G.R. No. 107737 October 1, 1999 JUAN L. PEREZ, LUIS KEH, CHARLIE LEE and ROSENDO G. TANSINSIN, JR.

, petitioners, vs. COURT OF APPEALS, LUIS CRISOSTOMO and VICENTE ASUNCION, respondents. GONZAGA-REYES, J.: This is a petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the decision of the Regional Trial Court of Bulacan, Branch 9 2 that disposed of Civil Case No. 5610-M (Luis Crisostomo v. Luis Keh, Juan Perez, Charlie Kee and Atty. Rosendo G. Tansinsin, Jr.) as follows: WHEREFORE, premises considered, judgment is hereby rendered: a) directing defendant JUAN PEREZ to allow plaintiff LUIS CRISOSTOMO to occupy and operate the "Papaya Fishpond" for a period of 5 1/2 years at the rental rates of P150,000.00 for the first six months and P175,000.00 for the remaining five years (the same rates provided for in Exh. 4); b) ordering defendants LUIS KEH, CHARLIE LEE, JUAN PEREZ and Atty. ROSENDO TANSINSIN, JR. to pay unto the plaintiff the amounts of P150,000.00 as actual damages; P20,000.00 as moral damages; P20,000.00 as exemplary damages; and P10,000.00 as attorney's fees, plus the costs of the suit; c) directing the release, delivery or payment directly to plaintiff LUIS CRISOSTOMO of the amounts of P128,572.00 and P123,993.85, including the interests which may have already accrued thereon, deposited with the Paluwagan ng Bayan Savings Bank (Paombong, Bulacan Branch) in the name of the Clerk of Court and/or Deputy Clerk of Court Rodrigo C. Libunao under this Court's Order dated February 14, 1980; however, the plaintiff is required to pay defendant Perez the corresponding rental on the fishpond for the period June 1979-January 1980 based on

the rate of P150,000.00 per annum, deducting therefrom the amount of P21,428.00 already paid to and received by then co-usufructuary Maria Perez (Exh. E); d) dismissing the defendants' separate counterclaims for damages, for lack of merit; and e) dismissing the Pleading in Intervention Pro Interesse Suo filed by VICENTE ASUNCION on the ground of lis pendens. SO ORDERED. The facts upon which the Court of Appeals based its Decision are the following: Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and Vicente Asuncion, petitioner Juan Perez is a usufructuary of a parcel of land popularly called the "Papaya Fishpond." Covered by Transfer Certificate of Title No. 8498 of the Registry of Deeds for the Province of Bulacan, the fishpond is located in Sto. Rosario, Hagonoy, Bulacan and has an area of around 110 hectares. On June 5, 1975, the usufructuaries entered into a contract leasing the fishpond to Luis Keh for a period of five (5) years and renewable for another five (5) years by agreement of the parties, under the condition that for the first five-year period the annual rental would be P150,000.00 and for the next five years, P175,000.00. Paragraph 5 of the lease contract states that the lessee "cannot sublease" the fishpond "nor assign his rights to anyone." 3 Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman engaged in the operation of fishponds. On September 20, 1977, while he was at his fishpond in Almazar, Hermosa, Bataan, his bosom friend named Ming Cosim arrived with petitioner Charlie Lee. The two persuaded private respondent to take over the operation of "Papaya Fishpond" as petitioner Lee and his partner, petitioner Luis Keh, were allegedly losing money in its operation. Private respondent having acceded to the proposal, sometime in December of that year, he and petitioners Lee and Keh executed a written agreement denominated as "pakiao buwis" whereby private respondent would take possession of the "Papaya Fishpond" from January 6, 1978 to June 6, 1978 in consideration of the amount of P128,000.00 broken down as follows: P75,000.00 as rental, P50,000.00 for the value of milkfish in the fishpond and P3,000 for labor expenses. Private respondent paid the P75,000.00 to petitioner Keh at the house of petitioner Lee in Sta. Cruz, Hagonoy, Bulacan in the presence of

