts,
and in case of non-payment of the total debt upon its maturity, 25 per Besides, there were presented two of defendant's letters to Hidalgo, an
cent thereon, as penalty.  employee of the plaintiff's written a few days before the transaction,
acquiescing in the inclusion of all his White trucks already paid for, in
In addition to the mortagage deeds referred to, which the defendant the mortgage (Exhibit H-I). 
executed in favor of the plaintiff, the defendant at the same time also
signed a promissory note solidarily with his brother Rosario Espiritu for Appellants also alleged that on February 4, 1925, the defendant sold his
the several sums secured by the two mortgages (Exhibits B and D).  rights in said trucks Nos. 77197 and 92744 to the intervenor, and that
as the latter did not sign the mortgage deeds, such trucks cannot be
Rosario Espiritu appeared in these two cases as intervenor, alleging to considered as mortgaged. But the evidence shows that while the
be the exclusive owner of the two White trucks Nos. 77197 and 92744, intervenor Rosario Espiritu did not sign the two mortgage deeds
which appear to have been mortgaged by the defendants to the (Exhibits A and C), yet, together with the defendants Faustino Espiritu,
plaintiff. lawphi1.net he signed the two promissory notes (Exhibits B and D) secured by these
two mortgages. All these instruments were executed at the same time,
While these two cases were pending in the lower court the mortgaged and when the trucks 77197 and 92744 were included in the mortgages,
trucks were sold by virtue of the mortgage, all of them together the intervenor Rosario Espiritu was aware of it and consented to such
bringing in, after deducting the sheriff's fees and transportation charges inclusion. These facts are supported by the testimony of Bachrach,
to Manila, the net sum of P3,269.58.  manager of the plaintiff corporation, of Agustin Ramirez, who
witnessed the execution of all these documents, and of Angel Hidalgo,
The judgment appealed from ordered the defendants and the who witnessed the execution of Exhibits B and D. 
intervenor to pay plaintiff in case 28497 the sum of P7,732.09 with
interest at the rate of 12 per cent per annum from May 1, 1926 until We do not find the statement of the intervenor Rosario Espiritu that he
fully paid, and 25 per cent thereof in addition as penalty. In case 28498, did not sign promissory notes Exhibits B and C to be sufficient to
the trial court ordered the defendant and the intervenor to pay plaintiff overthrow this evidence. A comparison of his genuine signature on
the sum of P4,208.28 with interest at 12 per cent per annum from Exhibit AA with those appearing on promissory notes B and C,
December 1, 1925 until fully paid, and 25 per cent thereon as penalty.  convinces us that the latter are his signatures. And such is our
conclusion, notwithstanding the evidence presented to establish that
The appellants contend that trucks 77197 and 92744 were not on the date when Exhibits B appears to have been signed, that is July
mortgaged, because, when the defendant signed the mortgage deeds 25, 1925, the intervenor was in Batac, Ilocos Norte, many miles away
these trucks were not included in those documents, and were only put from Manila. And the fact that on the 24th of said month of July, the
in later, without defendant's knowledge. But there is positive proof that plaintiff sent some truck accessory parts by rail to Ilocos for the
they were included at the time the defendant signed these documents.
intervenor does not necessarily prove that the latter could not have
been in Manila on the 25th of that month. 
In view of his conclusion that the intervenor signed the promissory
notes secured by trucks 77197 and 92744 and consented to the
mortgage of the same, it is immaterial whether he was or was not the
exclusive owner thereof. 
It is finally contended that the 25 per cent penalty upon the debt, in
addition to the interest of 12 per cent per annum, makes the contract
usurious. Such a contention is not well founded. Article 1152 of the Civil
Code permits the agreement upon a penalty apart from the interest.
Should there be such an agreemnet, the penalty, as was held in the
case of Lopez vs. Hernaez (32 Phil., 631), does not include the interest,
and which may be demamded separetely. According to this, the penalty
is not to be added to the interest for the determination of whether the
interest exceeds the rate fixed by the law, since said rate was fixed only
for the interest. But considering that the obligation was partly
performed, and making use of the power given to the court by article
1154 of the Civil Code, this penalty is reduced to 10 per cent of the
unpaid debt.  charges or liabilities due and incurred by said Celia Aurora Syjuco
With the sole modification that instead of 25 per cent upon the sum
owed, the defendants need pay only 10 per cent thereon as penalty,
the judgment appealed from is affired in all other respects without
special pronouncement as to costs. So ordered.  such obligations, charges or liabilities shall not in any manner release
.R. No. 72275 November 13, 1991
PACIFIC BANKING CORPORATION, petitioner, 
vs.
HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA,
JR., respondents.
On October 24, 1975, defendant Celia Syjuco Regala (hereinafter
referred to as Celia Regala for brevity), applied for and obtained from
the plaintiff the issuance and use of Pacificard credit card (Exhs. "A",
"A-l",), under the Terms and Conditions Governing the Issuance and
Use of Pacificard (Exh. "B" and hereinafter referred to as Terms and
Conditions), a copy of which was issued to and received by the said
defendant on the date of the application and expressly agreed that the
use of the Pacificard is governed by said Terms and Conditions. On the
same date, the defendant-appelant Robert Regala, Jr., spouse of
defendant Celia Regala, executed a "Guarantor's Undertaking" (Exh. "A-
1-a") in favor of the appellee Bank, whereby the latter agreed "jointly
and severally of Celia Aurora Syjuco Regala, to pay the Pacific Banking
Corporation upon demand, any and all indebtedness, obligations,
Regala with the use of the Pacificard, or renewals thereof, issued in her
favor by the Pacific Banking Corporation". It was also agreed that "any
changes of or novation in the terms and conditions in connection with
the issuance or use of the Pacificard, or any extension of time to pay
me/us from responsibility hereunder, it being understood that I fully
agree to such charges, novation or extension, and that this
understanding is a continuing one and shall subsist and bind me until
the liabilities of the said Celia Syjuco Regala have been fully satisfied or
paid.
Plaintiff-appellee Pacific Banking Corporation has contracted with
accredited business establishments to honor purchases of goods and/or
services by Pacificard holders and the cost thereof to be advanced by
the plaintiff-appellee for the account of the defendant cardholder, and
the latter undertook to pay any statements of account rendered by the
plaintiff-appellee for the advances thus made within thirty (30) days
from the date of the statement, provided that any overdue account
shall earn interest at the rate of 14% per annum from date of default.
The defendant Celia Regala, as such Pacificard holder, had purchased
goods and/or services on credit (Exh. "C", "C-l" to "C-112") under her
Pacificard, for which the plaintiff advanced the cost amounting to
P92,803.98 at the time of the filing of the complaint.
In view of defendant Celia Regala's failure to settle her account for the
purchases made thru the use of the Pacificard, a written demand (Exh.
"D") was sent to the latter and also to the defendant Roberto Regala,
Jr. (Exh. " ") under his "Guarantor's Undertaking."
A complaint was subsequently filed in Court for defendant's (sic)
repeated failure to settle their obligation. Defendant Celia Regala was
declared in default for her failure to file her answer within the
reglementary period. Defendant-appellant Roberto Regala, Jr., on the
other hand, filed his Answer with Counterclaim admitting his execution
of the "Guarantor's Understanding", "but with the understanding that
his liability would be limited to P2,000.00 per month."
In view of the solidary nature of the liability of the parties, the
presentation of evidence ex-parte as against the defendant Celia Regala
was jointly held with the trial of the case as against defendant Roberto
Regala.
After the presentation of plaintiff's testimonial and documentary
evidence, fire struck the City Hall of Manila, including the court where
the instant case was pending, as well as all its records.
Upon plaintiff-appellee's petition for reconstitution, the records of the
instant case were duly reconstituted. Thereafter, the case was set for
pre-trial conference with respect to the defendant-appellant Roberto
Regala on plaintiff-appellee's motion, after furnishing the latter a copy
of the same. No opposition thereto having been interposed by
defendant-appellant, the trial court set the case for pre-trial
conference. Neither did said defendant-appellant nor his counsel
appear on the date scheduled by the trial court for said conference
despite due notice. Consequently, plaintiff-appellee moved that the
defendant-appellant Roberto Regala he declared as in default and that
it be allowed to present its evidence ex-parte, which motion was
granted. On July 21, 1983, plaintiff-appellee presented its evidence ex-
parte. (pp. 23-26, Rollo)
After trial, the court a quo rendered judgment on December 5, 1983,
the dispositive portion of which reads:
WHEREFORE, the Court renders judgment for the plaintiff and against
the defendants condemning the latter, jointly and severally, to pay said
plaintiff the amount of P92,803.98, with interest thereon at 14% per
annum, compounded annually, from the time of demand on November
17, 1978 until said principal amount is fully paid; plus 15% of the
principal obligation as and for attorney's fees and expense of suit; and
the costs.
The counterclaim of defendant Roberto Regala, Jr. is dismissed for lack
of merit.
SO ORDERED. (pp. 22-23, Rollo)
The defendants appealed from the decision of the court a quo to the
Intermediate Appellate Court.
On August 12, 1985, respondent appellate court rendered judgment
modifying the decision of the trial court. Private respondent Roberto
Regala, Jr. was made liable only to the extent of the monthly credit
limit granted to Celia Regala, i.e., at P2,000.00 a month and only for the
advances made during the one year period of the card's effectivity
counted from October 29, 1975 up to October 29, 1976. The dispositive
portion of the decision states:
WHEREFORE, the judgment of the trial court dated December 5, 1983 is
modified only as to appellant Roberto Regala, Jr., so as to make him
liable only for the purchases made by defendant Celia Aurora Syjuco
Regala with the use of the Pacificard from October 29, 1975 up to
October 29, 1976 up to the amount of P2,000.00 per month only, with
interest from the filing of the complaint up to the payment at the rate
of 14% per annum without pronouncement as to costs. (p. 32, Rollo)
A motion for reconsideration was filed by Pacific Banking Corporation
which the respondent appellate court denied for lack of merit on
September 19, 1985 (p. 33, Rollo).
On November 8, 1985, Pacificard filed this petition. The petitioner
contends that while the appellate court correctly recognized Celia
Regala's obligation to Pacific Banking Corp. for the purchases of goods
and services with the use of a Pacificard credit card in the total amount
of P92,803.98 with 14% interest per annum, it erred in limiting private
respondent Roberto Regala, Jr.'s liability only for purchases made by
Celia Regala with the use of the card from October 29, 1975 up to
October 29, 1976 up to the amount of P2,000.00 per month with 14%
interest from the filing of the complaint.
There is merit in this petition.
The pertinent portion of the "Guarantor's Undertaking" which private
respondent Roberto Regala, Jr. signed in favor of Pacific Banking
Corporation provides:
I/We, the undersigned, hereby agree, jointly and severally with Celia
Syjuco Regala to pay the Pacific Banking Corporation upon demand any
and all indebtedness, obligations, charges or liabilities due and incurred
by said Celia Syjuco Regala with the use of the Pacificard or renewals
thereof issued in his favor by the Pacific Banking Corporation. Any
changes of or Novation in the terms and conditions in connection with
the issuance or use of said Pacificard, or any extension of time to pay
such obligations, charges or liabilities shall not in any manner release
me/us from the responsibility hereunder, it being understood that the
undertaking is a continuing one and shall subsist and bind me/us until
all the liabilities of the said Celia Syjuco Regala have been fully satisfied
or paid. (p. 12, Rollo)
The undertaking signed by Roberto Regala, Jr. although denominated
"Guarantor's Undertaking," was in substance a contract of surety. As
distinguished from a contract of guaranty where the guarantor binds
himself to the creditor to fulfill the obligation of the principal debtor
only in case the latter should fail to do so, in a contract of suretyship,
the surety binds himself solidarily with the principal debtor (Art. 2047,
Civil Code of the Philippines).
We need not look elsewhere to determine the nature and extent of
private respondent Roberto Regala, Jr.'s undertaking. As a surety he
bound himself jointly and severally with the debtor Celia Regala "to pay
the Pacific Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and incurred by said
Celia Syjuco Regala with the use of Pacificard or renewals thereof
issued in (her) favor by Pacific Banking Corporation." This undertaking
was also provided as a condition in the issuance of the Pacificard to
Celia Regala, thus:
5. A Pacificard is issued to a Pacificard-holder against the joint and
several signature of a third party and as such, the Pacificard holder and
the guarantor assume joint and several liabilities for any and all amount
arising out of the use of the Pacificard. (p. 14, Rollo)
The respondent appellate court held that "all the other rights of the
guarantor are not thereby lost by the guarantor becoming liable
solidarily and therefore a surety." It further ruled that although the
surety's liability is like that of a joint and several debtor, it does not
make him the debtor but still the guarantor (or the surety), relying on
the case of Government of the Philippines v. Tizon. G.R. No. L-22108,
August 30, 1967, 20 SCRA 1182. Consequently, Article 2054 of the Civil
Code providing for a limited liability on the part of the guarantor or
debtor still applies.
It is true that under Article 2054 of the Civil Code, "(A) guarantor may
bind himself for less, but not for more than the principal debtor, both
as regards the amount and the onerous nature of the conditions. 2 It is
likewise not disputed by the parties that the credit limit granted to
Celia Regala was P2,000.00 per month and that Celia Regala succeeded
in using the card beyond the original period of its effectivity, October
29, 1979. We do not agree however, that Roberto Jr.'s liability should
be limited to that extent. Private respondent Roberto Regala, Jr., as
surety of his wife, expressly bound himself up to the extent of the
debtor's (Celia) indebtedness likewise expressly waiving any "discharge
in case of any change or novation of the terms and conditions in
connection with the issuance of the Pacificard credit card." Roberto, in
fact, made his commitment as a surety a continuing one, binding upon
himself until all the liabilities of Celia Regala have been fully paid. All
these were clear under the "Guarantor's Undertaking" Roberto signed,
thus:
. . . Any changes of or novation in the terms and conditions in
connection with the issuance or use of said Pacificard, or any extension
of time to pay such obligations, charges or liabilities shall not in any
manner release me/us from the responsibility hereunder, it being
understood that the undertaking is a continuing one and shall subsist
and bind me/us until all the liabilities of the said Celia Syjuco Regala
have been fully satisfied or paid. (p. 12, supra; emphasis supplied)
Private respondent Roberto Regala, Jr. had been made aware by the
terms of the undertaking of future changes in the terms and conditions
governing the issuance of the credit card to his wife and that,
notwithstanding, he voluntarily agreed to be bound as a surety. As in
guaranty, a surety may secure additional and future debts of the
principal debtor the amount of which is not yet known (see Article
2053, supra).
The application by respondent court of the ruling in Government v.
Tizon, supra is misplaced. It was held in that case that:
. . . although the defendants bound themselves in solidum, the liability
of the Surety under its bond would arise only if its co-defendants, the
principal obligor, should fail to comply with the contract. To paraphrase
the ruling in the case of Municipality of Orion vs. Concha, the liability of
the Surety is "consequent upon the liability" of Tizon, or "so dependent
on that of the principal debtor" that the Surety "is considered in law as
being the same party as the debtor in relation to whatever is adjudged,
touching the obligation of the latter"; or the liabilities of the two
defendants herein "are so interwoven and dependent as to be
inseparable." Changing the expression, if the defendants are held liable,
their liability to pay the plaintiff would be solidary, but the nature of
the Surety's undertaking is such that it does not incur liability unless
and until the principal debtor is held liable.
A guarantor or surety does not incur liability unless the principal debtor
is held liable. It is in this sense that a surety, although solidarily liable
with the principal debtor, is different from the debtor. It does not
mean, however, that the surety cannot be held liable to the same
extent as the principal debtor. The nature and extent of the liabilities of
a guarantor or a surety is determined by the clauses in the contract of
suretyship(see PCIB v. CA, L-34959, March 18, 1988, 159 SCRA 24).
ACCORDINGLY, the petition is GRANTED. The questioned decision of
respondent appellate court is SET ASIDE and the decision of the trial
court is REINSTATED.
SO ORDERED.
[G.R. No. 101723. May 11, 2000]
INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP.
(INIMACO), petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT,
SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, GINO
NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, and
ROBERTO ALEGARBES, respondents.
In September 1984, private respondent Enrique Sulit, Socorro Mahinay,
Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto
Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the
Department of Labor and Employment, Regional Arbitration Branch No.
VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo
Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner
Industrial Management Development Corporation (INIMACO), for
payment of separation pay and unpaid wages. Sc-jj
In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B.
Tumamak held that:
"RESPONSIVE, to all the foregoing, judgment is hereby entered,
ordering respondents Filipinas Carbon and Mining Corp. Gerardo Sicat,
Antonio Gonzales/Industrial Management Development Corp.
(INIMACO), Chiu Chin Gin and Lo Kuan Chin, to pay complainants
Enrique Sulit, the total award of P82,800.00; ESMERALDO PEGARIDO
the full award of P19,565.00; Roberto Nemenzo the total sum of
P29,623.60 and DARIO GO the total award of P6,599.71, or the total
aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE
HUNDRED EIGHTY-EIGHT PESOS AND 31/100 (P138,588.31) to be
deposited with this Commission within ten (10) days from receipt of
this Decision for appropriate disposition. All other claims are hereby
Dismiss (sic) for lack of merit. Jjs-c
"SO ORDERED.
"Cebu City, Philippines.
"10 March 1987."0[1]
No appeal was filed within the reglementary period thus, the above
Decision became final and executory. On June 16, 1987, the Labor
Arbiter issued a writ of execution but it was returned unsatisfied. On
August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution
which ordered thus: Ed-pm-is
"NOW THEREFORE, by virtue of the powers vested in me by law, you
are hereby commanded to proceed to the premises of respondents
Antonio Gonzales/Industrial Management Development Corporation
(INIMACO) situated at Barangay Lahug, Cebu City, in front of La
Curacha Restaurant, and/or to Filipinas Carbon and Mining corporation
and Gerardo Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas,
Legaspi Village, Makati Metro Manila and at Philippine National Bank,
Escolta, Manila respectively, and collect the aggregate award of ONE
HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT
PESOS AND THIRTY ONE CENTAVOS (P138,588.31) and thereafter turn
over said amount to complainants ENRIQUE SULIT, ESMERALDO
PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to this Office for
appropriate disposition. Should you fail to collect the said sum in cash,
you are hereby authorized to cause the satisfaction of the same on the
movable or immovable property(s) of respondents not exempt from
execution. You are to return this writ sixty (6) (sic) days from your
receipt hereof, together with your corresponding report.
"You may collect your legal expenses from the respondents as provided
for by law.
"SO ORDERED."[2]
On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of
Execution and Set Aside Decision,"[3] alleging among others that the
alias writ of execution altered and changed the tenor of the decision by
changing the liability of therein respondents from joint to solidary, by
the insertion of the words "AND/OR" between "Antonio
Gonzales/Industrial Management Development Corporation and
Filipinas Carbon and Mining Corporation, et al." However, in an order
dated September 14, 1987, the Labor Arbiter denied the motion. Mis-
oedp
On October 2, 1987, petitioner appealed[4] the Labor Arbiters Order
dated September 14, 1987 to the respondent NLRC. Mis-edp
The respondent NLRC dismissed the appeal in a Decision[5] dated
August 31, 1988, the pertinent portions of which read:
"In matters affecting labor rights and labor justice, we have always
adopted the liberal approach which favors the exercise of labor rights
and which is beneficial to labor as a means to give full meaning and
import to the constitutional mandate to afford protection to labor.
Considering the factual circumstances in this case, there is no doubt in
our mind that the respondents herein are called upon to pay, jointly
and severally, the claims of the complainants as was the latters prayers.
Inasmuch as respondents herein never controverted the claims of the
complainants below, there is no reason why complainants prayer
should not be granted. Further, in line with the powers granted to the
Commission under Article 218 (c) of the Labor code, to waive any error,
defect or irregularity whether in substance or in form in a proceeding
before Us, We hold that the Writ of Execution be given due course in
all respects."Ed-p
On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To
Accept Payment Of P23,198.05 Representing One Sixth Pro Rata Share
of Respondent INIMACO As Full and Final Satisfaction of Judgment As
to Said Respondent."[6] The private respondents opposed the motion. In
an Order[7] dated August 15, 1989, the Labor Arbiter denied the motion
ruling thus:
"WHEREFORE, responsive to the foregoing respondent INIMACOs
Motions are hereby DENIED. The Sheriff of this Office is order (sic) to
accept INIMACOs tender payment (sic) of the sum of P23,198.05, as
partial satisfaction of the judgment and to proceed with the
enforcement of the Alias Writ of Execution of the levied properties,
now issued by this Office, for the full and final satisfaction of the
monetary award granted in the instant case.
"SO ORDERED." Ed-psc
Petitioner appealed the above Order of the Labor Arbiter but this was
again dismissed by the respondent NLRC in its Resolution[8] dated
September 4, 1991 which held that:
"The arguments of respondent on the finality of the dispositive portion
of the decision in this case is beside the point. What is important is that
the Commission has ruled that the Writ of Execution issued by the
Labor Arbiter in this case is proper. It is not really correct to say that
said Writ of Execution varied the terms of the judgment. At most,
considering the nature of labor proceedings there was, an ambiguity in
said dispositive portion which was subsequently clarified by the Labor
Arbiter and the Commission in the incidents which were initiated by
INIMACO itself. By sheer technicality and unfounded assertions,
INIMACO would now reopen the issue which was already resolved
against it. It is not in keeping with the established rules of practice and
procedure to allow this attempt of INIMACO to delay the final
disposition of this case.
"WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and
the Order appealed from is hereby AFFIRMED. Sce-dp
"With double costs against appellant."
Dissatisfied with the foregoing, petitioner filed the instant case, alleging
that the respondent NLRC committed grave abuse of discretion in
affirming the Order of the Labor Arbiter dated August 15, 1989, which
declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioners liability pursuant to
the Decision of the Labor Arbiter dated March 10, 1987, is solidary or
not. Calrs-pped
Upon careful examination of the pleadings filed by the parties, the
Court finds that petitioner INIMACOs liability is not solidary but merely
joint and that the respondent NLRC acted with grave abuse of
discretion in upholding the Labor Arbiters Alias Writ of Execution and
subsequent Orders to the effect that petitioners liability is solidary.
A solidary or joint and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand
the whole obligation.[9] In a joint obligation each obligor answers only
for a part of the whole liability and to each obligee belongs only a part
of the correlative rights.[10]
Well-entrenched is the rule that solidary obligation cannot lightly be
inferred.[11] There is a solidary liability only when the obligation
expressly so states, when the law so provides or when the nature of
the obligation so requires.[12]
In the dispositive portion of the Labor Arbiter, the word "solidary" does
not appear. The said fallo expressly states the following respondents
therein as liable, namely: Filipinas Carbon and Mining Corporation,
Gerardo Sicat, Antonio Gonzales, Industrial Management Development
Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin.
Nor can it be inferred therefrom that the liability of the six (6)
respondents in the case below is solidary, thus their liability should
merely be joint.
Moreover, it is already a well-settled doctrine in this jurisdiction that,
when it is not provided in a judgment that the defendants are liable to
pay jointly and severally a certain sum of money, none of them may be
compelled to satisfy in full said judgment. In Oriental Commercial Co.
vs. Abeto and Mabanag[13] this Court held:
"It is of no consequence that, under the contract of suretyship
executed by the parties, the obligation contracted by the sureties was
joint and several in character. The final judgment, which superseded
the action for the enforcement of said contract, declared the obligation
to be merely joint, and the same cannot be executed otherwise."[14]
Granting that the Labor Arbiter has committed a mistake in failing to
indicate in the dispositive portion that the liability of respondents
therein is solidary, the correction -- which is substantial -- can no longer
be allowed in this case because the judgment has already become final
and executory. Scc-alr
It is an elementary principle of procedure that the resolution of the
court in a given issue as embodied in the dispositive part of a decision
or order is the controlling factor as to settlement of rights of the
parties.[15] Once a decision or order becomes final and executory, it is
removed from the power or jurisdiction of the court which rendered it
to further alter or amend it.[16] It thereby becomes immutable and
unalterable and any amendment or alteration which substantially
affects a final and executory judgment is null and void for lack of
jurisdiction, including the entire proceedings held for that purpose.
[17]
 An order of execution which varies the tenor of the judgment or
exceeds the terms thereof is a nullity.[18]
None of the parties in the case before the Labor Arbiter appealed the
Decision dated March 10, 1987, hence the same became final and
executory. It was, therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus, the proceedings
held for the purpose of amending or altering the dispositive portion of
the said decision are null and void for lack of jurisdiction. Also, the Alias
Writ of Execution is null and void because it varied the tenor of the
judgment in that it sought to enforce the final judgment against
"Antonio Gonzales/Industrial Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp. and Gerardo
Sicat," which makes the liability solidary. Ca-lrsc