Lee's wife, brother-in-law and other persons. He paid the balance to petitioner Lee sometime in February or March 1978 because he was uncertain as to the right of petitioners Keh and Lee to transfer possession over the fishpond to him. Private respondent made that payment only after he had received a copy of a written agreement dated January 9, 1978 4 whereby petitioner Keh ceded, conveyed and transferred all his "rights and interests" over the fishpond to petitioner Lee, "up to June 1985." From private respondent's point of view, that document assured him of continuous possession of the property for as long as he paid the agreed rentals of P150,000.00 until 1980 and P.175,000.00 until 1985. 1wphi1.nt For the operation of the fishpond from June 1978 to May 1979, private respondent, accompanied by Ming Cosim and Ambrocio Cruz, paid the amount of P150,000.00 at the Malabon, Metro Manila office of petitioner Keh. The following receipt was issued to him: RECEIPT June 6, 1978 P150.000,00 Received from Mr. LUIS KEH the sum of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00), Philippine Currency, as full payment of the yearly leased rental of the Papaya Fishpond for the year beginning June 1978 and ending on May 1979. The next payment shall be made on June 6, 1979. Said sum was paid in Producers Bank of the Philippines Check No. (illegible) 164595 dated June 6, 1978. Mr. Luis Keh has not transferred his rights over the fishpond to any person. Caloocan City, June 6, 1978. JUAN L. PEREZ ET AL. By: (Sgd.) Rosendo G. Tansinsin, Jr. CONFORME TO THE ABOVE: (Sgd.) LUIS KEH Handwritten below that receipt but above the signature of petitioner Charlie Lee, are the following: "Rec'd from Luis Crisostomo sum of one hundred fifty-four thousand P154,000.00 for above payment. 5

Private respondent incurred expenses for repairs in and improvement of the fishpond in the total amount of P486,562.65. 6 However, sometime in June 1979, petitioners Tansinsin and Juan Perez, in the company of men bearing armalites, went to the fishpond and presented private respondent with a letter dated June 7, 1979 showing that petitioner Luis Keh had surrendered possession of the fishpond to the usufructuaries. Because of the threat to deprive him of earnings of around P700,000.00 that the 700,000 milkfish in the fishpond would yield, and the refusal of petitioners Keh, Juan Perez and Lee to accept the rental for June 5, 1979 to June 6, 1980, private respondent filed on June 14, 1979 with the then Court of First Instance of Bulacan an action for injunction and damages. He prayed for the issuance of a restraining order enjoining therein defendants Keh, Perez and Lee from entering the premises and taking possession of the fishpond. He also prayed for actual damages of P50,000.00, moral damages of P20,000.00, exemplary damages in an amount that the court might award, and attorney's fees of P10,000.00. 7 That same day, June 14, 1979, the lower court granted the prayer for a restraining order. On November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez (who died in 1984), the amount of P21,428.00 as her 1/7 share of the annual rental of the fishpond for 1979-80. Maria Perez issued a notarized receipt for that amount. 8 On January 11, 1980, the court lifted the restraining order thereby effectively depriving private respondent of possession over the fishpond. On February 14, 1980, the parties submitted a partial compromise agreement with the following stipulations: 1. The amount of P128,572.00 that private respondent deposited as rental with the Office of the Clerk of Court under O.R. No. 21630 dated November 15, 1979 be withdrawn from that office and deposited with the Paluwagan ng Bayan Savings & Loan Association, Inc. (Paombong, Bulacan branch) and which deposit shall not be withdrawn unless authorized by the court; and 2. The plaintiff could personally harvest milkfish "with commercial value" in the presence of Perez and under the supervision of the deputy clerk of court within the appointed period and that the net proceeds of the sale (P123,993.85 per the Report dated March 4, 1980 of the deputy clerk of court)

be deposited in the name of the deputy clerk of court of Branch 6 of the then Court of First Instance of Bulacan with the same branch of the Paluwagan ng Bayan Savings & Loan Association, Inc. and which deposit shall not be withdrawn unless upon order of the court after hearing. The court approved that agreement on that same date. Thereafter, the usufructuaries entered into a contract of lease with Vicente Raymundo and Felipe Martinez for the six-year period of June 1, 1981 to May 30, 1987 in consideration of the annual rentals of P550,000.00 for the first two years and P400,000.00 for the next four years. Upon expiration of that lease, the same property was leased to Pat Laderas for P1 million a year. The complaint was later amended to include petitioner Tansinsin, the alleged administrator of the fishpond, as one of the defendants. 9 Except in the joint answer that the defendants had filed, petitioners Keh and Lee did not appear before the court. Neither did they testify. In their defense, petitioners Juan Perez and Tansinsin presented evidence to prove that they had negotiated for the lease of the property with Benito Keh in 1975. However, they averred, for reasons unknown to petitioner Perez, in the contract of lease that petitioner Tansinsin prepared, petitioner Luis Keh was named as lessee. Petitioner Perez had never met Keh or Lee but according to petitioner Tansinsin, petitioner Luis Keh was substituted for Benito Keh because the latter was preoccupied with his other businesses. Sometime in 1979, petitioner Keh's agent named Catalino Alcantara relayed to petitioner Perez, Keh's intention to surrender possession of the fishpond to the usufructuaries. Because petitioner Perez demanded that said intention should be made in writing, on June 5, 1979, Perez received from Keh a letter to that effect. When private respondent received a copy of that letter of petitioner Keh, he took the position that petitioner Perez had no right to demand possession of the fishpond from him because Perez had no contract with him. Private respondent was allowed four (4) months within which to vacate the premises but he immediately filed the complaint for injunction and damages. Thereafter, private respondent's counsel, Atty. Angel Cruz and other persons tried to prevail upon petitioner Perez to allow private respondent to occupy the property for three (3) more years. Petitioner Perez declined that proposition.

On September 6, 1989, the lower court rendered the aforesaid decision. It arrived at the conclusion that the defendants therein "conspired with one another to exploit the plaintiff's naivete and educational inadequacies and, in the process, to defraud him by inducing him into taking possession of the "Papaya Fishpond" in their fond hope that, as soon as the plaintiff applying his known expertise as a successful fishpond operator shall have considerably improved the fishpond, they will regain possession of the premises and offer the lease thereof to other interested parties at much higher rental rates as laid bare by supervening realities." That conclusion was founded on the following: 1. The plaintiffs (private respondent Crisostomo's) testimony bears the "hallmarks of truth: candid, straightforward and uncontrived." He had proven himself a "much more credible witness than his opponents." 2. The notarized receipt of Maria Perez of her share as a usufructuary in the rental for 1979-80 is a "clear avowal of plaintiffs legitimate operation of the "Papaya Fishpond" as assignee or transferee thereof." It was impossible for the other usufructuaries, especially Juan Perez who was residing in the same locality and actively involved in the "affairs of the fishpond," not to have known that plaintiff occupied the fishpond for one and a half years as assignee of Keh and Lee. It was unbelievable that both Tansinsin and Perez would only perceive the plaintiff as a mere encargado of Keh and Lee. 3. The receipt whereby Tansinsin acknowledged payment of P150,000.00 as rental for June 1978May 1979 bears "tell-tale signs" of the conspiracy. Firstly, the statement "Mr. Luis Keh has not transferred his rights over the fishpond to any person" is entirely irrelevant to that receipt unless it was intended "to preempt plaintiff's claim of rights and interests over the said property as either sub-lessee or assignee." Secondly, Keh's having signified "Conforme to the above" is a gratuitous notation as it actually indicates that the

money came from the plaintiff. Thirdly, Atty. Tansinsin's receipt of the amount for and in behalf of "JUAN L. PEREZ ET AL." illustrates his "active and dominant role in the affairs" of the fishpond whether as administrator thereof or as beneficiary of a share from its fruits. 4. Service upon plaintiff of Keh's letter surrendering possession of the fishpond implied that defendants knew that plaintiff was in possession thereof. That they resorted to the intimidating presence of armed men is proof that they expected the plaintiff to refuse to give up possession of the property. These circumstances "completely belie the protestations of Perez and Tansinsin of lack of knowledge of the contract entered into" between the plaintiff, and Lee and Keh. 5. The nonpresentation of Lee and Keh on the witness stand by Atty. Tansinsin "can very well be construed as a smart maneuver to cover up the sinister cabal for deception inferrable from the attendant facts and circumstances." In their joint answer, Keh and Lee tried to relieve Perez of any liability in favor of the plaintiff. That is understandable "because, should the Court disregard the reliance of Perez on the prohibition against sub-lease or assignment of the "Papaya Fishpond", then all the defendants shall have exposed themselves to unavoidable liability for the acts complained of by the plaintiff." 6. Atty. Tansinsin was the common legal counsel of all the defendants and, by his testimony, even the plaintiff. Atty. Tansinsin's denial that he was plaintiffs counsel was his way of "deflecting plaintiffs imputations of professional improprieties against him." Plaintiff must have assumed that Atty. Tansinsin was also his lawyer considering that they were "on very friendly terms" and therefore Atty. Tansinsin might have been