WHEREFORE, the petition is hereby GRANTED. The Resolution dated

[G.R. No. 144134. November 11, 2003]
September 4, 1991 of the respondent National Labor Relations is
hereby declared NULL and VOID. The liability of the respondents in
RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiter dated
March 10, 1987 should be, as it is hereby, considered joint and MARIVELES SHIPYARD CORP., petitioner,
petitioners payment which has been accepted considered as full vs. HON. COURT OF APPEALS,
satisfaction of its liability, without prejudice to the enforcement of the LUIS REGONDOLA, MANUELIT
award, against the other five (5) respondents in the said case. Sppedsc GATALAN, ORESCA AGAPITO, NOEL
ALBADBAD, ROGELIO PINTUAN, DANILO
SO ORDERED. CRISOSTOMO, ROMULO MACALINAO,
NESTOR FERER, RICKY CUESTA, ROLLY
ANDRADA, LARRY ROGOLA, FRANCISCO
LENOGON, AUGUSTO QUINTO, ARFE
BERAMO, BONIFACIO TRINIDAD,
ALFREDO ASCARRAGA, ERNESTO
MAGNO, HONORARIO HORTECIO,
NELBERT PINEDA, GLEN ESTIPULAR,
FRANCISCO COMPUESTO, ISABELITO
CORTEZ, MATURAN ROSAURO, SAMSON
CANAS, FEBIEN ISIP, JESUS RIPARIP,
ALFREDO SIENES, ADOLAR ALBERT,
HONESTO CABANILLAS, AMPING
CASTILLO and ELWIN
REVILLA, respondents.

DECISION
QUISUMBING, J.:
For review on certiorari is the Resolution,  dated
[1]
December 29, 1999, of the Court of Appeals in CA-
G.R. SP No. 55416, which dismissed outright the
petition for certiorari of Mariveles Shipyard Corp., due
to a defective certificate of non-forum shopping and
non-submission of the required documents to
accompany said petition. Mariveles Shipyard Corp.,
had filed a special civil action for certiorari with the
Court of Appeals to nullify the resolution  of the
[2]
National Labor Relations Commission (NLRC), dated
April 22, 1999, in NLRC NCR Case No. 00-09-
005440-96-A, which affirmed the Labor Arbiters
decision,  dated May 22, 1998, holding petitioner
[3]
jointly and severally liable with Longest Force
Investigation and Security Agency, Inc., for the
underpayment of wages and overtime pay due to the
private respondents. Likewise challenged in the
instant petition is the resolution  of the Court of
[4]
Appeals, dated July 12, 2000, denying petitioners
motion for reconsideration.
The facts, as culled from records, are as follows:
Sometime on October 1993, petitioner Mariveles
Shipyard Corporation engaged the services of
Longest Force Investigation and Security Agency, Inc.
(hereinafter, Longest Force) to render security
services at its premises. Pursuant to their agreement,
Longest Force deployed its security guards, the
private respondents herein, at the petitioners shipyard
in Mariveles, Bataan.
According to petitioner, it religiously complied with
the terms of the security contract with Longest Force,
promptly paying its bills and the contract rates of the
latter. However, it found the services being rendered
by the assigned guards unsatisfactory and
inadequate, causing it to terminate its contract with
Longest Force on April 1995.  Longest Force, in turn,
[5]
terminated the employment of the security guards it
had deployed at petitioners shipyard.
On September 2, 1996, private respondents filed
a case for illegal dismissal, underpayment of wages
pursuant to the PNPSOSIA-PADPAO rates, non-
payment of overtime pay, premium pay for holiday
and rest day, service incentive leave pay, 13th month
pay and attorneys fees, against both Longest Force
and petitioner, before the Labor Arbiter. Docketed as
NLRC NCR Case No. 00-09-005440-96-A, the case
sought the guards reinstatement with full backwages
and without loss of seniority rights.
For its part, Longest Force filed a cross-
claim  against the petitioner. Longest Force admitted
[6]
that it employed private respondents and assigned
them as security guards at the premises of petitioner
from October 16, 1993 to April 30, 1995, rendering a
12 hours duty per shift for the said period. It likewise
admitted its liability as to the non-payment of the
alleged wage differential in the total amount amount of P2,700,623.40 based on the PADPAO rates of pay
of P2,618,025 but passed on the liability to petitioner covering the period from October 16, 1993 up to April 29, 1995
alleging that the service fee paid by the latter to it was broken down as follows: 
way below the PNPSOSIA and PADPAO rate, thus,
UNDERPAYMENT OF WAGES:
contrary to the mandatory and prohibitive laws
because the right to proper compensation and PERIOD MONTHLY
benefits provided under the existing labor laws cannot COVERED PADPAO ACTUAL UNDERPAYMENT
RATES SALARY FOR THE Wage
be waived nor compromised. (8 hrs. duty) RECEIVED PERIOD DIFFERENTIALS

The petitioner denied any liability on account of Oct. 16-Dec. P5,485.00 P5,000 P 485.00 P970.00

15/93 (2 mos.)
the alleged illegal dismissal, stressing that no
Dec. 16/93-Mar. 6,630.00 5,000 1,630.00 5,705.00
employer-employee relationship existed between it 31/94 (3.5 mos.)
and the security guards. It further pointed out that it Apr. 1-Dec. 7,090.00 5,810 1,280.00 11,520.00
would be the height of injustice to make it liable again 31/94 (9 mos.)
for monetary claims which it had already paid. Anent Jan. 1-Apr. 7,220.00 5,810 1,410.00 5,597.70
the cross-claim filed by Longest Force against it, 29/95 (3.97 mos.)

petitioner prayed that it be dismissed for lack of merit. TOTAL UNDERPAYMENTS - - - - - - - - - - - - - - -

- P23,792.70
Petitioner averred that Longest Force had benefited
from the contract, it was now estopped from OVERTIME:
questioning said agreement on the ground that it had
made a bad deal. Oct. 16-Dec. 15/93 P5,485 x 2 = P 5,485.00
(2 mos.) 2
On May 22, 1998, the Labor Arbiter decided
NLRC NCR Case No. 00-09-005440-96-A, to wit: Dec. 16/93-Mar. 6,630 x 3.5 = 11,602.50
31/94 (3.5 mos.) 2
WHEREFORE, conformably with the foregoing, judgment is
hereby rendered ordering the respondents as follows: Apr. 1-Dec. 7,090 x 9 = 31,905.00
31/94 (9 mos.) 2
1. DECLARING respondents Longest Force Investigation &
Security Agency, Inc. and Mariveles Shipyard Corporation jointly Jan. 1-Apr. 7,220 x 3.97 = 14,331.70
and severally liable to pay the money claims of complainants 29/95 (3.97 mos.) 2
representing underpayment of wages and overtime pay in the total
 TOTAL OVERTIME- - - - - - - - - P63,324.20
Sub-Total of Underpayments and Overtime P87,116.90
1. Luis Regondula (the same) P 87,116.90
2. Manolito Catalan (the same) 87,116.90
3. Oresca Agapito (the same) 87,116.90
4. Noel Alibadbad (the same) 87,116.90
5. Rogelio Pintuan (the same) 87,116.90
6. Danilo Crisostomo (the same) 87,116.90
7. Romulo Macalinao (the same) 87,116.90
8. Nestor Ferrer (the same) 87,116.90
9. Ricky Cuesta (the same) 87,116.90
10. Andrada Ricky (the same) 87,116.90
11. Larry Rogola (the same) 87,116.90
12. Francisco Lenogon (the same) 87,116.90
13. Augosto Quinto (the same) 87,116.90
14. Arfe Beramo (the same) 87,116.90
15. Bonifacio Trinidad (the same) 87,116.90
16. Alfredo Azcarraga (the same) 87,116.90
17. Ernesto Magno (the same) 87,116.90
18. Honario Hortecio (the same) 87,116.90
19. Nelbert Pineda (the same) 87,116.90
20. Glen Estipular (the same) 87,116.90
21. Francisco Compuesto (the same) 87,116.90
22. Isabelito Cortes (the same) 87,116.90
23. Maturan Rosauro (the same) 87,116.90
24. Samson Canas (the same) 87,116.90
25. Febien Isip (the same) 87,116.90
26. Jesus Riparip (the same) 87,116.90
27. Alfredo Sienes (the same) 87,116.90
28. Adolar Albert (the same) 87,116.90
29. Cabanillas Honesto (the same) 87,116.90
30. Castillo Amping (the same) 87,116.90
31. Revilla Elwin (the same) 87,116.90
GRAND TOTAL P 2,700,623.90
2. DECLARING both respondents liable to pay complainants
attorneys fees equivalent to ten (10%) percent of the total award
recovered or the sum of P270,062.34.
3. ORDERING respondent Longest Force Investigation & Security
Agency, Inc. to reinstate all the herein complainants to their former
or equivalent positions without loss of seniority rights and
privileges with full backwages which as computed as of the date of
this decision are as follows: 
Backwages:
10/16  12/15/93 =2 mos.
P 5,485.00 x 2 mos. = P 10,970.00
12/16/93 3/31/94=3.5 mos.
P 6,630.00 x 3.5 mos. = 23,205.00
4/1 12/31/94 = 9 mos.
P 7,090.00 x 9 mos. = 63,810.00
1/1 4/29/95 = 3.97 mos.
P 7,220.00 x 3.97 mos. = 28,663.40
TOTAL P 126,684.40 [7]
1. Luis Regondula (same) P 126,684.40 [8]
2. Manolito Catalan (same) 126,684.40
 3. Oresca Agapito (same) 126,684.40
4. Noel Alibadbad (same) 126,684.40
5. Rogelio Pintuan (same) 126,684.40
6. Danilo Crisostomo (same) 126,684.40
7. Romulo Macalinao (same) 126,684.40
8. Nestor Ferrer (same) 126,684.40
9. Ricky Cuesta (same) 126,684.40
10. Andrada Rolly (same) 126,684.40
11. Larry Rogola (same) 126,684.40
12. Francisco Lenogon (same) 126,684.40
13. Augosto Quinto (same) 126,684.40
14. Arfe Beramo (same) 126,684.40
15. Bonifacio Trinidad (same) 126,684.40
16. Alfredo Azcarraga (same) 126,684.40
17. Ernesto Magno (same) 126,684.40
18. Honario Hortecio (same) 126,684.40
19. Nelbert Pineda (same) 126,684.40
20. Glen Estipular (same) 126,684.40
21. Francisco Compuesto (same) 126,684.40
22. Isabelito Cortes (same) 126,684.40
23. Maturan Rosauro (same) 126,684.40
24. Samson Canas (same) 126,684.40
25. Febien Isip (same) 126,684.40
26. Jesus Riparip (same) 126,684.40
27. Alfredo Sienes (same) 126,684.40
28. Adolar Albert (same) 126,684.40
29. Cabanillas Honesto (same) 126,684.40
30. Castillo Amping (same) 126,684.40
31. Revilla Elwin (same) 126,684.40
GRAND TOTAL P3,927,216.40 [9]
4. ORDERING said Longest Force Investigation & Security
Agency, Inc. to pay attorneys fees equivalent to ten (10%) percent
of the total award recovered representing backwages in the amount
of P392,721.64.[10]
5. DISMISSING all other claims for lack of legal basis.
SO ORDERED. [11]
Petitioner appealed the foregoing to the NLRC in
NLRC NCR Case No. 00-09-005440-96-A. The labor
tribunal, however, affirmed in toto the decision of the
Labor Arbiter. Petitioner moved for reconsideration,
but this was denied by the NLRC.
The petitioner then filed a special civil action
for certiorari assailing the NLRC judgment for having
been rendered with grave abuse of discretion with the
Court of Appeals, docketed as CA-G.R. SP No.
55416. The Court of Appeals, however, denied due
course to the petition and dismissed it outright for the
following reasons:
1. The verification and certification on non-forum
shopping is signed not by duly authorized officer of
petitioner corporation, but by counsel (Section 1, Rule
65, 1997 Rules of Civil Procedure).
2. The petition is unaccompanied by copies of relevant
and pertinent documents, particularly the motion for
reconsideration filed before the NLRC (Section 1, Rule
65, 1997 Rules of Civil Procedure).[12]
The petitioner then moved for reconsideration of
the order of dismissal. The appellate court denied the
motion, pointing out that under prevailing case law
subsequent compliance with formal requirements for
filing a petition as prescribed by the Rules, does
not ipso facto warrant a reconsideration. In any event,
it found no grave abuse of discretion on the part of the
NLRC to grant the writ of certiorari.  by the NLRC? and (3) Did the appellate court
Hence, this present petition before us. Petitioner
submits that THE COURT OF APPEALS GRAVELY
ERRED:
1. .IN DISMISSING THE PETITION AND DENYING THE
MOTION FOR RECONSIDERATION DESPITE THE
FACT THAT PETITIONER SUBSTANTIALLY
COMPLIED WITH THE REQUIREMENTS OF
SECTION 1, RULE 65, 1997 RULES OF CIVIL
PROCEDURE.
2. .IN RULING THAT PETITIONER WAS NOT DENIED
DUE PROCESS OF LAW.
3. .IN AFFIRMING THE DECISION OF THE NATIONAL
LABOR RELATIONS COMMISSION THAT LONGEST
FORCE AND PETITIONER ARE JOINTLY AND
SEVERALLY LIABLE FOR PAYMENT OF WAGES
AND OVERTIME PAY DESPITE THE CLEAR
SHOWING THAT PETITIONER HAVE ALREADY
PAID THE SECURITY SERVICES THAT WAS
RENDERED BY PRIVATE RESPONDENTS.
4. WHEN IT FAILED TO RULE THAT ONLY LONGEST
FORCE SHOULD BE SOLELY AND ULTIMATELY
LIABLE IN THE INSTANT CASE.[13]
We find the issues for our resolution to be: (1)
Was it error for the Court of Appeals to sustain its
order of dismissal of petitioners special civil action
for certiorari, notwithstanding subsequent compliance
with the requirements under the Rules of Court by the
petitioner? (2) Did the appellate court err in not
holding that petitioner was denied due process of law
grievously err in finding petitioner jointly and severally
liable with Longest Force for the payment of wage
differentials and overtime pay owing to the private
respondents?
On the first issue, the Court of Appeals in
dismissing CA-G.R. SP No. 55416 observed that: (1)
the verification and certification of non-forum
shopping was not signed by any duly authorized
officer of petitioner but merely by petitioners counsel;
and (2) the petition was not accompanied by a copy of
motion for reconsideration filed before the NLRC, thus
violating Section 1,  Rule 65 of the Rules of Court.
[14]
Hence, a dismissal was proper under Section 3,
 Rule 46 of the Rules.
[15]
In assailing the appellate courts ruling, the
petitioner appeals to our sense of compassion and
kind consideration. It submits that the certification
signed by its counsel and attached to its petition filed
with the Court of Appeals is substantial compliance
with the requirement. Moreover, petitioner calls our
attention to the fact that when it filed its motion for
reconsideration before the Court of Appeals, a joint
verification and certification of non-forum shopping
duly signed by its Personnel Manager  and a copy of
[16]
the Motion for Reconsideration  filed before the
[17]
NLRC were attached therein. Thus, petitioner prays
that we take a liberal stance to promote the ends of
justice.
Petitioners plea for liberality, however, cannot be
granted by the Court for reasons herein elucidated.
It is settled that the requirement in the Rules that
the certification of non-forum shopping should be
executed and signed by the plaintiff or the principal
means that counsel cannot sign said certification
unless clothed with special authority to do so.  The
[18]
reason for this is that the plaintiff or principal knows
better than anyone else whether a petition has
previously been filed involving the same case or
substantially the same issues. Hence, a certification
signed by counsel alone is defective and constitutes a
valid cause for dismissal of the petition.  In the case
[19]
of natural persons, the Rule requires the parties
themselves to sign the certificate of non-forum
shopping. However, in the case of the corporations,
the physical act of signing may be performed, on
behalf of the corporate entity, only by specifically
authorized individuals for the simple reason that
corporations, as artificial persons, cannot personally
do the task themselves.  In this case, not only was
[20]
the originally appended certification signed by
counsel, but in its motion for reconsideration, still
petitioner utterly failed to show that Ms. Rosanna
Ignacio, its Personnel Manager who signed the
verification and certification of non-forum shopping
attached thereto, was duly authorized for this
purpose. It cannot be gainsaid that obedience to the
requirements of procedural rule is needed if we are to
expect fair results therefrom. Utter disregard of the
rules cannot justly be rationalized by harking on the
policy of liberal construction. [21]
Thus, on this point, no error could be validly
attributed to respondent Court of Appeals. It did not
err in dismissing the petition for non-compliance with
the requirements governing the certification of non-
forum shopping.
Anent the second issue, petitioner avers that there
was denial of due process of law when the Labor
Arbiter failed to have the case tried on the
merits. Petitioner adds that the Arbiter did not observe
the mandatory language of the then Sec. 5(b) Rule V
(now Section 11, per amendment in Resolution No.
01-02, Series of 2002) of the NLRC New Rules of
Procedure which provided that:
If the Labor Arbiter finds no necessity of further hearing after the
parties have submitted their position papers and supporting
documents, he shall issue an Order to that effect and shall inform
the parties, stating the reasons therefor. [22]
Petitioners contention, in our view, lacks sufficient
basis. Well settled is the rule that the essence of due
process is simply an opportunity to be heard, or, as
applied to administrative proceedings, an opportunity
to explain ones side or an opportunity to seek a
reconsideration of the action or ruling complained of.
 Not all cases require a trial-type hearing. The
[23]
requirement of due process in labor cases before a
Labor Arbiter is satisfied when the parties are given
the opportunity to submit their position papers to
which they are supposed to attach all the supporting
documents or documentary evidence that would
prove their respective claims, in the event the Labor
Arbiter determines that no formal hearing would be
conducted or that such hearing was not necessary.
 In any event, as found by the NLRC, petitioner was
[24]
given ample opportunity to present its side in several
hearings conducted before the Labor Arbiter and in
the position papers and other supporting documents
that it had submitted. We find that such opportunity
more than satisfies the requirement of due process in
labor cases.
On the third issue, petitioner argues that it should
not be held jointly and severally liable with Longest
Force for underpayment of wages and overtime pay
because it had been religiously and promptly paying
the bills for the security services sent by Longest
Force and that these are in accordance with the
statutory minimum wage. Also, petitioner contends
that it should not be held liable for overtime pay as
private respondents failed to present proof that
overtime work was actually performed. Lastly,
petitioner claims that the Court of Appeals failed to
render a decision that finally disposed of the case
because it did not specifically rule on the immediate
recourse of private respondents, that is, the matter of
reimbursement between petitioner and Longest Force
in accordance with Eagle Security Agency Inc. v.
NLRC,  and Philippine
[25]
Fisheries Development
Authority v. NLRC. [26]
Petitioners liability is joint and several with that of
Longest Force, pursuant to Articles 106, 107 and 109
of the Labor Code which provide as follows:
ART. 106. CONTRACTOR OR SUBCONTRACTOR Whenever
an employer enters into a contract with another person for the
performance of the formers work, the employees of the contractor
and of the latters subcontractor, if any, shall be paid in accordance
with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the
wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that
he is liable to employees directly employed by him.
xxx
ART. 107. INDIRECT EMPLOYER. The provisions of the
immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an
employer, contracts with an independent contractor for the
performance of any work, task, job or project.
ART. 109. SOLIDARY LIABILITY. The provisions of existing
laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or
subcontractor for any violation of any provision of this Code. For
purposes of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers.
In this case, when petitioner contracted for
security services with Longest Force as the security
agency that hired private respondents to work as
guards for the shipyard corporation, petitioner
became an indirect employer of private respondents
pursuant to Article 107 abovecited. Following Article
106, when the agency as contractor failed to pay the
guards, the corporation as principal becomes jointly
and severally liable for the guards wages. This is
mandated by the Labor Code to ensure compliance
with its provisions, including payment of statutory
minimum wage. The security agency is held liable by
virtue of its status as direct employer, while the
corporation is deemed the indirect employer of the
guards for the purpose of paying their wages in the
event of failure of the agency to pay them. This
statutory scheme gives the workers the ample
protection consonant with labor and social justice
provisions of the 1987 Constitution. [27]
Petitioner cannot evade its liability by claiming that
it had religiously paid the compensation of guards as
stipulated under the contract with the security
agency. Labor standards are enacted by the
legislature to alleviate the plight of workers whose
wages barely meet the spiraling costs of their basic
needs. Labor laws are considered written in every
contract. Stipulations in violation thereof are
considered null. Similarly, legislated wage increases
are deemed amendments to the contract. Thus,
employers cannot hide behind their contracts in order
to evade their (or their contractors or subcontractors)
liability for noncompliance with the statutory minimum
wage. [28]
However, we must emphasize that the solidary
liability of petitioner with that of Longest Force does
not preclude the application of the Civil Code
provision on the right of reimbursement from his co-
debtor by the one who paid.  As held in Del Rosario
[29]
& Sons Logging Enterprises, Inc. v. NLRC,  the joint
[30]
and several liability imposed on petitioner is without
prejudice to a claim for reimbursement by petitioner
against the security agency for such amounts as
petitioner may have to pay to complainants, the
private respondents herein. The security agency may
not seek exculpation by claiming that the principals
payments to it were inadequate for the guards lawful
compensation. As an employer, the security agency is
charged with knowledge of labor laws; and the
adequacy of the compensation that it demands for of reimbursement from Longest Force Investigation
contractual services is its principal concern and not and Security Agency, Inc. The amounts payable to
any others. [31]
complaining security guards, herein private
respondents, by way of total backwages and
On the issue of the propriety of the award of
attorneys fees are hereby set at P3,926,100.40
overtime pay despite the alleged lack of proof thereof,
and P392,610.04, respectively. Costs against
suffice it to state that such involves a determination
petitioner.
and evaluation of facts which cannot be done in a
petition for review. Well established is the rule that in SO ORDERED.
an appeal via certiorari, only questions of law may be
reviewed. [32]

One final point. Upon review of the award of G.R. No. 147791             September 8, 2006
backwages and attorneys fees, we discovered certain
errors that happened in the addition of the amount of CONSTRUCTION DEVELOPMENT CORPORATION OF THE
individual backwages that resulted in the erroneous PHILIPPINES, petitioner, 
total amount of backwages and attorneys fees. These vs.
errors ought to be properly rectified now. Thus, the REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX
correct sum of individual backwages should SURETY & INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO.,
be P126,648.40 instead of P126,684.40, while the and WILFREDO DATINGUINOO, respondents.
correct sum of total backwages awarded and
attorneys fees should DECISION
be P3,926,100.40 and P392,610.04, instead
of P3,927,216.40 and P392,721.64, respectively. YNARES-SANTIAGO, J.:

WHEREFORE, the Resolution of the Court of

This petition for review assails the March 29, 2001 Decision1 of the
Appeals in CA-G.R. SP No. 55416 is
Court of Appeals in CA-G.R. CV No. 46896, which affirmed with
AFFIRMED with MODIFICATION. Petitioner and modification the February 9, 1993 Decision2 of the Regional Trial Court
Longest Force are held liable jointly and severally for of Manila, Branch 13, in Civil Case No. R-82-2137, finding Batangas
underpayment of wages and overtime pay of the Laguna Tayabas Bus Co. (BLTB) and Construction Development
security guards, without prejudice to petitioners right Corporation of the Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G. Estrella and her
granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB
bus bound for Pasay City. However, they never reached their
destination because their bus was rammed from behind by a tractor-
truck of CDCP in the South Expressway. The strong impact pushed
forward their seats and pinned their knees to the seats in front of
them. They regained consciousness only when rescuers created a hole
in the bus and extricated their legs from under the seats. They were
brought to the Makati Medical Center where the doctors diagnosed
their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Payunan, Jr. and Datinguinoo, who were the drivers of CDCP and BLTB
buses, respectively, were negligent and did not obey traffic laws; (2)
that BLTB and CDCP did not exercise the diligence of a good father of a
family in the selection and supervision of their employees; (3) that
BLTB allowed its bus to operate knowing that it lacked proper
maintenance thus exposing its passengers to grave danger; (4) that
they suffered actual damages amounting to P250,000.00 for Estrella
and P300,000.00 for Fletcher; (5) that they suffered physical
discomfort, serious anxiety, fright and mental anguish, besmirched
reputation and wounded feelings, moral shock, and lifelong social
humiliation; (6) that defendants failed to act with justice, give
respondents their due, observe honesty and good faith which entitles
them to claim for exemplary damage; and (7) that they are entitled to a
reasonable amount of attorney's fees and litigation expenses.

Fracture, left tibia mid 3rd CDCP filed its Answer6 which was later amended to include a third-
Lacerated wound, chin party complaint against Philippine Phoenix Surety and Insurance, Inc.
Contusions with abrasions, left lower leg (Phoenix).7
Fracture, 6th and 7th ribs, right3
On February 9, 1993, the trial court rendered a decision finding CDCP
Medical Certificate of Rachel Fletcher and BLTB and their employees liable for damages, the dispositive
portion of which, states:
Extensive lacerated wounds, right leg posterior aspect popliteal area
and antero-lateral aspect mid lower leg with severance of muscles. WHEREFORE, judgment is rendered:
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg. In the Complaint –
4
Fracture, open comminuted, both tibial
1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo
5
Thereafter, respondents filed a Complaint  for damages against CDCP, Datinguinoo, Construction and Development Corporation of the
BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said
Regional Trial Court of Manila, Branch 13. They alleged (1) that defendants, jointly and severally to pay the plaintiffs the sum of
P79,254.43 as actual damages and to pay the sum of P10,000.00 as
attorney's fees or a total of P89,254.43;
2. In addition, defendant Construction and Development Corporation of
the Philippines and defendant Espiridion Payunan, Jr., shall pay the
plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to plaintiff
Rachel Fletcher and Twenty Five Thousand (P25,000.00) Pesos to
plaintiff Rebecca Estrella;
3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo –
Dismissing the counterclaim;
4. On the crossclaim against Construction and Development
Corporation of the Philippines (now PNCC) and Espiridion Payunan, Jr. –
Dismissing the crossclaim;
5. On the counterclaim of Construction and Development Corporation
of the Philippines (now PNCC) –
Dismissing the counterclaim;
6. On the crossclaim against BLTB –
Dismissing the crossclaim;
7. On the Third Party Complaint by Construction and Development
Corporation of the Philippines against Philippine Phoenix Surety and
Insurance, Incorporated –
Dismissing the Third Party Complaint.
SO ORDERED.8
The trial court held that BLTB, as a common carrier, was bound to
observe extraordinary diligence in the vigilance over the safety of its
passengers. It must carry the passengers safely as far as human care
and foresight provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances. Thus, where a
passenger dies or is injured, the carrier is presumed to have been at
fault or has acted negligently. BLTB's inability to carry respondents to
their destination gave rise to an action for breach of contract of
carriage while its failure to rebut the presumption of negligence made
it liable to respondents for the breach.9
Regarding CDCP, the trial court found that the tractor-truck it owned
bumped the BLTB bus from behind. Evidence showed that CDCP's driver
was reckless and driving very fast at the time of the incident. The gross
negligence of its driver raised the presumption that CDCP was negligent
either in the selection or in the supervision of its employees which it
failed to rebut thus making it and its driver liable to respondents.10
Unsatisfied with the award of damages and attorney's fees by the trial
court, respondents moved that the decision be reconsidered but was
denied. Respondents elevated the case11 to the Court of Appeals which
affirmed the decision of the trial court but modified the amount of
damages, the dispositive portion of which provides:
WHEREFORE, the assailed decision dated October 7, 1993 of the
Regional Trial Court, Branch 13, Manila is hereby AFFIRMED with the
following MODIFICATION:
1. The interest of six (6) percent per annum on the actual damages of
P79,354.43 should commence to run from the time the judicial demand
was made or from the filing of the complaint on February 4, 1980;
2. Thirty (30) percent of the total amount recovered is hereby awarded
as attorney's fees;
3. Defendants-appellants Construction and Development Corporation
of the Philippines (now PNCC) and Espiridion Payunan, Jr. are ordered
to pay plaintiff-appellants Rebecca Estrella and Rachel Fletcher the
amount of Twenty Thousand (P20,000.00) each as exemplary damages
and P80,000.00 by way of moral damages to Rachel Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or compensatory damage
sought by respondents for the injuries they sustained in the form of
hospital bills were already liquidated and were ascertained.
Accordingly, the 6% interest per annum should commence to run from
the time the judicial demand was made or from the filing of the
complaint and not from the date of judgment. The Court of Appeals
also awarded attorney's fees equivalent to 30% of the total amount
recovered based on the retainer agreement of the parties. The
appellate court also held that respondents are entitled to exemplary
and moral damages. Finally, it affirmed the ruling of the trial court that
the claim of CDCP against Phoenix had already prescribed.
Hence, this petition raising the following issues:
I paragraph 2 of the trial court's decision, petitioner claims that it is
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENTS BLTB AND/OR ITS DRIVER WILFREDO
DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY
HEREIN RESPONDENTS FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN
AWARDING EXCESSIVE OR UNFOUNDED DAMAGES, ATTORNEY'S FEES
AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENT PHOENIX LIABLE UNDER ITS INSURANCE POLICY
ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether BLTB and its driver
Wilfredo Datinguinoo are solely liable for the damages sustained by
respondents; (2) whether the damages, attorney's fees and legal
interest awarded by the CA are excessive and unfounded; (3) whether
CDCP can recover under its insurance policy from Phoenix.
Petitioner contends that since it was made solidarily liable with BLTB
for actual damages and attorney's fees in paragraph 1 of the trial
court's decision, then it should no longer be held liable to pay the
amounts stated in paragraph 2 of the same decision. Petitioner claims
that the liability for actual damages and attorney's fees is based on
culpa contractual, thus, only BLTB should be held liable. As regards
ambiguous and arbitrary because the dispositive portion did not state
the basis and nature of such award.
Respondents, on the other hand, argue that petitioner is also at fault,
hence, it was properly joined as a party. There may be an action arising
out of one incident where questions of fact are common to all. Thus,
the cause of action based on culpa aquiliana in the civil suit they filed
against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an action for culpa
aquiliana or quasi-delict under Article 2176 of the Civil Code.13 In this
regard, Article 2180 provides that the obligation imposed by Article
2176 is demandable for the acts or omissions of those persons for
whom one is responsible. Consequently, an action based on quasi-
delict may be instituted against the employer for an employee's act or
omission. The liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of due diligence in
the selection and supervision of the employee.14 In the instant case, the
trial court found that petitioner failed to prove that it exercised the
diligence of a good father of a family in the selection and supervision of
Payunan, Jr.
The trial court and the Court of Appeals found petitioner solidarily
liable with BLTB for the actual damages suffered by respondents
because of the injuries they sustained. It was established that Payunan,
Jr. was driving recklessly because of the skid marks as shown in the
sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the
other vehicle which collided with a common carrier is solidarily liable to
the injured passenger of the same. We held, thus:
The same rule of liability was applied in situations where the negligence
of the driver of the bus on which plaintiff was riding concurred with the
negligence of a third party who was the driver of another vehicle, thus
causing an accident. In Anuran v. Buño, Batangas Laguna Tayabas Bus
Co. v. Intermediate Appellate Court, and Metro Manila Transit
Corporation v. Court of Appeals, the bus company, its driver, the
operator of the other vehicle and the driver of the vehicle were
jointly and severally held liable to the injured passenger or the latter's
heirs. The basis of this allocation of liability was explained in Viluan v.
Court of Appeals, thus:
Nor should it make any difference that the liability of petitioner [bus
owner] springs from contract while that of respondents [owner and
driver of other vehicle] arises from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of
injury to a passenger due to the negligence of the driver of the bus on
which he was riding and of the driver of another vehicle, the drivers as
well as the owners of the two vehicles are jointly and severally liable
for damages. x x x
xxxx
As in the case of BLTB, private respondents in this case and her co-
plaintiffs did not stake out their claim against the carrier and the driver
exclusively on one theory, much less on that of breach of contract
alone. After all, it was permitted for them to allege alternative causes
of action and join as many parties as may be liable on such causes of
action so long as private respondent and her co-plaintiffs do not
recover twice for the same injury. What is clear from the cases is the
intent of the plaintiff there to recover from both the carrier and the
driver, thus justifying the holding that the carrier and the driver were
jointly and severally liable because their separate and distinct acts
concurred to produce the same injury.16 (Emphasis supplied)
In a "joint" obligation, each obligor answers only for a part of the whole
liability; in a "solidary" or "joint and several" obligation, the relationship
between the active and the passive subjects is so close that each of
them must comply with or demand the fulfillment of the whole
obligation. In Lafarge Cement v. Continental Cement Corporation,17 we
reiterated that joint tort feasors are jointly and severally liable for the
tort which they commit. Citing Worcester v. Ocampo,18 we held that:
x x x The difficulty in the contention of the appellants is that they fail to
recognize that the basis of the present action is tort. They fail to
recognize the universal doctrine that each joint tort feasor is not only
individually liable for the tort in which he participates, but is also jointly
liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the
persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or
who approve of it after it is done, if done for their benefit. They are
each liable as principals, to the same extent and in the same manner as
if they had performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which they
commit. The persons injured may sue all of them or any number less
than all. Each is liable for the whole damages caused by all, and all
together are jointly liable for the whole damage. It is no defense for
one sued alone, that the others who participated in the wrongful act
are not joined with him as defendants; nor is it any excuse for him that
his participation in the tort was insignificant as compared to that of the
others. x x x
Joint tort feasors are not liable pro rata. The damages can not be
apportioned among them, except among themselves. They cannot
insist upon an apportionment, for the purpose of each paying an
aliquot part. They are jointly and severally liable for the whole amount.
xxx
A payment in full for the damage done, by one of the joint tort feasors,
of course satisfies any claim which might exist against the others. There
can be but satisfaction. The release of one of the joint tort feasors by
agreement generally operates to discharge all. x x x
Of course the court during trial may find that some of the alleged tort
feasors are liable and that others are not liable. The courts may release
some for lack of evidence while condemning others of the alleged tort
feasors. And this is true even though they are charged jointly and
severally.19
Petitioner's claim that paragraph 2 of the dispositive portion of the trial
court's decision is ambiguous and arbitrary and also entitles
respondents to recover twice is without basis. In the body of the trial
court's decision, it was clearly stated that petitioner and its driver
Payunan, Jr., are jointly and solidarily liable for moral damages in the
amount of P50,000.00 to respondent Fletcher and P25,000.00 to
respondent Estrella.20 Moreover, there could be no double recovery
because the award in paragraph 2 is for moral damages while the
award in paragraph 1 is for actual damages and attorney's fees.
Petitioner next claims that the damages, attorney's fees, and legal
interest awarded by the Court of Appeals are excessive.
Moral damages may be recovered in quasi-delicts causing physical
injuries.21 The award of moral damages in favor of Fletcher and Estrella
in the amount of P80,000.00 must be reduced since prevailing
jurisprudence fixed the same at P50,000.00.22 While moral damages are
not intended to enrich the plaintiff at the expense of the defendant,
the award should nonetheless be commensurate to the suffering
inflicted.23
The Court of Appeals correctly awarded respondents exemplary
damages in the amount of P20,000.00 each. Exemplary damages may
be awarded in addition to moral and compensatory damages.24 Article
2231 of the Civil Code also states that in quasi-delicts, exemplary
damages may be granted if the defendant acted with gross
negligence.25 In this case, petitioner's driver was driving recklessly at
the time its truck rammed the BLTB bus. Petitioner, who has direct and
primary liability for the negligent conduct of its subordinates, was also
found negligent in the selection and supervision of its employees.
In Del Rosario v. Court of Appeals,26 we held, thus:
ART. 2229 of the Civil Code also provides that such damages may be
imposed, by way of example or correction for the public good. While
exemplary damages cannot be recovered as a matter of right, they
need not be proved, although plaintiff must show that he is entitled to
moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be
awarded. Exemplary Damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions.
Regarding attorney's fees, we held in Traders Royal Bank Employees
Union-Independent v. National Labor Relations Commission,27 that:
There are two commonly accepted concepts of attorney's fees, the so-
called ordinary and extraordinary. In its ordinary concept, an attorney's
fee is the reasonable compensation paid to a lawyer by his client for
the legal services he has rendered to the latter. The basis of this
compensation is the fact of his employment by and his agreement with
the client.
In its extraordinary concept, an attorney's fee is an indemnity for
damages ordered by the court to be paid by the losing party in a
litigation. The basis of this is any of the cases provided by law where
such award can be made, such as those authorized in Article 2208, Civil
Code, and is payable not to the lawyer but to the client, unless they
have agreed that the award shall pertain to the lawyer as additional
compensation or as part thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly awarded attorney's
fees and other expenses of litigation as they may be recovered as
actual or compensatory damages when exemplary damages are
awarded; when the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's valid, just and demandable claim; and
in any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.29
Regarding the imposition of legal interest at the rate of 6% from the
time of the filing of the complaint, we held in Eastern Shipping Lines,
Inc. v. Court of Appeals,30 that when an obligation, regardless of its
source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of interest in
the concept of actual and compensatory damages,31 subject to the
following rules, to wit –
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.32 (Emphasis supplied)
Accordingly, the legal interest of 6% shall begin to run on February 9,
1993 when the trial court rendered judgment and not on February 4,
1980 when the complaint was filed. This is because at the time of the
filing of the complaint, the amount of the damages to which plaintiffs
may be entitled remains unliquidated and unknown, until it is definitely
ascertained, assessed and determined by the court and only upon
presentation of proof thereon.33 From the time the judgment becomes
final and executory, the interest rate shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover under its
insurance policy from Phoenix, we affirm the findings of both the trial
court and the Court of Appeals, thus:
As regards the liability of Phoenix, the court a quo correctly ruled that
defendant-appellant CDCP's claim against Phoenix already prescribed
pursuant to Section 384 of P.D. 612, as amended, which provides:
Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance
company concerned a written notice of claim setting forth the nature,
extent and duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within six months from
date of the accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury must be
brought in proper cases, with the Commissioner or Courts within one
year from denial of the claim, otherwise, the claimant's right of action
shall prescribe. (As amended by PD 1814, BP 874.)34

The law is clear and leaves no room for interpretation. A written notice
of claim must be filed within six months from the date of the accident.
Since petitioner never made any claim within six months from the date
of the accident, its claim has already prescribed.