instrumental in dispelling whatever fears plaintiff had entertained as regards the business transactions involved. 7. The fact that the fishpond was subsequently rented out for astronomical amounts is proof that the plaintiff had considerably improved the fishpond. 10 The lower court added: Bluntly yet succinctly put, the foregoing circumstances when viewed collectively with other cogent aspects of the instant case inexorably lead to the Court's well-considered view that the defendants tempted by the bright prospect of a lucrative business coup embarked themselves in an egregious scheme to take undue advantage of the gullibility of the plaintiff who, as borne by ensuing events, proved himself an ideal victim to prey upon: pathetically unsuspecting yet only too eager to invest his material resources and self-acquired technical know-how to redeem what was then a dwindling business enterprise from total collapse. Plaintiffs impressive performance, alas, only redounded ultimately to the supreme benefit exclusively of the defendants. A classic case of "ako ang nagsaing, iba ang kumain!" The defendants elevated the case to the Court of Appeals which, as earlier mentioned, affirmed the decision of the trial court and disposed of the appeal on February 18, 1992 as follows: WHEREFORE, in view of all the foregoing, judgment appealed from, is hereby AFFIRMED. However, intervenor-appellant is hereby declared cousufructuary of the Papaya fishpond, and is, therefore, entitled to all rights and interest due to the usufructuaries of the said fishpond. SO ORDERED. On the defendant-appellants' contention that the principle of res judicata should be applied because the Court of Appeals had ruled on the issue of possession in CA-G.R. No. 10415-R, a petition for certiorari and injunction with preliminary mandatory injunction, the Court of Appeals held that said principle was unavailing. The petition in CA-G.R. No. 10415-R involved a writ of injunction "which presupposes the pendency of a principal or main action." Moreover, the decision in that case did not resolve the issue of who should

be in possession of the Papaya Fishpond as findings of fact of the trial court cannot be reviewed in a certiorari proceeding.1wphi1.nt The Court of Appeals ruled further that appellee Crisostomo "cannot be considered a possessor in bad faith, considering that he took possession of the fishpond when appellants Keh and Lee assigned to him appellant Keh's leasehold right." It held that appellant Perez knew of the transfer of possession of the fishpond to appellee and that the receipt evidencing payment of the 1978-1979 rental even bears an expressed admission by Lee that the payment came from appellee Crisostomo. Agreeing with the court a quo that "defendants-appellants employed fraud to the damage and prejudice of plaintiff-appellee," the Court of Appeals held that appellants should be held liable for damages. As regards the intervention pro interesse suo, the appellate court ruled that the same should be allowed because, even if the litigation would not be technically binding upon him, complications might arise that would prejudice his rights. Pointing out that a usufruct may be transferred, assigned or disposed of, the Court of Appeals ruled that the intervenor cannot be excluded as a usufructuary because he had acquired his right as such from a sale in execution of the share of Jorge Lorenzo, one of the usufructuaries of the fishpond. Herein petitioners filed a motion for the reconsideration of that Decision of the Court of Appeals. They alleged that the Decision was premature because it was rendered when they had not yet even received a copy of the intervenor's brief wherein assignments of errors that directly affected their rights and interests were made. They insisted that the principle of res judicata was applicable because in G.R. No. 64354, this Court upheld the Decision of the Court of Appeals in CA-G.R. No. 10415. They added that appellee Crisostomo was guilty of forum shopping because the issue of possession had been "squarely decided" in CA-G.R. No. 10415. They stressed that the contract of lease between Keh and the usufructuaries prohibited subleasing of the fishpond; that by the receipt dated June 6, 1978, it was Keh who paid the rental; that appellee Crisostomo was a perjured witness because in the notebook showing his expenses, the amount of P150,000.00 for rentals does not appear; that the term of the contract had expired and there was no renewal thereof, and that the consideration of P150,000.00 was grossly inadequate. They averred that the Court of Appeals erred in awarding damages that were not prayed for in the second amended complaint and that amounts not specified in the complaint were awarded as damages. They disclaimed that Atty. Tansinsin was the administrator of the fishpond.