WHEREFORE, the instant petition is DENIED. The Decision of the Court

of Appeals in CA-G.R. CV No. 46896 dated March 29, 2001, which
modified the Decision of the Regional Trial Court of Manila, Branch 13,
in Civil Case No. R-82-2137, is AFFIRMED with the
MODIFICATIONS that petitioner is held jointly and severally liable to
pay (1) actual damages in the amount of P79,354.43; (2) moral G.R. No. 203133               February 18, 2015
damages in the amount of P50,000.00 each for Rachel Fletcher and
Rebecca Estrella; (3) exemplary damages in the amount of P20,000.00 YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU,
each for Rebecca Estrella and Rachel Fletcher; and (4) thirty percent and ALMERICK TIENG LIM, Petitioners,
(30%) of the total amount recovered as attorney's fees. The total vs.
amount adjudged shall earn interest at the rate of 6% per annum from INTERNATIONAL EXCHANGE BANK (now Union Bank of the
the date of judgment of the trial court until finality of this judgment. Philippines), Respondent.
From the time this Decision becomes final and executory and the
judgment amount remains unsatisfied, the same shall earn interest at DECISION
the rate of 12% per annum until its satisfaction.
REYES, J.:

In the assailed Decision1 dated February 1, 2012 in CA-G.R. CV No.

95522, the Court of Appeals (CA) modified the Decision2 dated
December 21, 2009 of the Regional Trial Court (RTC) of Makati City,
Branch 145, in Civil Case No. 02-749, holding that James Yu (James),
Jonathan Yu (Jonathan) and Almerick Tieng Lim (Almerick), who were
capitalist partners in Yulim International Company Ltd. (Yulim),
collectively called as the petitioners, were jointly and severally liable
with Yulim for its loan obligations with respondent International
Exchange Bank (iBank).
The Facts
On June 2, 2000, iBank, a commercial bank, granted Yulim, a domestic
partnership, a credit facility in the form of an Omnibus Loan Line for
₱5,000,000.00, as evidenced by a Credit Agreement3 which was secured
by a Chattel Mortgage4 over Yulim’s inventories in its merchandise
warehouse at 106 4th Street, 9th Avenue, Caloocan City. As further
guarantee, the partners, namely, James, Jonathan and Almerick,
executed a Continuing Surety Agreement5in favor of iBank.
Yulim availed of its aforesaid credit facility with iBank, as follows:
The above promissory notes (PN) were later consolidated under a
single promissory note, PN No. SADDK001014188, for ₱4,246,310.00, to
mature on February 28, 2002.7 Yulim defaulted on the said note. On
April 5, 2002, iBank sent demand letters to Yulim, through its President,
James, and through Almerick,8 but without success. iBank then filed a
Complaint for Sum of Money with Replevin9 against Yulim and its
sureties. On August 8, 2002, the Court granted the application for a writ
of replevin. Pursuant to the Sheriff’s Certificate of Sale dated
November 7, 2002,10 the items seized from Yulim’s warehouse were
worth only ₱140,000.00, not ₱500,000.00 as the petitioners have
insisted.11
On October 2, 2002, the petitioners moved to dismiss the complaint
insisting that their loan had been fully paid after they assigned to iBank
their Condominium Unit No. 141, with parking space, at 20 Landsbergh
Place in Tomas Morato Avenue, Quezon City.12 They claimed that while
the pre-selling value of the condominium unit was ₱3.3 Million, its
market value has since risen to 5.5 Million.13 The RTC, however, did not
entertain the motion to dismiss for non-compliance with Rule 15 of the
Rules of Court.
On May 16, 2006, the petitioners filed their Answer reiterating that
they have paid their loan by way of assignment of a condominium unit
to iBank, as well as insisting that iBank’s penalties and charges were
exorbitant, oppressive and unconscionable.14
Ruling of the RTC
After trial on the merits, the RTC rendered judgment on December 21,
2009, the dispositive portion of which reads, as follows:
WHEREFORE, in view of the foregoing considerations, the Court finds
the individual defendants James Yu, Jonathan Yu and Almerick Tieng
Lim, not liable to the plaintiff, iBank, hence the complaint against them
is hereby DISMISSED for insufficiency of evidence, without
pronouncement as to cost.
This court, however, finds defendant corporation Yulim International
Company Ltd. liable; and it hereby orders defendant corporation to pay
plaintiff the sum of ₱4,246,310.00 with interest at 16.50% per annum
from February 28, 2002 until fully paid plus cost of suit.
The counterclaims of defendants against plaintiff iBank are hereby
DISMISSED for insufficiency of evidence.
SO ORDERED.15
Thus, the RTC ordered Yulim alone to pay iBank the amount of
₱4,246,310.00, plus interest at 16.50% per annum from February 28,
2002 until fully paid, plus costs of suit, and dismissed the complaint
against petitioners James, Jonathan and Almerick, stating that there
was no iota of evidence that the loan proceeds benefited their
families.16
The petitioners moved for reconsideration on January 12, 2010;17 iBank
on January 19, 2010 likewise filed a motion for partial
reconsideration.18 In its Joint Order19 dated March 8, 2010, the RTC
denied both motions.
Ruling of the CA
On March 23, 2010, Yulim filed a Notice of Partial Appeal, followed on
March 30, 2010 by iBank with a Notice of Appeal.
Yulim interposed the following as errors of the court a quo:
I. THE LOWER COURT ERRED IN ORDERING [YULIM] TO PAY [iBANK]
THE AMOUNT OF ₱4,246,310.00 WITH INTEREST AT 16.5% PER
ANNUMFROM FEBRUARY 28, 2002 UNTIL FULLY PAID.
II. THE LOWER COURT ERRED IN NOT ORDERING [iBANK] TO PAY
ATTORNEY’S FEES, MORAL DAMAGES AND EXEMPLARY DAMAGES.20
For its part, iBank raised the following as errors of the RTC:
I. THE TRIAL COURT ERRED IN NOT HOLDING INDIVIDUAL [PETITIONERS
JAMES, JONATHAN AND ALMERICK] SOLIDARILY LIABLE WITH [YULIM]
ON THE BASIS OF THE CONTINUING SURETYSHIP AGREEMENT
EXECUTED BY THEM.
II. THE TRIAL COURT ERRED IN NOT HOLDING ALL THE [PETITIONERS]
LIABLE FOR PENALTY CHARGES UNDER THE CREDIT AGREEMENT AND
PROMISSORY NOTES SUED UPON.
III. THE TRIAL COURT ERRED IN NOT HOLDING [THE PETITIONERS]
LIABLE TO [iBANK] FOR ATTORNEY’S FEES AND INDIVIDUAL
[PETITIONERS] JOINTLY AND SEVERALLY LIABLE WITH [YULIM] FOR
COSTS OF SUIT INCURRED BY [iBANK] IN ORDER TO PROTECT ITS
RIGHTS.21
Chiefly, the factual issue on appeal to the CA, raised by petitioners
James, Jonathan and Almerick, was whether Yulim’s loans have in fact
been extinguished with the execution of a Deed of Assignment of their
condominium unit in favor of iBank, while the corollary legal issue,
raised by iBank, was whether they should be held solidarily liable with
Yulim for its loans and other obligations to iBank.
The CA ruled that the petitioners failed to prove that they have already
paid Yulim’s consolidated loan obligations totaling 4,246,310.00, for
which it issued to iBank PN No. SADDK001014188 for the said amount.
It held that the existence of a debt having been established, the burden
to prove with legal certainty that it has been extinguished by payment
devolves upon the debtors who have offered such defense. The CA
found the records bereft of any evidence to show that Yulim had fully
settled its obligation to iBank, further stating that the so-called
assignment by Yulim of its condominium unit to iBank was nothing but
a mere temporary arrangement to provide security for its loan pending
the subsequent execution of a real estate mortgage. Specifically, the CA
found nothing in the Deed of Assignment which could signify that iBank
had accepted the said property as full payment of the petitioners’ loan.
The CA cited Manila Banking Corporation v. Teodoro, Jr.22 which held
that an assignment to guarantee an obligation is in effect a mortgage
and not an absolute conveyance of title which confers ownership on
the assignee.
Concerning the solidary liability of petitioners James, Jonathan and
Almerick, the CA disagreed with the trial court’s ruling that it must first
be shown that the proceeds of the loan redounded to the benefit of
the family of the individual petitioners before they can be held liable.
Article 161 of the Civil Code and Article 121 of the Family Code cited by
the RTC apply only where the liability is sought to be enforced against
the conjugal partnership itself. In this case, regardless of whether the
loan benefited the family of the individual petitioners, they signed as
sureties, and iBank sought to enforce the loan obligation against them
as sureties of Yulim.
Thus, the appellate court granted the appeal of iBank, and denied that
of the petitioners, as follows:
WHEREFORE, the foregoing considered, [iBank’s] appeal is PARTLY
GRANTED while [the petitioners’] appeal is DENIED. Accordingly, the
appealed decision is hereby MODIFIED in that [petitioners] James Yu,
Jonathan Yu and A[l]merick Tieng Lim are hereby held jointly and
severally liable with defendant-appellant Yulim for the payment of the
monetary awards. The rest of the assailed decision is AFFIRMED.
SO ORDERED.23
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors are before this
Court:
1. The CA erred in ordering petitioners James, Jonathan and Almerick
jointly and severally liable with petitioner Yulim to pay iBank the
amount of ₱4,246,310.00 with interest at 16.5% per annum from
February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the petitioners moral
damages, exemplary damages, and attorney’s fees.24
The petitioners insist that they have paid their loan to iBank. They
maintain that the letter of iBank to them dated May 4, 2001, which
"expressly stipulated that the petitioners shall execute a Deed of
Assignment over one condominium unit No. 141, 3rd Floor and a
parking slot located at 20 Landsbergh Place, Tomas Morato Avenue,
Quezon City," was with the understanding that the Deed of
Assignment, which they in fact executed, delivering also to iBank all the
pertinent supporting documents, would serve to totally extinguish their
loan obligation to iBank. In particular, the petitioners state that it was
their understanding that upon approval by iBank of their Deed of
Assignment, the same "shall be considered as full and final payment of
the petitioners’ obligation." They further assert that iBank’s May 4,
2001 letter expressly carried the said approval.
The petitioner invoked Article1255 of the Civil Code, on payment by
cession, which provides: Art. 1255. The debtor may cede or assign his
property to his creditors in payment of his debts. This cession, unless
there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between the
debtor and his creditors shall be governed by special laws. Ruling of the
Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they executed the
Continuing Surety Agreement, wherein they "jointly and severally with
the PRINCIPAL [Yulim], hereby unconditionally and irrevocably
guarantee full and complete payment when due, whether at stated
maturity, by acceleration, or otherwise, of any and all credit
accommodations that have been granted" to Yulim by iBank, including
interest, fees, penalty and other charges.25Under Article 2047 of the
Civil Code, these words are said to describe a contract of suretyship. It
states: Art. 2047. By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be observed.
In such case the contract is called a suretyship.
In a contract of suretyship, one lends his credit by joining in the
principal debtor’s obligation so as to render himself directly and
primarily responsible with him without reference to the solvency of the
principal.26 According to the above Article, if a person binds himself
solidarily with the principal debtor, the provisions of Articles 1207 to
1222, or Section 4, Chapter 3, Title I, Book IV of the Civil Code on joint
and solidary obligations, shall be observed. Thus, where there is a
concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 provides that among them,
"[t]here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity."
"A surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter,
and their liabilities are interwoven as to be inseparable."27 And it is well
settled that when the obligor or obligors undertake to be "jointly and
severally" liable, it means that the obligation is solidary,28 as in this
case. There can be no mistaking the same import of Article I of the
Continuing Surety Agreement executed by the individual petitioners:
ARTICLE I
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally with the PRINCIPAL,
hereby unconditionally and irrevocably guarantee full and complete
payment when due, whether at stated maturity, by acceleration, or
otherwise, of any and all credit accommodations that have been
granted or may be granted, renewed and/or extended by the BANK to
the PRINCIPAL. The liability of the SURETIES shall not be limited to the
maximum principal amount of FIVE MILLION PESOS (₱5,000,000.00) but
shall include interest, fees, penalty and other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of payment and not
merely of collection and is intended to be a perfect and continuing
indemnity in favor of the BANK for the amounts and to the extent
stated above.
The liability of the SURETIES shall be direct, immediate and not
contingent upon the pursuit of the BANK of whatever remedies it may
have against the PRINCIPAL of the other securities for the
Accommodation.29
Thereunder, in addition to binding themselves "jointly and severally"
with Yulim to "unconditionally and irrevocably guarantee full and
complete payment" of any and all credit accommodations that have
been granted to Yulim, the petitioners further warrant that their
liability as sureties "shall be direct, immediate and not contingent upon
the pursuit [by] the BANK of whatever remedies it may have against
the PRINCIPAL of other securities." There can thus be no doubt that the
individual petitioners have bound themselves to be solidarily liable with
Yulim for the payment of its loan with iBank.
As regards the petitioners’ contention that iBank in its letter dated May
4, 2001 had "accepted/approved" the assignment of its condominium
unit in Tomas Morato Avenue as full and final payment of their various
loan obligations, the Court is far from persuaded. On the contrary, what
the letter accepted was only the collaterals provided for the loans, as
well as the consolidation of the petitioners’ various PN’s under one PN
for their aggregate amount of ₱4,246,310.00. The letter goes on to spell
out the terms of the new PN, such as, that its expiry would be February
28, 2002 or a term of 360 days, that interest would be due every 90
days, and that the rate would be based on the 91-day Treasury Bill rate
or other market reference.
Nowhere can it be remotely construed that the letter even intimates an
understanding by iBank that the Deed of Assignment would serve to
extinguish the petitioners’ loan. Otherwise, there would have been no
need for iBank to mention therein the three "collaterals" or "supports"
provided by the petitioners, namely, the Deed of Assignment, the
Chattel Mortgage and the Continuing Surety Agreement executed by
the individual petitioners. In fact, Section 2.01 of the Deed of
Assignment expressly acknowledges that it is a mere "interim security
for the repayment of any loan granted and those that may be granted
in the future by the BANK to the ASSIGNOR and/or the BORROWER, for
compliance with the terms and conditions of the relevant credit and/or
loan documents thereof."30 The condominium unit, then, is a mere
temporary security, not a payment to settle their promissory notes.31
Even more unmistakably, Section 2.02 of the Deed of Assignment
provides that as soon as title to the condominium unit is issued in its
name, Yulim shall "immediately execute the necessary Deed of Real
Estate Mortgage in favor of the BANK to secure the loan obligations of
the ASSIGNOR and/or the BORROWER."32 This is a plain and direct
acknowledgement that the parties really intended to merely constitute
a real estate mortgage over the property.1âwphi1 In fact, the Deed of
Assignment expressly states, by way of a resolutory condition
concerning the purpose or use of the Deed of Assignment, that after
the petitioners have delivered or caused the delivery of their title to
iBank, the Deed of Assignment shall then become null and void. Shorn
of its legal efficacy as an interim security, the Deed of Assignment
would then become functus officio once title to the condominium unit
has been delivered to iBank. This is so because the petitioners would
then execute a Deed of Real Estate Mortgage over the property in favor
of iBank as security for their loan obligations.
Respondent iBank certainly does not share the petitioners’
interpretation of its May 4,2001 letter. Joy Valerie Gatdula, Senior Bank
Officer of iBank and the Vice President of iBank’s Commercial Banking
Group, declared in her testimony that the purpose of the Deed of
Assignment was merely to serve as collateral for their loan:
Q: And during the time that the defendant[,] James Yu[,] was
negotiating with your bank, [is it] not a fact that the defendant offered
to you a [condominium] unit so that – that will constitute full payment
of his obligation?
A: No ma’am. It was not offered that way. It was offered as security or
collateral to pay the outstanding loans. But the premise is, that he will
pay x x x in cash. So, that property was offered as a security or
collateral.
Q: That was your position?
A: That was the agreement and that was how the document was
signed. It was worded out[.]
xxxx
Q: Do you remember if a real estate mortgage was executed over this
property that was being assigned to the plaintiff?
A: To my recollection, none at all.
Q: Madam Witness, this Deed of Assignment was considered as full
payment by the plaintiff bank, what document was executed by the
plaintiff bank?
A: It should have been a Dacion en Pago.
Q: Was there such document executed in this account?
A: None.33
To stress, the assignment being in its essence a mortgage, it was but a
security and not a satisfaction of the petitioners’ indebtedness.34 Article
125535 of the Civil Code invoked by the petitioners contemplates the
existence of two or more creditors and involves the assignment of the
entire debtor’s property, not a dacion en pago.36 Under Article 1245 of
the Civil Code, "[d]ationin payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed by the
law on sales." Nowhere in the Deed of Assignment can it be remotely
said that a sale of the condominium unit was contemplated by the
parties, the consideration for which would consist of the amount of
outstanding loan due to iBank from the petitioners.
WHEREFORE, premises considered, the petition is DENIED.
SO ORDERED.
G.R. No. 193890               March 11, 2015
ESTANISLAO and AFRICA SINAMBAN, Petitioners, 
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 of the
Decision2 dated May 19, 2010 of the Court of Appeals (CA) in CA-G.R.
CV. No. 66274 modifying the Decision3 dated July 30, 1999 of the
Regional Trial Court (RTC) of San Fernando City, Pampanga, Branch 45
for Sum of Money in Civil Case No. 11708.
Factual Antecedents
On February 19, 1990, the spouses Danilo and Magdalena Manalastas
(spouses Manalastas) executed a Real Estate Mortgage (REM)4 in favor
of respondent China Banking Corporation (Chinabank) over two real
estate properties covered by Transfer Certificate of Title Nos. 173532-R
and 173533-R, Registry of Deeds of Pampanga, to secure a loan from
Chinabank of ₱700,000.00 intended as working capital in their rice
milling business. During the next few years, they executed several
amendments to the mortgage contract progressively increasing their
credit line secured by the aforesaid mortgage. Thus, from ₱700,000.00
in 1990, their loan limit was increased to ₱1,140,000.00 on October 31,
1990, then to ₱1,300,000.00 on March 4, 1991, and then
to2,450,000.00 on March 23, 1994.5 The spouses Manalastas executed
several promissory notes (PNs) in favor of Chinabank. In two of the
PNs, petitioners Estanislao and Africa Sinamban (spouses Sinamban)
signed as co-makers.
On November 18, 1998, Chinabank filed a Complaint6 for sum of
money, docketed as Civil Case No. 11708, against the spouses
Manalastas and the spouses Sinamban (collectively called the
defendants) before the RTC. The complaint alleged that they reneged
on their loan obligations under the PNs which the spouses Manalastas
executed in favor of Chinabank on different dates, namely:
1. PN No. OACL 634-95, dated April 24, 1995, for a loan principal of
₱1,800,000.00, with interest at 23% per annum; the spouses
Manalastas signed alone as makers.7
2. PN No. OACL 636-95, dated May 23, 1995, for a loan principal of
325,000.00, with interest at 21% per annum; the spouses Sinamban
signed as solidary co-makers;8
3. PN No. CLF 5-93, dated February 26, 1991, for a loan principal of
₱1,300,000.00, with interest at 22.5% per annum; only Estanislao
Sinamban signed as solidary co-maker.9
All of the three promissory notes carried an acceleration clause stating
that if the borrowers failed to pay any stipulated interest, installment
or loan amortization as they accrued, the notes shall, at the option of
Chinabank and without need of notice, immediately become due and
demandable. A penalty clause also provides that an additional amount
shall be paid equivalent to 1/10 of 1% per day of the total amount due
from date of default until fully paid, and the further sum of 10% of the
total amount due, inclusive of interests, charges and penalties, as and
for attorney’s fees and costs.10
In Chinabank’s Statement of Account11 dated May 18, 1998, reproduced
below, the outstanding balances of the three loans are broken down, as
follows:
(a) PN No. OACL 636-95 has an outstanding principal of ₱325,000.00,
cumulative interest of ₱184,679.00, and cumulative penalties of
₱258,050.00, or a total amount due of ₱767,729.00; (b) PN No. OACL
634-95 has an outstanding principal of ₱1,800,000.00, cumulative
interest of ₱1,035,787.50, and cumulative penalties of 1,429,200.00, or
a total amount due of 4,264,987.50; and
(c) PN No. CLF 5-93 has an outstanding principal of ₱148,255.08,
cumulative interest of ₱64,461.84, and cumulative penalties of
₱156,541.58, or a total amount due of ₱369,258.50. Note that from the
original amount of ₱1,300,000.00, the loan principal had been reduced
to only ₱148,255.08 as of May 18, 1998.12
held on May 18, 1998, with Chinabank offering the highest bid of
₱4,600,000.00, but by then the defendants’ total obligations on the
three promissory notes had risen to ₱5,401,975.00, before attorney’s
fees of 10% and auction expenses, leaving a loan deficiency of
₱1,758,427.87.14 Thus, in the complaint before the RTC, Chinabank
prayed to direct the defendants to jointly and severally settle the said
deficiency, plus 12% interest per annum after May 18, 1998,15 the date
of the auction sale.16
The spouses Sinamban, in their Answer17 dated February 26, 1999,
averred that they do not recall having executed PN No. OACL 636-95
for ₱325,000.00 on May 23, 1995, or PN No. CLF 5-93 for ₱1,300,000.00
on February 26, 1991, and had no participation in the execution of PN
No. OACL 634-95 for ₱1,800,000.00 on April 24, 1995. They however
admitted that they signed some PN forms as co-makers upon the
request of the spouses Manalastas who are their relatives; although
they insisted that they derived no money or other benefits from the
loans. They denied knowing about the mortgage security provided by
the spouses Manalastas, or that the latter defaulted on their loans.
They also refused to acknowledge the loan deficiency of ₱1,758,427.87
on the PNs, insisting that the mortgage collateral was worth more than
₱10,000,000.00, enough to answer for all the loans, interests and
penalties. They also claimed that they were not notified of the auction
sale, and denied that they knew about the Certificate of Sale18 and the
Statement of Account dated May 18, 1998, and insisted that Chinabank
manipulated the foreclosure sale to exclude them therefrom. By way of
counterclaim, the Spouses Sinamban prayed for damages and
attorney’s fees of 25%, plus litigation expenses and costs of suit.
The spouses Manalastas were declared in default in the RTC
Order19 dated April 6, 1999, and Chinabank was allowed to present
evidence ex parte as against them, but at the pre-trial conference held
on July 5, 1999, the spouses Sinamban and their counsel also did not
appear;20 hence, in the Order21 dated July 5, 1999, the RTC allowed
Chinabank to present evidence ex parte against the defendants before
the Branch Clerk of Court. During the testimony of Rosario D. Yabut,
Branch Manager of Chinabank-San Fernando Branch, all the foregoing
facts were adduced and confirmed, particularly the identity of the
pertinent loan documents and the signatures of the defendants. On
July 21, 1999, the court admitted the exhibits of Chinabank and
declared the case submitted for decision.22
Ruling of the RTC
On July 30, 1999, the RTC rendered its Decision23 with the following
dispositive portion: WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff China Banking Corporation and
against defendant Sps. Danilo and Magdalena Manalastas and
defendant Sps. Estanislao and Africa Sinamban to jointly and severally
pay [Chinabank] the amount of ₱1,758,427.87, representing the
deficiency between the acquisition cost of the foreclosed real estate
properties and the outstanding obligation of defendants at the time of
the foreclosure sale; interest at the legal rate of 12% per annum from
and after May 18, 1998; attorney’s fees equivalent to 10% of the
aforesaid deficiency amount and the litigation and costs of suit.
SO ORDERED.24
On Motion for Reconsideration25 of the spouses Sinamban dated August
27, 1999, to which Chinabank filed an Opposition26 dated September
14, 1999, the RTC in its Order27 dated October 22, 1999 set aside the
Decision dated July 30, 1999 with respect to the spouses Sinamban, in
this wise:
As it is undisputed that Exhibit "B" (Promissory Note dated April 24,
1995 in the amount of ₱1,800,000.00), was not signed by the Spouses
Sinamban it would not be equitable that the said defendants be made
solidarily liable for the payment of the said note as co-makers of their
co-defendants Spouses Manalastas who are the one[s] principally liable
thereto. Prescinding from this premise, the movant spouses could only
be held liable for the two (2) promissory notes they have signed,
Promissory Notes dated May 23, 1995 in the amount of ₱325,000.00
and February 26, 1991 in the amount of ₱1,300,000.00, Exhibits "A" and
"C", respectively. As the total amount of the said notes is only
₱1,625,000.00, so even if we would add the interests due thereon,
there is no way that the said outstanding loan exceed[s] the acquisition
cost of the foreclosed real estate properties subject hereof in the
amount of ₱4,600,000.00.It would appear then that the Spouses
Sinamban could not be held liable for the deficiency in the amount of
₱1,758,427.87 which should justly be borne alone by the defendant
Spouses Manalastas. Guided by law and equity on the matter, the court
will not hesitate to amend a portion of its assailed decision to serve the
interest of justice.
WHEREFORE, premises considered, the decision dated July 30, 1999 is
hereby Reconsidered and Set Aside with respect to the Spouses
Estanislao and Africa Sinamban hereby Relieving them from any liability
arising from the said Decision which is affirmed in toto with respect to
Spouses Manalastas.
SO ORDERED.28 (Emphases ours)
The RTC ruled that the proceeds of the auction were sufficient to
answer for the two PNs co-signed by the spouses Sinamban, including
interest and penalties thereon, and therefore the spouses Manalastas
should solely assume the deficiency of ₱1,758,427.87. Chinabank
moved for reconsideration on November 11, 1999,29 to which the
spouses Sinamban filed their comment/opposition on November 23,
1999.30
On December 8, 1999, the RTC set aside its Order dated October 22,
1999 and reinstated its Decision dated July 30, 1999, with modification,
as follows:31
WHEREFORE, premises considered, the instant Motion for
Reconsideration of plaintiff is Granted.
Order dated October 22, 1999 is hereby Set Aside.
Accordingly, the dispositive portion of the Decision dated July 30, 1999
is hereby Modified to read as follows:
WHEREFORE, premises considered, judgment [is] hereby rendered in
favor of plaintiff China Banking Corporation and against the defendant
Sps. Danilo and Magdalena Manalastas and defendant Sps. Estanislao
and Africa Sinamban, ordering them to pay as follows:
1. For defendant Sps. Danilo and Magdalena Manalastas, the amount of
₱1,758,427.87, the deficiency between the acquisition cost of the
foreclosed real properties and their outstanding obligation;
2. For defendant Sps. Sinamban a percentage of ₱1,758,427.87, jointly
and severally with the defendant Sps. [Manalastas] only on two (2)
promissory notes;
3. The corresponding interests thereon at legal rate;
4. Attorney’s fees; and
5. Costs of suit.
32
SO ORDERED.
This time the RTC held that the spouses Sinamban must, solidarily with
the spouses Manalastas, proportionately answer for the loan deficiency
pertaining to the two PNs they co-signed, since the mortgage security
provided by the spouses Manalastas secured all three PNs and thus also
benefited them as co-makers. But since they did not co-sign PN No.
OACL 634-95, the deficiency judgment pertaining thereto will be the
sole liability of the spouses Manalastas.
Ruling of the CA
From the Order dated December 8, 1999 of the RTC, the spouses
Sinamban appealed to the CA on January 4, 2000, docketed as CA-G.R.
CV. No. 66274, interposing the following errors of the RTC, viz:
I
THE LOWER COURT ERRED WHENIT HELD DEFENDANTSAPPELLANTS
SPS. SINAMBAN LIABLE TO PAY A PERCENTAGE OF ₱1,758,427.87,
JOINTLY AND SEVERALLY WITH THE DEFENDANTS SPS. MANALASTAS
ON THE TWO PROMISSORY NOTES (EXHIBITS ‘C’ AND ‘A’).
II
THE LOWER COURT ERRED WHEN IT RECONSIDERED AND SET ASIDE ITS
PREVIOUS ORDER DATED 22 OCTOBER 1999 RELIEVING DEFENDANTS-
APPELLANTS SPS. SINAMBAN FROM ANY LIABILITY ARISING FROM THE
DECISION DATED 30 JULY 1999.
III
THE LOWER COURT ERRED WHEN IT RENDERED THE VAGUE ORDER OF
8 DECEMBER 1999 (ANNEX ‘B’ HEREOF).33
On May 19, 2010, the CA rendered judgment denying the appeal, the
fallo of which reads: WHEREFORE, considering the foregoing
disquisition, the appeal is DENIED. The Decision dated 30 July 1999 and
the Order dated 08 December 1999 of the Regional Trial Court of San
Fernando, Pampanga, Branch 45 in Civil Case No. 11708are hereby
AFFIRMED with MODIFICATION in that:
1. Sps. Danilo and Magdalena Manalastas are solidarily liable for the
deficiency amount of Php507,741.62 (inclusive of 10% attorney’s fees)
on Promissory Note No. OACL 634-95 dated 24 April 1995;
2. Sps. Estanislao and Africa Sinamban are solidarily liable with Sps.
Danilo and Magdalena Manalastas for the amount of Php844,501.90
(inclusive of 10% attorney’s fees) on Promissory Note No. OACL00636-
95 dated 23 May 1995;
3. Estanislao Sinamban and Sps. Danilo and Magdalena Manalastas are
solidarily liable for the amount of Php406,184.35 (inclusive of 10%
attorney’s fees) on Promissory Note No. CLF 5-93 dated 26 February
1991; and
4. The foregoing amounts shall bear interest at the rate of 12% per
annum from 18 November 1998 until fully paid.
SO ORDERED.34 (Some emphasis ours)
Petition for Review to the Supreme Court
In this petition for review, the spouses Sinamban seek to be completely
relieved of any liability on the PNs, solidary or otherwise, by interposing
the following issues:
5.1 Whether or not the Honorable Court of Appeals erred in not
considering that the Sps. Sinamban’s obligations under PN# OACL 636-
95 dated May 23, 1995 in the principal sum of Php325,000.00 and PN#
CLF 5-93 dated February 26, 1991 in the principal sum of
Php1,300,000.00 are more onerous and burdensome on their part as
mere sureties (co-makers) of their co-defendants-spouses Danilo and
Magdalena Manalastas’ (hereinafter referred to as the "Sps.
Manalastas") obligations over the same, compared to the Sps.
Manalastas’ sole obligation under PN# OACL 634-95 dated 24 April
1995 in the principal amount of Php1,800,000.00, such that the
proceeds of the auction sale of the properties securing all the three (3)
promissory notes should first be applied to satisfy the promissory notes
signed by the Sps. Sinamban; and
5.2 Whether or not the Honorable Court of Appeals erred in not
considering the facts indubitably showing that it is the Sps. Sinamban,
as the debtors, and not the respondent bank, who are given the choice
under Article 1252 of the Civil Code to have the proceeds of the auction
sale applied as payments to their obligations under PN# OACL 636-95
dated 23 May 1995 and PN# CLF 5-93 dated 26 February 1991.35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed
upon by the borrower and the lender. A person who signs such an
instrument is bound to honor it as a legitimate obligation duly assumed
by him through the signature he affixes thereto as a token of his good
faith. If he reneges on his promise without cause, he forfeits the
sympathy and assistance of this Court and deserves instead its sharp
repudiation."36
Employing words of common commercial usage and well-accepted
legal significance, the three subject PNs uniformly describe the solidary
nature and extent of the obligation assumed by each of the defendants
in Civil Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the
CHINA BANKING CORPORATION or its order the sum of PESOS x x
x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil Code,38 if a person binds himself
solidarily with the principal debtor, the provisions of Articles 1207 to
1222 of the Civil Code (Section 4, Chapter 3,Title I, Book IV) on joint and
solidary obligations shall be observed. Thus, where there is a
concurrence of two or more creditors or of two or more debtors in one
and the same obligation, Article 1207 provides that among them,
"[t]here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity." It is settled that when the obligor or obligors undertake to
be "jointly and severally" liable, it means that the obligation is
solidary.39 In this case, the spouses Sinamban expressly bound
themselves to be jointly and severally, or solidarily, liable with the
principal makers of the PNs, the spouses Manalastas.
Moreover, as the CA pointed out, in Paragraph 5 of the PNs, the
borrowers and their co-makers expressly authorized Chinabank, as
follows:
[T]o apply to the payment of this note and/or any other particular
obligation or obligations of all or any one of us to the CHINA BANKING
CORPORATION as the said Corporation may select, irrespective of the
dates of maturity, whether or not said obligations are then due, any or
all moneys, securities and things of value which are now or which may
hereafter be in its hands on deposit or otherwise to the credit of, or
belonging to, all or any one of us, and the CHINA BANKING
CORPORATION is hereby authorized to sell at public or private sale such
securities or things of value for the purpose of applying their proceeds
to such payments.40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge each loan obtained from the
credit line extended by Chinabank, which the principal makers and true
beneficiaries, the spouses Manalastas, secured with a REM they
executed over their properties. As the RTC noted in its Order dated
December 8, 1999, "the real estate mortgage was constituted to secure
all the three (3) promissory notes," concluding that "[j]ust as the
liability of the [spouses] Sinamban was lessened by the foreclosure
proceedings, so must they also share in the deficiency judgment, in
proportion to the PNs they co-signed with the [spouses] Manalastas,
but notthe entire deficiency judgment of ₱1,758,427.87."41
Significantly, in modifying the RTC’s second amended decision, which
provides for the pro rata distribution of the loan deficiency of
₱1,758,427.87, the CA first applied the entire net proceeds of the
auction sale of ₱4,183,744.63 (after auction expenses of ₱416,255.37),
to PN No. OACL 634-95, which on May 18, 1998 had an outstanding
balance of ₱4,264,987.50, inclusive of interest and penalties, plus 10%
attorney’s fees, or a total of ₱4,691,486.25. Thus, ₱4,691,486.25 less
₱4,183,744.63 leaves a deficiency on PN No. OACL 634-95 of
₱507,741.62, which is due solely from the spouses Manalastas.
As for PN No. OACL 636-95, the CA ordered the spouses Sinamban to
pay, solidarily with the spouses Manalastas, the entire amount due
thereon, ₱844,501.90, consisting of the loan principal of ₱767,729.00
plus accrued interest, penalties and 10% attorney’s fees; concerning PN
No. CLF 5-93, the CA ordered the spouses Sinamban to pay, solidarily
with the spouses Manalastas, the amount of ₱406,184.35, consisting of
the balance of the loan principal of ₱369,258.50 plus accrued interest,
penalties and 10% attorney’s fees. The CA further ordered the payment
of 12% interest per annum from November 18, 1998, the date of
judicial demand, until fully paid, on the above deficiencies.
Article 1216 of the Civil Code provides that "[t]he creditor may proceed
against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected." Article
125242 of the Civil Code does not apply, as urged by the petitioners,
because in the said article the situation contemplated is that of a
debtor with several debts due, whereas the reverse is true, with each
solidary debt imputable to several debtors.
While the CA correctly noted that the choice is given to the solidary
creditor to determine against whom he wishes to enforce payment, the
CA stated that Chinabank, in the exercise of the aforesaid option, chose
to apply the net proceeds of the extrajudicial foreclosure sale first to
the PN solely signed by spouses Manalastas.43 Thus, the net proceeds
were applied first to PN No. OACL 634-95 in the principal amount of
₱1,800,000.00, instead of pro rata to all three PNs due.
The Court finds this factual conclusion of the CA not supported by any
evidence or any previous arrangement.1âwphi1 To the contrary, as
clearly shown in its Statement of Account dated May 18, 1998,
Chinabank opted to apply the entire auction proceeds to the aggregate
amount of the three PNs due, ₱5,401,975.00 (before attorney’s fees
and auction expenses). Had it chosen to enforce the debts as ruled by
the CA, the Statement of Account would have shown that the loan due
on PN No. OACL 634-95 which is ₱4,691,486.25, should have been
deducted first from the net auction proceeds of ₱4,183,744.63, arriving
at a deficiency of ₱507,741.62on PN No. OACL 634-95 alone; thereby,
leaving no remainder of the proceeds available to partially settle the
other two PNs. As it appears, the auction proceeds are not even
sufficient to cover just PN No. OACL 634-95 alone.
But as the Court has noted, by deducting the auction proceeds from
the aggregate amount of the three loans due, Chinabank in effect
opted to apply the entire proceeds of the auction simultaneously to all
the three loans. This implies that each PN will assume a pro rata
portion of the resulting deficiency on the total indebtedness as bears
upon each PN’s outstanding balance. Contrary to the spouses
Sinamban’s insistence, none of the three PNs is more onerous than the
others to justify applying the proceeds according to Article 1254 of the
Civil Code, in relation to Articles 1252 and 1253.44 Since each loan,
represented by each PN, was obtained under a single credit line
extended by Chinabank for the working capital requirements of the
spouses Manalastas’ rice milling business, which credit line was
secured also by a single REM over their properties, then each PN is
simultaneously covered by the same mortgage security, the foreclosure
of which will also benefit them proportionately. No PN enjoys any
priority or preference in payment over the others, with the only
difference being that the spouses Sinamban are solidarily liable for the
deficiency on two of them.
Pursuant, then, to the order or manner of application of the auction
proceeds chosen by Chinabank, the solidary liability of the defendants
pertaining to each PN shall be as follows:
a) PN No. OACL 634-95, with a balance as of May 18, 1998 of
₱4,264,987.50: its share in the total deficiency is computed as the ratio
of ₱4,264,987.50 to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
₱1,388,320.55, (not ₱507,741.62 as found by the CA);
b) PN No. OACL 636-95, with a balance of ₱767,729.00 as of May 18,
1998: its share in the deficiency is computed as the ratio of
₱767,729.00 to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
₱249,907.87, (not ₱844,501.90 as computed by the CA);
c) PN No. CLF 5-93, with an outstanding balance of ₱369,258.50 as of
May 18, 1998: its share in the deficiency is computed as the ratio of
₱369,258.50 to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
₱120,199.45, (not ₱406,184.35 as found by the CA).
In short, in the CA decision, the spouses Manalastas would be solely
liable on PN No. OACL 634-95 for only ₱507,741.62(instead of the much
bigger amount of ₱1,388,320.55which this Court found), whereas the
spouses Sinamban would be solidarily liable with the spouses
Manalastas for a total deficiency of ₱1,250,686.25 on PN No. OACL 636-
95 and PN No. CLF 5-93. But under the Court’s interpretation, the
spouses Sinamban are solidarily liable with the spouses Manalastas for
only ₱370,107.32on the said two PNs, for a significant difference of
₱880,578.93.
Pursuant to Monetary Board
Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests ranging from 21% to 23% per
annum, exclusive of penalty of 1% on the overdue amount per month
of delay, whereas in its complaint, Chinabank prayed to recover only
the legal rate of 12% on whatever judgment it could obtain.
Meanwhile, the Monetary Board of the Bangko Sentral ng Pilipinas in
its Resolution No. 796 dated May 16, 2013, and now embodied in
Monetary Board Circular No. 799, has effective July 1, 2013 reduced to
6%, from 12%, the legal rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments, in the
absence of stipulation.45 Since Chinabank demanded only the legal, not
the stipulated, interest rate on the deficiency and attorney’s fees due,
the defendants will solidarily pay interest on their shares in the
deficiency at the rate of 12% from November 18, 1998 to June 30,
2013, and 6% from July 1, 2013 until fully paid. WHEREFORE, the
Decision of the Court of Appeals dated May 19, 2010 in CA-G.R. CV No.
66274 is MODIFIED. The Decision dated July 30, 1999 and the Order
dated December 8, 1999 of the Regional Trial Court of San Fernando
City, Pampanga, Branch 45 in Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS as follows:

1. Spouses Danilo and Magdalena Manalastas are solidarily liable for

the deficiency amount of 1,388,320.55 (inclusive of 10% attorney’s
fees) on Promissory Note No. OACL 634-95 dated April 24, 1995;

2. Spouses Estanislao and Africa Sinamban are solidarily liable with

spouses Danilo and Magdalena Manalastas for the deficiency amount
of ₱249,907.87(inclusive of 10% attorney’s fees) on Promissory Note
No. OACL 636-95 dated May 23, 1995;

3. Estanislao Sinamban and spouses Danilo and Magdalena Manalastas

are solidarily liable for the deficiency amount of ₱120,199.45 (inclusive
of 10% attorney’s fees) on Promissory Note No. CLF 5-93 dated
February 26, 1991; and

4. The foregoing amounts shall bear interest at the rate of twelve

percent (12%) per annum from November 18, 1998 to June 30, 2013,
and six percent (6%) per annum from July 1, 2013 until fully paid.