On October 30, 1992, the Court of Appeals denied the motion for reconsideration for lack of merit. It ruled that the Decision was not prematurely promulgated "considering that the intervention proceeding is solely between intervenor and defendants-appellants, which is completely separable and has nothing to do with the merits of the appeal." In the instant petition for review on certiorari, petitioners raise six (6) grounds for giving due course to it. 11 Those grounds may be distilled into the following: (a) the applicability of the principle of res judicata; (b) the premature promulgation of the Decision of the Court of Appeals, and (c) private respondent was not a sublesee of the fishpond under the law. In arguing that the principle of res judicata applies in this case, petitioners rely on the portion of the Decision 12 of the Court of Appeals in CA-G.R. No. 10415 that states: We find no basis for declaring respondent Judge guilty of grave abuse of discretion on this regard. The trial court's finding that petitioner does not appear entitled to any contract or law to retain possession of the fishpond in question since he is neither an assignee or sub-lessee and, therefore, merely a stranger to the contract of lease is a finding of fact review of which is not proper in a certiorari proceedings. Not only is petitioner not a party to the lease agreement over the fishpond in question but also the very authority upon which he predicates his possession over the fishpond that the leasehold right of Luis Keh had been assigned to him undoubtedly lacks basis for the very contract between Luis Keh and the lessors expressly provides That the lessee cannot sub-lease abovedescribed fishpond nor assign his rights to anyone. xxx xxx xxx (Emphasis supplied by petitioners.) 13 Petitioners assert that said Decision of the Court of Appeals which was in effect upheld by this Court when it denied the petition for review on certiorari in G.R. No. 64354 (Luis Crisostomo v. Intermediate Appellate Court), 14 is "res judicata to the issue of possession in this case." 15 However, as expressed in that quoted portion of the Decision in CA-G.R. No. 10415, the issue of whether private respondent is an assignee or a sub-lessee "is a finding of fact review of which is not proper in a certiorari proceeding" or the proceeding in that case.

CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining order previously issued by the trial court on June 14, 1979. Private respondent filed a special civil action of certiorari and injunction with preliminary mandatory injunction and/or mandatory restraining order to question the order of January 11, 1980. Thus, the issue in that petition was whether or not the trial court gravely abused its discretion in lifting the restraining order. The statement in that Decision of the Court of Appeals that a writ of preliminary injunction may be denied "if the party applying for it has insufficient title or interest to sustain it and no claim to an ultimate relief (is) sought" by no means resolved the issue of who is entitled to possess the fishpond. In denying the petition for certiorari, the Court of Appeals was simply saying that there was no reason to restore private respondent to the possession of the fishpond pursuant to the restraining order that he had earlier obtained. The issue of possession was collaterally discussed only to resolve the propriety of the lifting of the restraining order based on evidence available at that time. Hence, there was no judgment on the merits in the main case or in Civil Case No. 5610-M. Simply put, the Decision in CA-G.R. No. 10415 involves an interlocutory order on the propriety of the lifting of the restraining order and not a judgment on the merits of Civil Case No. 5610-M. For res judicata to apply, the following requisites must concur: (a) the former judgment must be final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) the judgment must be on the merits, and (d) there must be between the first and second actions identity of parties, subject matter and causes of action. 16 The Decision in CA-G.R. No. 10415 having resolved only an interlocutory matter, the principle of res judicata cannot be applied in this case. There can be no res judicata where the previous order in question was not an order or judgment determinative of an issue of fact pending before the court but was only an interlocutory order because it required the parties to perform certain acts for final adjudication. 17 In this case, the lifting of the restraining order paved the way for the possession of the fishpond on the part of petitioners and/or their representatives pending the resolution of the main action for injunction. In other words, the main issue of whether or not private respondent may be considered a sublessee or a transferee of the lease entitled to possess the fishpond under the circumstances of the case had yet to be resolved when the restraining order was lifted. Petitioners assail the Court of Appeals' Decision as "premature" and therefore null and void, because prior to the promulgation of that Decision, private respondent-intervenor Vicente Asuncion failed to furnish them with a