SO ORDERED.
 G.R. No. 202322, August 19, 2015
LIGHT RAIL TRANSIT AUTHORITY, Petitioner, v. ROMULO S.
MENDOZA, FRANCISCO S. MERCADO, ROBERTO M. REYES,
EDGARDO CRISTOBAL, JR., AND RODOLFO ROMAN, Respondents.
DECISION
BRION, J.:
For resolution is the present petition for review on certiorari1 which seeks
the reversal of the January 31, 2012 Decision2 and June 15, 2012
Resolution3 of the Court of Appeals in CA-G.R. SP No. 109224.
The Antecedents
The Light Rail Transit Authority (LRTA) is a government-owned and
-controlled corporation created under Executive Order No. 603 for the
construction, operation, maintenance, and/or lease of light rail transit
systems in the Philippines.
To carry out its mandate, LRTA entered into a ten-year operations and
management (O & M) agreement4with the Meralco Transit Organization,
Inc. (MTOI) from June 8, 1984, to June 8, 1994, for an annual fee of
P5,000,000.00. Subject to specified conditions, and in connection with the
operation and maintenance of the system not covered by the O & M
agreement, LRTA undertook to reimburse MTOI such operating expenses
and advances to the revolving fund.
"Operating expenses" included "all salaries, wages and fringe benefits
(both direct and indirect) up to the rank of manager, and a lump sum
amount to be determined annually as top management compensation
(above the rank of manager up to president), subject to consultation with
the LRTA." MTOI hired the necessary employees for its operations and
forged collective bargaining agreements (CBAs) with the employees'
unions, with the LRTA's approval.
On June 9, 1989, the Manila Electric Company, who owned 499,990 of
MTOI shares of stocks, sold said shares to the LRTA. Consequently, MTOI
became a wholly owned subsidiary of LRTA. MTOI changed its corporate
name to Metro Transit Organization, Inc. (METRO), but maintained its
distinct and separate personality. LRTA and METRO renewed the O & M
agreement upon its expiration on June 8, 1994, extended on a month-to-
month basis.5cralawrednad
On July 25, 2000, the Pinag-isang Lakas ng Manggagawa sa METRO, INC.,
the rank-and-file union at METRO, staged an illegal strike over a
bargaining deadlock, paralyzing the operations of the light rail transport
system. On July 28, 2000, the LRTA Board of Directors issued Resolution
No. 00-446 where LRTA agreed to shoulder METRO'S operating expenses
for a maximum of two months counted from August 1, 2000. It also
updated the Employee Retirement Fund.
Because of the strike, LRTA no longer renewed the O & M agreement when
it expired on July 31, 2000, resulting in the cessation of METRO'S
operations and the termination of employment of its workforce, including
the respondents Romulo Mendoza, Francisco Mercado, Roberto Reyes,
Edgardo Cristobal, Jr., and Rodolfo Roman.
On April 1, 2001, the METRO Board of Directors authorized the payment of
50 % of the dismissed employees' separation pay, to be sourced from
the retirement fund. In May 2001, respondents received one half (1/2)
of their separation pay. Dissatisfied, they demanded from LRTA payment of
the 50% balance of their separation pay, but LRTA rejected the demand,
prompting them to file on August 31, 2004, a formal complaint,7 before the
labor arbiter, against LRTA and METRO.
LRTA moved to dismiss the complaint on grounds of absence of
employer-employee relationship with the respondents, lack of
jurisdiction and of merit, and prescription of action.
The Compulsory Arbitration Rulings
In his decision8 dated August 8, 2005, Labor Arbiter (LA) Arthur L.
Amansec pierced the veil of METRO'S corporate fiction, invoked the law
against labor-only contracting, and declared LRTA solidarity liable with
METRO for the payment of the remaining 50% of respondents' separation
pay. On appeal by the LRTA, the National Labor Relations Commission
(NLRC) affirmed in its decision9 of December 23, 2008, LA Amansec's
ruling, thereby dismissing the appeal. It also held that the case had not
prescribed. LRTA moved for reconsideration, but the NLRC denied the
motion in its resolution10 of March 30, 2009.
The Case before the CA
LRTA challenged the NLRC decision before the CA through a petition
for certiorari under Rule 65 of the Rules of Court, contending that the labor
tribunal committed grave abuse of discretion when it (1) assumed
jurisdiction over the case; (2) held that it was an indirect employer of the
respondents with solidary liability for their claim; and (3) took cognizance
of the case despite its being barred by prescription.
LRTA argued that as a government-owned and -controlled corporation, all
actions against it should be brought before the Civil Service Commission,
not the NLRC, pursuant to Article IX-B, Section 2 (1) of the Constitution,
as declared by this Court's decision in the consolidated cases of LRTA v.
Venus, Jr., and METRO v. Court of Appeals (Venus case).11 It further
argued that it could not be made solidarity liable with METRO for the
respondents' claim since METRO is an independent job contractor.
In a different vein, LRTA stressed that its Resolution No. 00-44 updating
the retirement fund for METRO employees was merely a financial
assistance to METRO, which neither created an employer-employee
relationship between it and the METRO employees, nor did it impose a
contractual obligation upon it for the employees' separation pay. Lastly, it
reiterated that respondents' claim had already prescribed since they filed
the complaint beyond the three-year period under Article 306 of the Labor
Code (formerly Article 291; re-numbered by R.A. 10151, An Act
Allowing the Employment of Nightworkers).12 cralawrednad
The respondents, for their part, prayed for the dismissal of the petition,
relying on an earlier case involving the same cause of action decided by
the CA, LRTA v. NLRC and Ricardo B. Malanao, et al.,13and which had
become final and executory on February 21, 2006.14 In that case, they
pointed out, LRTA was held solidarity liable with METRO, as an indirect
employer, for the payment of the severance pay of METRO'S separated
employees.
In the meantime, or on June 3, 2010, LA Amansec issued a Writ of
Execution15 for his August 8, 2005 decision. On August 5, 2010,
respondents filed an Urgent Manifestation16 stating that pursuant to the
labor arbiter's order, LRTA's cash bond covered by Check No.
LB0000007505, dated September 20, 2005, for PI,082,929.16 had been
released to them. Thus, they considered the case to have become
academic.
The CA Decision
The CA affirmed the NLRC ruling that LRTA is solidarity liable for the
remaining 50% of respondents' separation pay, but not squarely on the
same grounds. Unlike the NLRC, it considered inapplicable the doctrine
of piercing the veil of corporate fiction to justify LRTA's solidary liability
due to the absence of fraud or wrongdoing on LRTA's part in relation to the
nonpayment of the balance of the respondents' separation pay as this
Court had stated in the Venus case.17 cralawrednad
The CA likewise disagreed with the NLRC's opinion that METRO is a labor-
only contractor so as to make LRTA the respondents' direct employer. It
explained that METRO was a corporation with sufficient capital and
investment in tools and equipment, and its own employees (who were
even unionized) to undertake the operation and management of the light
rail transit system, for which it was exclusively engaged by LRTA. Neither
did LRTA exercise the prerogatives of an employer over the METRO
employees. It thus concluded that LRTA's solidary liability as an indirect
employer is limited to the payment of wages, and for any violation of the
Labor Code,18 excluding backwages and separation pay which are punitive
in nature.19
cralawrednad
The CA nonetheless held that LRTA cannot avoid liability for respondents'
separation pay as it is a contractual obligation. It agreed with the NLRC
finding that LRTA provided METRO'S "operating expenses" which
included the employees' wages and fringe benefits, and all other
general and administrative expenses relative to the operation of
the light rail transit system.
The CA found additional basis for its ruling in the letter to the LRTA, dated
July 12, 2001, of then Acting Chairman of the METRO Board of Directors,
Wilfredo Trinidad, that "Funding provisions for the retirement fund
have always been considered operating expenses of METRO.
Pursuant to the O & M Agreement, the LRTA had been reimbursing
METRO of all operating expenses, including the funds set aside for
the retirement fund. It follows—now that circumstances call for Metro to
pay the full separation benefits—that LRTA should provide the necessary
funding to completely satisfy these benefits."20 cralawrednad
Also, the CA noted that "METRO'S November 17, 1997 Memorandum
further revealed that the LRTA Board approved 'the additional
retirement/resignation benefit of 7.65 days or a total of 1.5 months'
salary for every year of service' for METRO'S rank-and-file employees and
that lthe granting of 1.5 months' salary for every year of service
as severance or resignation pay would effectively amend the existing
Employees' Retirement Plan."21 This LRTA memorandum, together with its
July 28, 2000 Resolution No. 00-44, the CA believed, was an indication
that LRTA regularly financed the retirement fund.
Accordingly, the CA stressed, the LRTA cannot argue that the retirement
fund was not meant to cover the separation pay of the "terminated"
employees of METRO, and neither can it deny that it is bound to comply
with its undertaking to provide the necessary funds to cover payment of
the respondents' claim.
The CA brushed aside the prescription issue. It held that the complaint is
not time-barred, citing De Guzman v. Court of Appeals,22 where the Court
affirmed the applicability of Article 1155 of the Civil Code23 to an
employee's claim for separation pay in the absence of an equivalent Labor
Code provision for determining whether the period for such claim may be
interrupted. It agreed with the NLRC conclusion that the prescriptive period
for respondents' claim for separation pay was interrupted by their letters
to LRTA24 (dated September 19, 2002 and October 14, 2002) demanding
payment of the 50% balance of their separation pay.
The Petition
Its motion for reconsideration having been denied by the CA, LRTA now
asks the Court for a reversal, contending that the appellate court
committed a serious error of law when it affirmed the NLRC decision.
It faults the CA for not ruling on the jurisdictional question which, it
contends, had been settled with finality "in actions similar to the one at
bar."25
cralawredcralawrednad
On the merits of the case, LRTA submits that no liability, from whatever
origin or source, was ever attached to it insofar as the respondents' claim
is concerned. It disputes the CA opinion that its liability for 50% of the
respondents' separation pay is a contractual obligation under METRO'S
retirement fund. It also assails the CA's reliance on its July 28, 2000
Resolution No. 00-44 as evidence of its contractual obligation. It asserts it
has no such obligation.
Lastly, LRTA contends that while its board of directors updated METRO'S
retirement fund to cover the retirement benefits of METRO'S employees,
the updating was a mere financial assistance or goodwill to METRO. It did
not execute, it stresses, any deed or contract in favor of METRO, Avhich
amended the O & M agreement between them, or assumed any obligation
in favor of METRO or its employees; thus, it has no contractual obligation
for the unpaid balance of respondents' separation pay.
The Respondents' Position
In their Comment26 dated October 8, 2012, the respondents prayed that
the petition be dismissed for lack of merit as the CA had committed no
error of law when it affirmed the NLRC decision.
They stand firm on their position that LRTA is legally bound to pay the
balance of their separation pay as evidenced by its official undertakings
such as the Joint Memorandum, dated June 6, 1989,27 with METRO, its
wholly owned subsidiary, providing, among others, for the establishment of
the Retirement Fund of METRO, Inc., Employees; LRTA Board Resolution
No. 00-44 of July 28, 2000,28 authorizing the updating of the retirement
fund; and approving the collective bargaining agreements entered into by
METRO with its unions containing terms and conditions of employment and
benefits for its employees.
They also cite the letter to LRTA,29 dated July 12, 2001, of the Acting
Chairman of the METRO Board of Directors stating that funding provisions
for the retirement fund have always been considered operating expenses
of METRO. In short, they maintain, LRTA regularly financed the retirement
fund intended not only for the retirement benefit, but also for the
severance and/or resignation pay of METRO'S employees.
The Court's Ruling
The jurisdictional issue
LRTA reiterates its position that the labor arbiter and the NLRC had no
jurisdiction over it in relation to the respondents' claim, quoting the Venus
ruling to prove its point, thus: "x x x There should be no dispute then
that employment in petitioner LRTA should be governed only by
civil service rules, and not the Labor Code and beyond the reach of
the Department of Labor and Employment, since petitioner LRTA is
a government-owned and -controlled corporation with an original
charter x x x Petitioner METRO was originally organized under the
Corporation Code, and only became a government-owned and
-controlled corporation after it was acquired by petitioner LRTA.
Even then, petitioner METRO has no original charter, hence, it is
the Department of Labor and Employment, and not the Civil Service
Commission, which has jurisdiction over disputes from the
employment of its workers x x x."30 cralawrednad
We disagree. Under the facts of the present labor controversy, LRTA's
reliance on the Venus ruling is misplaced. The ruling has no bearing on the
respondents' case. As we see it, the jurisdictional issue should not have
been brought up in the first place because the respondents' claim does not
involve their employment with LRTA. There is no dispute on this aspect of
the case. The respondents were hired by METRO and, were, therefore, its
employees.

Rather, the controversy involves the question of whether LRTA can be
made liable by the labor tribunals for the respondents' money claim,
despite the absence of an employer-employee relationship between them
and despite the fact that LRTA is a government-owned and -controlled
corporation with an original charter.
The Court provided the answer in Phil. National Bank v. Pabalan31 where it
said: "By engaging in a particular business through the instrumentality of
a corporation, the government divests itself  pro hac vice of its sovereign
character, so as to render the corporation subject of the rules governing
private corporations."32cralawrednad
The NLRC accordingly declared: "for having conducted business through a
private corporation, in this case, respondent METRO, as its business
conduit or alter ego, respondent LRTA must submit itself to the provisions
governing private corporations, including the Labor Code. Consequently,
the Labor Arbiter rightfully dismissed the Motion to Dismiss of respondent
LRTA."33cralawrednad
In this light, we find no grave abuse of discretion in the labor tribunals'
taking cognizance of the respondents' money claim against LRTA.
The substantive aspect of the case
The petition is without merit, for the following reasons: ChanRoblesvirtualLawlibrary
First. LRTA obligated itself to fund METRO'S retirement fund to answer
for the retirement or severance/resignation of METRO employees as part of
METRO'S "operating expenses." Under Article 4.05.1 of the O & M
agreement34 between LRTA and Metro, "The Authority shall reimburse
METRO for x x x "OPERATING EXPENSES x x x" In the letter to
LRTA35 dated July 12, 2001, the Acting Chairman of the METRO Board of
Directors at the time, Wilfredo Trinidad, reminded LRTA that "funding
provisions for the retirement fund have always been considered operating
expenses of Metro.36 The coverage of operating expenses to include
provisions for the retirement fund has never been denied by LRTA.
In the same letter, Trinidad stressed that as a consequence of the non-
renewal of the O & M agreement by LRTA, METRO was compelled to close
its business operations effective September 30, 2000. This created,
Trinidad added, a legal obligation to pay the qualified employees
separation benefits under existing company policy and collective
bargaining agreements. The METRO Board of Directors approved
the payment of 50% of the employees' separation pay because
that was only what the Employees' Retirement Fund could
accommodate.37 cralawrednad
The evidence supports Trinidad's position. We refer principally to
Resolution No. 00-4438 issued by the LRTA Board of Directors on July 28,
2000, in anticipation of and in preparation for the expiration of the O & M
agreement with METRO on July 31, 2000.
Specifically, the LRTA anticipated and prepared for the (1) non-renewal (at
its own behest) of the agreement, (2) the eventual cessation of METRO
operations, and (3) the involuntary loss of jobs of the METRO employees;
thus, (1) the extension of a two-month bridging fund for METRO
from August 1, 2000, to coincide with the agreement's expiration
on July 31, 2000; (2) METRO'S cessation of operations—it closed on
September 30, 2000, the last day of the bridging fund—and most
significantly to the employees adversely affected; (3) the updating
of the "Metro, Inc., Employee Retirement Fund with the Bureau of
Treasury  to ensure that the fund fully covers all retirement
benefits yay able to the employees of Metro, Inc."39 cralawrednad
The clear language of Resolution No.00-44, to our mind, established the
LRTA's obligation for the 50% unpaid balance of the respondents'
separation pay. Without doubt, it bound itself to provide the necessary
funding to METRO'S Employee Retirement Fund to fully compensate the
employees who had been involuntary retired by the cessation of operations
of METRO. This is not at all surprising considering that METRO was a wholly
owned subsidiary of the LRTA.
Second. Even on the assumption that the LRTA did not obligate itself to
fully cover the separation benefits of the respondents and others similarly
situated, it still cannot avoid liability for the respondents' claim. It is
solidarity liable as an indirect employer under the law for the
respondents' separation pay. This liability arises from the O & M
agreement it had with METRO, which created a principal-job contractor
relationship between them, an arrangement it admitted when it argued
before the CA that METRO was an independent job contractor40 who, it
insinuated, should be solely responsible for the respondents' claim.
Under Article 107 of the Labor Code, an indirect employer is "any
person, partnership, association or corporation which, not being an
employer, contracts with an independent contractor for the performance of
any work, task, job or project."
On the other hand, Article 109 on solidary liability, mandates that x x
x "every employer or indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any provisions of this Code.
For purposes of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers."

Department Order No. 18-02, s. 2002, the rules implementing Articles 106
to 109 of the Labor Code, provides in its Section 19 that "the principal
shall also be solidarity liable in case the contract between the principal is
preterminated for reasons not attributable to the contractor or
subcontractor."

Although the cessation of METRO'S operations was due to a non-renewal of

the O & M agreement and not a pretermination of the contract, the cause
of the nonrenewal and the effect on the employees are the same as in the
contract pretermination contemplated in the rules. The agreement was not
renewed through no fault of METRO, as it was solely at the behest of LRTA.
The fact is, under the circumstances, METRO really had no choice on the
matter, considering that it was a mere subsidiary of LRTA.

Nevertheless, whether it is a pretermination or a nonrenewal of the

contract, the same adverse effect befalls the workers affected, like the
respondents in this case - the involuntary loss of their employment,
one of the contingencies addressed and sought to be rectified by the rules.

In fine, we find no reversible error in the CA rulings.

WHEREFORE, premises considered, the petition for review

on certiorari is DISMISSED, for lack of merit. The assailed decision and
resolution of the Court of Appeals are AFFIRMED. The decision dated May
8, 2005, of Labor Arbiter Arthur L. Amansec, is REINSTATED.

SO ORDERED. chanrobles virtuallawlibrary

G.R. No. 167615
SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the
Name and Style "COLORKWIK LABORATORIES" AND "COLORKWIK
PHOTO SUPPLY", Petitioners,  order discount based on prevailing equipment price provided said
vs.
KODAK PHILIPPINES, LTD., Respondent.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April 20, 2005
assailing the March 30, 2005 Decision1 and September 9, 2005
Amended Decision2 of the Court of Appeals, which modified the
February 26, 1999 Decision3 of the Regional Trial Court by reducing the
amount of damages awarded to petitioners Spouses Alexander and
Julie Lam (Lam Spouses).4 The Lam Spouses argue that respondent
Kodak Philippines, Ltd.’s breach of their contract of sale entitles them
to damages more than the amount awarded by the Court of Appeals.5
I 5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd.
entered into an agreement (Letter Agreement) for the sale of three (3)
units of the Kodak Minilab System 22XL6 (Minilab Equipment) in the
amount of ₱1,796,000.00 per unit,7 with the following terms:
This confirms our verbal agreement for Kodak Phils., Ltd. To provide
Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab System
22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo counter in
Cotabato City under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple
equipment packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of the
contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of
24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall
be applied.
is at ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]8
On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of
the Minilab Equipment in Tagum, Davao Province.9 The delivered unit
was installed by Noritsu representatives on March 9, 1992.10 The Lam
Spouses issued postdated checks amounting to ₱35,000.00 each for 12
months as payment for the first delivered unit, with the first check due
on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate
the check dated March 31, 1992 allegedly due to insufficiency of
funds.12 The same request was made for the check due on April 30,
1992. However, both checks were negotiated by Kodak Philippines, Ltd.
and were honored by the depository bank.13 The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the depository
bank to stop payment.14
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam
Spouses return the unit it delivered together with its accessories.15 The
Lam Spouses ignored the demand but also rescinded the contract
through the letter dated November 18, 1992 on account of Kodak
Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab
Equipment units.16
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for
replevin and/or recovery of sum of money. The case was raffled to
Branch 61 of the Regional Trial Court, Makati City.17 The Summons and
a copy of Kodak Philippines, Ltd.’s Complaint was personally served on
the Lam Spouses.18
The Lam Spouses failed to appear during the pre-trial conference and
submit their pre-trial brief despite being given extensions.19 Thus, on
July 30, 1993, they were declared in default.20 Kodak Philippines, Ltd.
presented evidence ex-parte.21 The trial court issued the Decision in
favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab
Equipment, which included the lone delivered unit, its standard
accessories, and a separate generator set.22 Based on this Decision,
Kodak Philippines, Ltd. was able to obtain a writ of seizure on
December 16, 1992 for the Minilab Equipment installed at the Lam
Spouses’ outlet in Tagum, Davao Province.23 The writ was enforced on
December 21, 1992, and Kodak Philippines, Ltd. gained possession of
the Minilab Equipment unit, accessories, and the generator set.24
The Lam Spouses then filed before the Court of Appeals a Petition to
Set Aside the Orders issued by the trial court dated July 30, 1993 and
August 13, 1993. These Orders were subsequently set aside by the
Court of Appeals Ninth Division, and the case was remanded to the trial
court for pre-trial.25
On September 12, 1995, an Urgent Motion for Inhibition was filed
against Judge Fernando V. Gorospe, Jr.,26 who had issued the writ of
seizure.27 The ground for the motion for inhibition was not provided.
Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the
case was reassigned to Branch 65 of the Regional Trial Court, Makati
City on October 3, 1995.28
In the Decision dated February 26, 1999, the Regional Trial Court found
that Kodak Philippines, Ltd. defaulted in the performance of its
obligation under its Letter Agreement with the Lam Spouses.29 It held
that Kodak Philippines, Ltd.’s failure to deliver two (2) out of the three
(3) units of the Minilab Equipment caused the Lam Spouses to stop
paying for the rest of the installments.30 The trial court noted that while
the Letter Agreement did not specify a period within which the delivery
of all units was to be made, the Civil Code provides "reasonable time"
as the standard period for compliance:
The second paragraph of Article 1521 of the Civil Code provides:
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
What constitutes reasonable time is dependent on the circumstances
availing both on the part of the seller and the buyer. In this case,
delivery of the first unit was made five (5) days after the date of the
agreement. Delivery of the other two (2) units, however, was never
made despite the lapse of at least three (3) months.31
Kodak Philippines, Ltd. failed to give a sufficient explanation for its
failure to deliver all three (3) purchased units within a reasonable
time.32
The trial court found:
Kodak would have the court believe that it did not deliver the other
two (2) units due to the failure of defendants to make good the
installments subsequent to the second. The court is not convinced. First
of all, there should have been simultaneous delivery on account of the
circumstances surrounding the transaction. . . . Even after the first
delivery . . . no delivery was made despite repeated demands from the
defendants and despite the fact no installments were due. Then in
March and in April (three and four months respectively from the date
of the agreement and the first delivery) when the installments due
were both honored, still no delivery was made.
Second, although it might be said that Kodak was testing the waters
with just one delivery - determining first defendants’ capacity to pay -
it was not at liberty to do so. It is implicit in the letter agreement that
delivery within a reasonable time was of the essence and failure to so
deliver within a reasonable time and despite demand would render the
vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak refused
delivery on account of defendants’ inability to pay, non-delivery during
the two (2) months that payments were honored is unjustified.33
Nevertheless, the trial court also ruled that when the Lam Spouses
accepted delivery of the first unit, they became liable for the fair value
of the goods received:
On the other hand, defendants accepted delivery of one (1) unit. Under
Article 1522 of the Civil Code, in the event the buyer accepts
incomplete delivery and uses the goods so delivered, not then knowing
that there would not be any further delivery by the seller, the buyer
shall be liable only for the fair value to him of the goods received. In
other words, the buyer is still liable for the value of the property
received. Defendants were under obligation to pay the amount of the
unit. Failure of delivery of the other units did not thereby give unto
them the right to suspend payment on the unit delivered. Indeed, in
incomplete deliveries, the buyer has the remedy of refusing payment
unless delivery is first made. In this case though, payment for the two
undelivered units have not even commenced; the installments made
were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34
The Lam Spouses were under obligation to pay for the amount of one
unit, and the failure to deliver the remaining units did not give them
the right to suspend payment for the unit already delivered.35 However,
the trial court held that since Kodak Philippines, Ltd. had elected to
cancel the sale and retrieve the delivered unit, it could no longer seek
payment for any deterioration that the unit may have suffered while
under the custody of the Lam Spouses.36
As to the generator set, the trial court ruled that Kodak Philippines, Ltd.
attempted to mislead the court by claiming that it had delivered the
generator set with its accessories to the Lam Spouses, when the
evidence showed that the Lam Spouses had purchased it from Davao
Ken Trading, not from Kodak Philippines, Ltd.37 Thus, the generator set
that Kodak Philippines, Ltd. wrongfully took from the Lam Spouses
should be replaced.38
The dispositive portion of the Regional Trial Court Decision reads:
PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is
ordered to pay the following:
1) PHP 130,000.00 representing the amount of the generator set, plus
legal interest at 12% per annum from December 1992 until fully paid;
and
2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum,
Davao and Rizal Ave., Manila outlets.
39
SO ORDERED.
On March 31, 1999, the Lam Spouses filed their Notice of Partial
Appeal, raising as an issue the Regional Trial Court’s failure to order
Kodak Philippines, Ltd. to pay: (1) ₱2,040,000 in actual damages; (2)
₱50,000,000 in moral damages; (3) ₱20,000,000 in exemplary damages;
(4) ₱353,000 in attorney’s fees; and (5) ₱300,000 as litigation
expenses.40 The Lam Spouses did not appeal the Regional Trial Court’s
award for the generator set and the renovation expenses.41
Kodak Philippines, Ltd. also filed an appeal. However, the Court of
Appeals42 dismissed it on December 16, 2002 for Kodak Philippines,
Ltd.’s failure to file its appellant’s brief, without prejudice to the
continuation of the Lam Spouses’ appeal.43 The Court of Appeals’
December 16, 2002 Resolution denying Kodak Philippines, Ltd.’s appeal
became final and executory on January 4, 2003.44
In the Decision45 dated March 30, 2005, the Court of Appeals Special
Fourteenth Division modified the February 26, 1999 Decision of the
Regional Trial Court:
WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26
February 1999 of the Regional Trial Court, Branch 65 in Civil Case No.
92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the
following:
1. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED.46 (Emphasis supplied)
The Court of Appeals agreed with the trial court’s Decision, but
extensively discussed the basis for the modification of the dispositive
portion.
The Court of Appeals ruled that the Letter Agreement executed by the
parties showed that their obligations were susceptible of partial
performance. Under Article 1225 of the New Civil Code, their
obligations are divisible:
In determining the divisibility of an obligation, the following factors
may be considered, to wit: (1) the will or intention of the parties, which
may be expressed or presumed; (2) the objective or purpose of the
stipulated prestation; (3) the nature of the thing; and (4) provisions of
law affecting the prestation.
Applying the foregoing factors to this case, We found that the intention
of the parties is to be bound separately for each Minilab Equipment to
be delivered as shown by the separate purchase price for each of the
item, by the acceptance of Sps. Lam of separate deliveries for the first
Minilab Equipment and for those of the remaining two and the
separate payment arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount of the purchase
price of the Minilab
Equipment delivered considering that Kodak had already completely
fulfilled its obligation to deliver the same. . . .
Third, it is also evident that the contract is one that is severable in
character as demonstrated by the separate purchase price for each of
the minilab equipment. "If the part to be performed by one party
consists in several distinct and separate items and the price is
apportioned to each of them, the contract will generally be held to be
severable. In such case, each distinct stipulation relating to a separate
subject matter will be treated as a separate contract." Considering this,
Kodak's breach of its obligation to deliver the other two (2) equipment
cannot bar its recovery for the full payment of the equipment already
delivered. As far as Kodak is concerned, it had already fully complied
with its separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of replevin is
proper insofar as the delivered Minilab Equipment unit and its standard
accessories are concerned, since Kodak Philippines, Ltd. had the right to
possess it:48
The purchase price of said equipment is P1,796,000.00 which, under
the agreement is payable with forty eight (48) monthly amortization. It
is undisputed that Sps. Lam made payments which amounted to Two
Hundred Seventy Thousand Pesos (P270,000.00) through the following
checks: Metrobank Check Nos. 00892620 and 00892621 dated 31
March 1992 and 30 April 1992 respectively in the amount of Thirty Five
Thousand Pesos (P35,000.00) each, and BPI Family Check dated 31 July
1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This
being the case, Sps. Lam are still liable to Kodak in the amount of One
Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00),
which is payable in several monthly amortization, pursuant to the
Letter Agreement. However, Sps. Lam admitted that sometime in May
1992, they had already ordered their drawee bank to stop the payment
on all the other checks they had issued to Kodak as payment for the
Minilab Equipment delivered to them. Clearly then, Kodak ha[d] the
right to repossess the said equipment, through this replevin suit. Sps.
Lam cannot excuse themselves from paying in full the purchase price of
the equipment delivered to them on account of Kodak’s breach of the
contract to deliver the other two (2) Minilab Equipment, as
contemplated in the Letter Agreement.49(Emphasis supplied)
Echoing the ruling of the trial court, the Court of Appeals held that the
liability of the Lam Spouses to pay the remaining balance for the first
delivered unit is based on the second sentence of Article 1592 of the
New Civil Code.50 The Lam Spouses’ receipt and use of the Minilab
Equipment before they knew that Kodak Philippines, Ltd. would not
deliver the two (2) remaining units has made them liable for the unpaid
portion of the purchase price.51
The Court of Appeals noted that Kodak Philippines, Ltd. sought the
rescission of its contract with the Lam Spouses in the letter dated
October 14, 1992.52 The rescission was based on Article 1191 of the
New Civil Code, which provides: "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."53 In its letter, Kodak
Philippines, Ltd. demanded that the Lam Spouses surrender the lone
delivered unit of Minilab Equipment along with its standard
accessories.54
The Court of Appeals likewise noted that the Lam Spouses rescinded
the contract through its letter dated November 18, 1992 on account of
Kodak Philippines, Inc.’s breach of the parties’ agreement to deliver the
two (2) remaining units.55
As a result of this rescission under Article 1191, the Court of Appeals
ruled that "both parties must be restored to their original situation, as
far as practicable, as if the contract was never entered into."56 The
Court of Appeals ratiocinated that Article 1191 had the effect of
extinguishing the obligatory relation as if one was never created:57
To rescind is to declare a contract void in its inception and to put an
end to it as though it never were. It is not merely to terminate it and to
release parties from further obligations to each other but abrogate it
from the beginning and restore parties to relative positions which they
would have occupied had no contract been made.58
The Lam Spouses were ordered to relinquish possession of the Minilab
Equipment unit and its standard accessories, while Kodak Philippines,
Ltd. was ordered to return the amount of ₱270,000.00, tendered by the
Lam Spouses as partial payment.59
As to the actual damages sought by the parties, the Court of Appeals
found that the Lam Spouses were able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the
rider to the contract of lease which made the Sps. Lam liable, by way of
advance payment, in the amount of P40,000.00, the same being
intended for the repair of the flooring of the leased premises; and
lastly, the payment of P300,000.00, as compromise agreement for the
pre-termination of the contract of lease with Ruales.60
The total amount is ₱440,000.00. The Court of Appeals found that all
other claims made by the Lam Spouses were not supported by
evidence, either through official receipts or check payments.61
As regards the generator set improperly seized from Kodak Philippines,
Ltd. on the basis of the writ of replevin, the Court of Appeals found that
there was no basis for the Lam Spouses’ claim for reasonable rental of
₱5,000.00. It held that the trial court’s award of 12% interest, in
addition to the cost of the generator set in the amount of ₱130,000.00,
is sufficient compensation for whatever damage the Lam Spouses
suffered on account of its improper seizure.62
The Court of Appeals also ruled on the Lam Spouses’ entitlement to
moral and exemplary damages, as well as attorney’s fees and litigation
expenses:
In seeking recovery of the Minilab Equipment, Kodak cannot be
considered to have manifested bad faith and malevolence because as
earlier ruled upon, it was well within its right to do the same. However,
with respect to the seizure of the generator set, where Kodak
misrepresented to the court a quo its alleged right over the said item,
Kodak’s bad faith and abuse of judicial processes become self-evident.
Considering the off-setting circumstances attendant, the amount of
P25,000.00 by way of moral damages is considered sufficient.
In addition, so as to serve as an example to the public that an
application for replevin should not be accompanied by any false claims
and misrepresentation, the amount of P50,000.00 by way of exemplary
damages should be pegged against Kodak.
With respect to the attorney’s fees and litigation expenses, We find
that there is no basis to award Sps. Lam the amount sought for.63
Kodak Philippines, Ltd. moved for reconsideration of the Court of
Appeals Decision, but it was denied for lack of merit.64 However, the
Court of Appeals noted that the Lam Spouses’ Opposition correctly
pointed out that the additional award of ₱270,000.00 made by the trial
court was not mentioned in the decretal portion of the March 30, 2005
Decision:
Going over the Decision, specifically page 12 thereof, the Court noted
that, in addition to the amount of Two Hundred Seventy Thousand
(P270,000.00) which plaintiff-appellant should return to the
defendantsappellants, the Court also ruled that defendants-appellants
should, in turn, relinquish possession of the Minilab Equipment and the
standard accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal portion of the
Decision. Hence, the proper correction should herein be made.65
The Lam Spouses filed this Petition for Review on April 14, 2005. On the
other hand, Kodak Philippines, Ltd. filed its Motion for
Reconsideration66 before the Court of Appeals on April 22, 2005.
While the Petition for Review on Certiorari filed by the Lam Spouses
was pending before this court, the Court of Appeals Special Fourteenth
Division, acting on Kodak Philippines, Ltd.’s Motion for Reconsideration,
issued the Amended Decision67 dated September 9, 2005. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, this Court resolved that:
A. Plaintiff-appellant’s Motion for Reconsideration is hereby DENIED for
lack of merit.
B. The decretal portion of the 30 March 2005 Decision should now read
as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26
February 1999 of the Regional Trial Court, Branch 65 in Civil Cases No.
92-3442 is hereby MODIFIED. Plaintiff-appellant is ordered to pay the
following:
a. P270,000.00 representing the partial payment made on the Minilab
equipment.
b. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are hereby ordered to
return to plaintiff-appellant the Minilab equipment and the standard
accessories delivered by plaintiff-appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of Appeals, Kodak
Philippines, Ltd. filed a Motion for Extension of Time to File an Appeal
by Certiorari under Rule 45 of the 1997 Rules of Civil Procedure before
this court.69
This was docketed as G.R. No. 169639. In the Motion for Consolidation
dated November 2, 2005, the Lam Spouses moved that G.R. No. 167615
and G.R. No. 169639 be consolidated since both involved the same
parties, issues, transactions, and essential facts and circumstances.70
In the Resolution dated November 16, 2005, this court noted the Lam
Spouses’ September 23 and September 30, 2005 Manifestations
praying that the Court of Appeals’ September 9, 2005 Amended
Decision be considered in the resolution of the Petition for Review on
Certiorari.71 It also granted the Lam Spouses’ Motion for
Consolidation.72
In the Resolution73 dated September 20, 2006, this court
deconsolidated G.R No. 167615 from G.R. No. 169639 and declared G.R.
No. 169639 closed and terminated since Kodak Philippines, Ltd. failed
to file its Petition for Review.
II
We resolve the following issues:
First, whether the contract between petitioners Spouses Alexander and
Julie Lam and respondent Kodak Philippines, Ltd. pertained to
obligations that are severable, divisible, and susceptible of partial
performance under Article 1225 of the New Civil Code; and
Second, upon rescission of the contract, what the parties are entitled to
under Article 1190 and Article 1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it executed with
respondent for three (3) Minilab Equipment units was not severable,
divisible, and susceptible of partial performance. Respondent’s
recovery of the delivered unit was unjustified.74
Petitioners assert that the obligations of the parties were not
susceptible of partial performance since the Letter Agreement was for a
package deal consisting of three (3) units.75 For the delivery of these
units, petitioners were obliged to pay 48 monthly payments, the total
of which constituted one debt.76 Having relied on respondent’s
assurance that the three units would be delivered at the same time,
petitioners simultaneously rented and renovated three stores in
anticipation of simultaneous operations.77 Petitioners argue that the
divisibility of the object does not necessarily determine the divisibility
of the obligation since the latter is tested against its susceptibility to a
partial performance.78 They argue that even if the object is susceptible
of separate deliveries, the transaction is indivisible if the parties
intended the realization of all parts of the agreed obligation.79
Petitioners support the claim that it was the parties’ intention to have
an indivisible agreement by asserting that the payments they made to
respondent were intended to be applied to the whole package of three
units.80 The postdated checks were also intended as initial payment for
the whole package.81 The separate purchase price for each item was
merely intended to particularize the unit prices, not to negate the
indivisible nature of their transaction.82 As to the issue of delivery,
petitioners claim that their acceptance of separate deliveries of the
units was solely due to the constraints faced by respondent, who had
sole control over delivery matters.83
With the obligation being indivisible, petitioners argue that
respondent’s failure to comply with its obligation to deliver the two (2)
remaining Minilab Equipment units amounted to a breach. Petitioners
claim that the breach entitled them to the remedy of rescission and
damages under Article 1191 of the New Civil Code.84
Petitioners also argue that they are entitled to moral damages more
than the ₱50,000.00 awarded by the Court of Appeals since
respondent’s wrongful act of accusing them of non-payment of their
obligations caused them sleepless nights, mental anguish, and
wounded feelings.85 They further claim that, to serve as an example for
the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith and
in a wanton, oppressive, capricious, and malevolent manner.86
Petitioners also assert that they are entitled to attorney’s fees and
litigation expenses under Article 2208 of the New Civil Code since
respondent’s act of bringing a suit against them was baseless and
malicious. This prompted them to engage the services of a lawyer.87
Respondent argues that the parties’ Letter Agreement contained
divisible obligations susceptible of partial performance as defined by
Article 1225 of the New Civil Code.88 In respondent’s view, it was the
intention of the parties to be bound separately for each individually
priced Minilab Equipment unit to be delivered to different outlets:89
The three (3) Minilab Equipment are intended by petitioners LAM for
install[a]tion at their Tagum, Davao del Norte, Sta. Cruz, Manila and
Cotabato City outlets. Each of these units [is] independent from one
another, as many of them may perform its own job without the other.
Clearly the objective or purpose of the prestation, the obligation is
divisible.
The nature of each unit of the three (3) Minilab Equipment is such that
one can perform its own functions, without awaiting for the other units
to perform and complete its job. So much so, the nature of the object
of the Letter Agreement is susceptible of partial performance, thus the
obligation is divisible.90
With the contract being severable in character, respondent argues that
it performed its obligation when it delivered one unit of the Minilab
Equipment.91 Since each unit could perform on its own, there was no
need to await the delivery of the other units to complete its
job.92 Respondent then is of the view that when petitioners ordered the
depository bank to stop payment of the issued checks covering the first
delivered unit, they violated their obligations under the Letter
Agreement since respondent was already entitled to full payment.93
Respondent also argues that petitioners benefited from the use of the
Minilab Equipment for 10 months—from March to December 1992—
despite having paid only two (2) monthly installments.94 Respondent
avers that the two monthly installments amounting to ₱70,000.00
should be the subject of an offset against the amount the Court of
Appeals awarded to petitioners.95
Respondent further avers that petitioners have no basis for claiming
damages since the seizure and recovery of the Minilab Equipment was
not in bad faith and respondent was well within its right.96
III
The Letter Agreement contained an indivisible obligation.
Both parties rely on the Letter Agreement97 as basis of their respective
obligations. Written by respondent’s Jeffrey T. Go and Antonio V. Mines
and addressed to petitioner Alexander Lam, the Letter Agreement
contemplated a "package deal" involving three (3) units of the Kodak
Minilab System 22XL, with the following terms and conditions:
This confirms our verbal agreement for Kodak Phils., Ltd. to provide
Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab System
22XL . . . for your proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo counter in
Cotabato City under the following terms and conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple
order discount based on prevailing equipment price provided said
equipment packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of the
contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of
24% interest rate for the first 12 months; the balance shall be re-
amortized for the remaining 36 months and the prevailing interest shall
be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992
is at ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]98
Based on the foregoing, the intention of the parties is for there to be a
single transaction covering all three (3) units of the Minilab Equipment.
Respondent’s obligation was to deliver all products purchased under a
"package," and, in turn, petitioners’ obligation was to pay for the total
purchase price, payable in installments.
The intention of the parties to bind themselves to an indivisible
obligation can be further discerned through their direct acts in relation
to the package deal. There was only one agreement covering all three
(3) units of the Minilab Equipment and their accessories. The Letter
Agreement specified only one purpose for the buyer, which was to
obtain these units for three different outlets. If the intention of the
parties were to have a divisible contract, then separate agreements
could have been made for each Minilab Equipment unit instead of
covering all three in one package deal. Furthermore, the 19% multiple
order discount as contained in the Letter Agreement was applied to all
three acquired units.99 The "no downpayment" term contained in the
Letter Agreement was also applicable to all the Minilab Equipment
units. Lastly, the fourth clause of the Letter Agreement clearly referred
to the object of the contract as "Minilab Equipment Package."
In ruling that the contract between the parties intended to cover
divisible obligations, the Court of Appeals highlighted: (a) the separate
purchase price of each item; (b) petitioners’ acceptance of separate
deliveries of the units; and (c) the separate payment arrangements for
each unit.100 However, through the specified terms and conditions, the
tenor of the Letter Agreement indicated an intention for a single
transaction. This intent must prevail even though the articles involved
are physically separable and capable of being paid for and delivered
individually, consistent with the New Civil Code:
Article 1225. For the purposes of the preceding articles, obligations to
give definite things and those which are not susceptible of partial
performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical units,
or analogous things which by their nature are susceptible of partial
performance, it shall be divisible.
However, even though the object or service may be physically divisible,
an obligation is indivisible if so provided by law or intended by the
parties. (Emphasis supplied)
In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is
tested against whether it can be the subject of partial performance:
An obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof.
The indivisibility refers to the prestation and not to the object
thereof. In the present case, the Deed of Sale of January 29, 1970
supposedly conveyed the six lots to Natividad. The obligation is clearly
indivisible because the performance of the contract cannot be done in
parts, otherwise the value of what is transferred is diminished.
Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors.102 (Emphasis supplied, citation
omitted)
There is no indication in the Letter Agreement that the units petitioners
ordered were covered by three (3) separate transactions. The factors
considered by the Court of Appeals are mere incidents of the execution
of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the
part of petitioners. The intention to create an indivisible contract is
apparent from the benefits that the Letter Agreement afforded to both
parties. Petitioners were given the 19% discount on account of a
multiple order, with the discount being equally applicable to all units
that they sought to acquire. The provision on "no downpayment" was
also applicable to all units. Respondent, in turn, was entitled to
payment of all three Minilab Equipment units, payable by installments.
IV
With both parties opting for rescission of the contract under Article
1191, the Court of Appeals correctly ordered for restitution.
The contract between the parties is one of sale, where one party
obligates himself or herself to transfer the ownership and deliver a
determinate thing, while the other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the meeting of minds
as to the object and the price, and the parties may reciprocally demand
the performance of their respective obligations from that point on.104
The Court of Appeals correctly noted that respondent had rescinded
the parties’ Letter Agreement through the letter dated October 14,
1992.105 It likewise noted petitioners’ rescission through the letter
dated November 18, 1992.106This rescission from both parties is
founded on Article 1191 of the New Civil Code:
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 fulfilment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfilment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
Rescission under Article 1191 has the effect of mutual
restitution.107 In Velarde v. Court of Appeals:108
Rescission abrogates the contract from its inception and requires a
mutual restitution of benefits received.
....
Rescission creates the obligation to return the object of the contract. It
can be carried out only when the one who demands rescission can
return whatever he may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no contract has been
made.109 (Emphasis supplied, citations omitted)
The Court of Appeals correctly ruled that both parties must be restored
to their original situation as far as practicable, as if the contract was
never entered into. Petitioners must relinquish possession of the
delivered Minilab Equipment unit and accessories, while respondent
must return the amount tendered by petitioners as partial payment for
the unit received. Further, respondent cannot claim that the two (2)
monthly installments should be offset against the amount awarded by
the Court of Appeals to petitioners because the effect of rescission
under Article 1191 is to bring the parties back to their original positions
before the contract was entered into. Also in Velarde:
As discussed earlier, the breach committed by petitioners was the
nonperformance of a reciprocal obligation, not a violation of the terms
and conditions of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate
the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191
of the Civil Code, mutual restitution is required to bring back the parties
to their original situation prior to the inception of the contract.
Accordingly, the initial payment of ₱800,000 and the corresponding
mortgage payments in the amounts of ₱27,225, ₱23,000 and ₱23,925
(totaling ₱874,150.00) advanced by petitioners should be returned by
private respondents, lest the latter unjustly enrich themselves at the
expense of the former.110 (Emphasis supplied)
When rescission is sought under Article 1191 of the Civil Code, it need
not be judicially invoked because the power to resolve is implied in
reciprocal obligations.111 The right to resolve allows an injured party to
minimize the damages he or she may suffer on account of the other
party’s failure to perform what is incumbent upon him or her.112 When
a party fails to comply with his or her obligation, the other party’s right
to resolve the contract is triggered.113 The resolution immediately
produces legal effects if the non-performing party does not question
the resolution.114 Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes
the resolution of the contract.115 Since both parties in this case have
exercised their right to resolve under Article 1191, there is no need for
a judicial decree before the resolution produces effects.
V
The issue of damages is a factual one. A petition for review on certiorari
under Rule 45 shall only pertain to questions of law.116 It is not the duty
of this court to re-evaluate the evidence adduced before the lower
courts.117Furthermore, unless the petition clearly shows that there is
grave abuse of discretion, the findings of fact of the trial court as
affirmed by the Court of Appeals are conclusive upon this
court.118 In Lorzano v. Tabayag, Jr.:119
For a question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the
question posed is one of fact.
....
For the same reason, we would ordinarily disregard the petitioner’s
allegation as to the propriety of the award of moral damages and
attorney’s fees in favor of the respondent as it is a question of fact.
Thus, questions on whether or not there was a preponderance of
evidence to justify the award of damages or whether or not there was a
causal connection between the given set of facts and the damage
suffered by the private complainant or whether or not the act from
which civil liability might arise exists are questions of fact.
Essentially, the petitioner is questioning the award of moral damages
and attorney’s fees in favor of the respondent as the same is
supposedly not fully supported by evidence. However, in the final
analysis, the question of whether the said award is fully supported by
evidence is a factual question as it would necessitate whether the
evidence adduced in support of the same has any probative value. For a
question to be one of law, it must involve no examination of the
probative value of the evidence presented by the litigants or any of
them.120 (Emphasis supplied, citations omitted)
The damages awarded by the Court of Appeals were supported by
documentary evidence.121 Petitioners failed to show any reason why the
factual determination of the Court of Appeals must be reviewed,
especially in light of their failure to produce receipts or check payments
to support their other claim for actual damages.122
Furthermore, the actual damages amounting to ₱2,040,000.00 being
sought by petitioners123 must be tempered on account of their own
failure to pay the rest of the installments for the delivered unit. This
failure on their part is a breach of their obligation, for which the liability
of respondent, for its failure to deliver the remaining units, shall be
equitably tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of Appeals:125
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M. Tolentino failed
to comply with his obligation to pay his ₱17,000.00 debt within 3 years
as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that
the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his
overdue ₱17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his ₱17,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some
benefit for his use of the ₱17,000.00, it is just that he should account
for the interest thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also appears to be
sufficient. Moral damages are granted to alleviate the moral suffering
suffered by a party due to an act of another, but it is not intended to
enrich the victim at the defendant’s expense.127 It is not meant to
punish the culpable party and, therefore, must always be reasonable
vis-a-vis the injury caused.128 Exemplary damages, on the other hand,
are awarded when the injurious act is attended by bad faith.129 In this
case, respondent was found to have misrepresented its right over the
generator set that was seized. As such, it is properly liable for (c) P440,000.00 as actual damages;
exemplary damages as an example to the public.130
(d) P25,000.00 as moral damages;
However, the dispositive portion of the Court of Appeals Amended
Decision dated September 9, 2005 must be modified to include the (e) P50,000.00 as exemplary damages; and
recovery of attorney’s fees and costs of suit in favor of petitioners.
In Sunbanun v. Go:131 (f) P20,000.00 as attorney's fees.

Furthermore, we affirm the award of exemplary damages and Petitioners are ordered to return the Kodak Minilab System 22XL unit
attorney’s fees. Exemplary damages may be awarded when a wrongful and its standard accessories to respondent.
act is accompanied by bad faith or when the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner which SO ORDERED.
would justify an award of exemplary damages under Article 2232 of the
Civil Code. Since the award of exemplary damages is proper in this
case, attorney’s fees and cost of the suit may also be recovered as
provided under Article 2208 of the Civil Code.132 (Emphasis supplied,
citation omitted)

Based on the amount awarded for moral and exemplary damages, it is

reasonable to award petitioners ₱20,000.00 as attorney’s fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated

September 9, 2005 is AFFIRMED with MODIFICATION. Respondent
Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and Julie
Lam:

(a) P270,000.00, representing the partial payment made on the Minilab

Equipment;

(b) P130,000.00, representing the amount of the generator set, plus

legal interest at 12% .per annum from December 1992 until fully paid;
 because of the invalidity of the principal contracts of lease, and considering
that the defendant cannot be held to have confirmed these contracts
because they were not susceptible of confirmation, it is clear that the
parties should be left where they are. The courts will aid neither of them to
enforce any stipulation in these contracts. 

DECISION

BOCOBO, J.:

This case commenced with a complaint filed by the Municipality of Hagonoy

to enforce against the defendant a penal clause which forms a part of each
[G.R. No. 48289. June 1, 1942.] of four contracts of lease of fishponds belonging to the plaintiff. Said penal
clause provided that in case of nonfulfillment by the lessee, the latter
THE MUNICIPALITY OF HAGONOY, Plaintiff-Appellant, v. TEOFILO would pay a surcharge (recargo) of 20 per cent. These four leases were
EVANGELISTA, Defendant-Appellee.  originally granted to Jose Evangelista as the best bidder, for ten years
from July 1, 1925 to June 30, 1935. These leases were transferred by Jose
Provincial Fiscal Iñigo S. Daza ,for Appellant.  Evangelista to Josefa Evangelista on February 1, 1926 and October 26,
1927. Neither the original leases nor the transfers thereof were submitted
Graciano T. Natividad, for Appellee.  to the Provincial Governor. There is no record either that the leases and
the transfers were approved by that provincial official. Toward the end of
SYLLABUS the 9th year of the leases, that is, on May 14, 1934, Josefa Evangelista
died, but she was succeeded by the defendant Teofilo Evangelista. The
1. CONTRACTS OF LEASE OF MUNICIPAL FISHPONDS; APPROVAL BY next month, on June 30, 1934, Teofilo Evangelista presented a written
PROVINCIAL GOVERNOR; PERIOD FOR SUCH LEASES; ACTS EXECUTED petition to the Municipal Council of Hagonoy, through the Municipal
CONTRARY TO LAW. — The leases here in question were void for lack of President, asking for an extension of time for the payment of the rent,
approval by the provincial governor as required by section 2196 of the without surcharge, till September 1, 1934. By resolution No. 81, passed on
Revised Administrative Code. And even if the provincial governor had July 15, 1934, the Municipal Council granted the defendant’s request, and
approved these leases, they would still be void after the first five years, was permitted to pay the rent in two installments, thus: P5,000 on or
because under sections 2323 and 2319 of the Revised Administrative before July 30, 1934, and the rest, P4,861.25 on August 20 of the same
Code, no municipality can enter into any lease of fishponds for more than year, without surcharge. This resolution of the Municipal Council was
five years. Acts executed contrary to the provisions of the law are void, approved by the Provincial Board of Bulacan on August 31, 1934. The
except in cases where the law itself orders their validity. As these leases defendant paid the entire sum of P9,861.25 within the periods specified in
were contrary to law, they were void.  resolution No. 81 of the Municipal Council of Hagonoy. 

2. ID.; EFFECT OF VOID PRINCIPAL OBLIGATION UPON PENAL CLAUSE; The trial court dismissed the complaint on the ground that both the
VOID CONTRACTS NOT SUSCEPTIBLE OF CONFIRMATION; PARTIES LEFT plaintiff and the defendant had acted in good faith on the erroneous belief
WHERE COURT FINDS THEM. — The principal obligation being void, the that the Municipal Council had power to grant the extension of time for the
accessory obligation, namely, the penal clause sought to be enforced by payment of the rent. The court said: red:chanrobles.com.ph

the plaintiff, is also void. The nullity of the principal obligation carries with
it that of the penal clause. The penal clauses in question being void
". . . In other words, it is manifest that both parties acted upon the
erroneous assumption that the Municipal Council of Hagonoy could grant
an extension of time for the payment of the rental and waive the penalty
stipulated, even without substantial consideration therefor. The mistake
was common and was committed in good faith. Under these circumstances
the Municipality of Hagonoy should not be allowed to benefit itself at the
expense of the defendant after the latter has complied strictly with the
conditions laid in resolution No. 81. The defendant having applied in
writing for an extension of time on June 30, 1934 (before the due date),
the plaintiff should have acted upon it immediately; and after having
granted the extension on July 15, 1934 the plaintiff should have notified
the defendant of its intention to disregard resolution No. 81 because of its
illegality, demanding at the same time the payment of the whole amount
due within a reasonable time. Had this been done, and had the defendant
failed to pay the rent due within the reasonable time granted to him, then
it would not be unreasonable to compel him to pay the penalty." (Bill of
Exceptions, pp. 43, 44.) .  conditions as shall be prescribed by the Department Head."
The plaintiff-appellant maintains that the Municipal Council had no power
to extend the time for payment of the rent, without any valuable
consideration, especially because these leases had been granted after
public bidding.  An important question arises at this juncture, and that is, whether the
It is unnecessary to pass upon this aspect of the case because we believe,
and so hold, that these leases were void for lack of approval by the
Provincial Governor as required by section 2196 of the Revised
Administrative Code, and that the principal obligation being void, the
accessory obligation, namely, the penal clause sought to be enforced by
the plaintiff, is also void.  These questions depend upon the nature of these leases, whether they
Said section 2196 of the Revised Administrative Code provides as
follows: jgc:chanrobles.com.ph
"SEC. 2196. Execution of deeds. — When the government of a municipality
is party to a deed or an instrument which conveys real property or any
interest therein or which creates a lien upon the same, such deed or
instrument shall be executed on behalf of the municipal government by the
mayor, upon resolution of the council, with the approval of the provincial
governor." cralaw virtua1aw library
And even if the Provincial Governor had approved these leases, they would
still be void after the first five years, because under sections 2323 and
2319 of the Revised Administrative Code, no municipality can enter into
any lease of fishponds for more than five years. Said legal provisions
read:jgc:chanrobles.com.ph
"SEC. 2323. Restriction upon letting of fishery to private party. — When a
fishery or fish-breeding ground is granted to a private party as
hereinabove authorized, the same shall be let to the highest bidder in the
manner and subject to the conditions prescribed in section two thousand
three hundred and nineteen hereof." cralaw virtua1aw library
x           x           x
"SEC. 2319. Letting of municipal ferry, market, or slaughterhouse to
highest bidder. — When any ferry, market, or slaughterhouse belonging to
a municipality is to be let to a private party, the same shall, unless
otherwise directed by the Department Head, be let to the highest and best
bidder for the period of one year or, upon the previous approval of the
provincial board, for a longer period not exceeding five years, under such
cralaw virtua1aw library
And article 1155 of the Civil Code reads: "The nullity of the principal
obligation carries with it that of the penal clause." cralaw virtua1aw library
defendant, after he and his predecessors in interest have acted upon these
leases for years, may set up their defectiveness to resist a demand based
upon the penal clause. Is not the defendant estopped from so doing? Has
not the course of conduct followed by him and his predecessors confirmed
the leases?
were merely voidable or they were void. If the former, they could be
ratified by the lessee; in the latter case, no act of the parties could confirm
or validate these contracts. We believe these leases were void because
section 2196 of the Revised Administrative Code in effect forbids all
contracts affecting municipal real property which have not received the
sanction of the Provincial Governor. And even if such approval of the
Provincial Governor had been secured, these contracts would be void from
the commencement of the sixth year, according to sections 2323 and 2319
of the Revised Administrative Code already quoted. 
Article 42 of the Civil Code reads: "Son nulos los actos ejecutados contra lo
dispuesto en la ley, salvo los casos en que la misma ley ordene su
validez." ("Acts executed contrary to the provisions of the law are void,
except in cases where the law itself orders their validity.") As these leases
were contrary to law, they were void. 
The penal clauses in question being void because of the invalidity of the
principal contracts of lease, and considering that the defendant cannot be
held to have confirmed these contracts because they were not susceptible
of confirmation, it is clear that the parties should be left where they are.
The courts will aid neither of them to enforce any stipulation in these
contracts. The municipality seeks the fulfillment of the penal clause,
whereby the defendant promised to pay 20 per cent surcharge in case of
noncompliance with the terms of the leases. The courts will not exercise
their authority for the purpose of enforcing such penal clause. 

Therefore, the judgment of the lower court dismissing the complaint should
be and is hereby affirmed, with costs against the plaintiff. So ordered.