copy of his brief the assignment of errors of which allegedly "directly" affected their rights and interests. 18 While it is true that petitioners were deprived of the opportunity to contravene the allegations of the intervenor in his brief, that fact can not result in the nullity of the Decision of the Court of Appeals. 19 Vicente Asuncion intervened pro interesse suo or "according to his interest." 20 Intervention pro interessse suo is a mode of intervention in equity wherein a stranger desires to intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the course of a litigation, which is conceded to the main actors therein. 21 In this case, intervenor Vicente Asuncion aimed to protect his right as a usufructuary. Inasmuch as he has the same rights and interests as petitioner Juan Perez, any judgment rendered in the latter's favor entitled him to assert his right as such usufructuary against his co-usufructuary. Should said intervenor claim his share in the usufruct, no rights of the petitioners other than those of Juan Perez would be prejudiced thereby. Worth noting is the fact that after the trial court had allowed Vicente Asuncion's intervention pro interesse suo, petitioner Juan Perez filed a petition for certiorari docketed as CA-G.R. No. 13519 to set aside the order denying his motion to dismiss the pleading in intervention. In its Decision of January 27, 1988, the Seventh Division of the Court of Appeals 22 denied the petition for certiorari for lack of merit. It upheld the trial court's ruling to allow the intervention pro interesse suo to protect Vicente Asuncion's right as a cousufructuary in the distribution or disposition of the amounts representing the rentals that were deposited with the court. That Vicente Asuncion had filed Civil Case No. 8215-M seeking recovery of his alleged share in the fruits of the Papaya Fishpond from 1978 would not be a reason for the dismissal of the motion for intervention pursuant to Rule 16, Sec. 1 (e) of the Rules of Court. 23 The Court of Appeals explained as follows: Indeed, if by means of intervention a stranger to a lawsuit is permitted to intervene without thereby becoming a formal plaintiff or defendant (Joaquin v. Herrera, 37 Phil. 705, 723 [1918]), then there is in the case at bar no identity of parties to speak of. Lis pendens as a ground for a motion to dismiss requires as a first element identity of parties in the two cases. Nor is there an identity of relief sought. Civil Case No. 8295-M seeks an accounting of the proceeds of the fishpond while Civil Case No. 5610-M is for injunction to prevent the petitioner from retaking the fishpond from Luis Crisostomo. The herein private

respondent sought to intervene in the latter case simply to protect his right as usufructuary in the money deposited in the court by the plaintiff Luis Crisostomo. We hold that in allowing the intervention in this case the trial court acted with prudence and exercised its discretion wisely. 24 Unconvinced by the Court of Appeals' Decision in CA-G.R. SP No. 13519, petitioner Juan Perez filed a petition for review on certiorari with this Court under G.R. No. 82096. On May 9, 1988, this Court denied the petition on the grounds that the issues raised are factual and that there is no sufficient showing that the findings of the respondent court are not supported by substantial evidence or that the court had committed any reversible error in the questioned judgment. 25 The Resolution of the Court dated May 9, 1988 became final and executory on August 26, 1988. 26 Moreover, granting that the intervention be considered as Vicente Asuncion's "appeal," a litigant's failure to furnish his opponent with a copy of his appeal does not suffice to warrant dismissal of that appeal. In such an instance, all that is needed is for the court to order the litigant to furnish his opponent with a copy of his appeal. 27 This is precisely what happened in this case. On May 13, 1992, the Court of Appeals issued a Resolution directing counsel for intervenor to furnish herein petitioners with a copy of intervenor Vicente Asuncion's brief within a 10-day period. It also granted petitioners an opportunity to file a reply-brief or memorandum and the intervenor, a reply to said memorandum. 28 That Resolution is proper under the premises because, by the nature of an intervention pro interesse suo, it can proceed independently of the main action. Thus, in the Resolution of October 30, 1992, in resolving the issue of the alleged prematurity of its Decision, the Court of Appeals held that "the proceeding is solely between intervenor and defendants-appellants, which is completely separable and has nothing to do with the merits of the appeal." 29 At the hearing of Civil Case No. 5610-M, petitioner Juan Perez attempted to establish the death on October 14, 1979 of Jorge Lorenzo, 30 the usufructuary from whom Vicente Asuncion derived his right to intervene pro interesse suo. Since under Article 603 of the Civil Code a usufruct is extinguished "by the death of the usufructuary, unless a contrary intention clearly appears," there is no basis by which to arrive at the conclusion that the usufruct originally exercised by Jorge Lorenzo has indeed been extinguished or, on the contrary, has survived Lorenzo's demise on account of provisions in the document constituting the usufruct. That matter is best addressed in Civil Case No. 8215-M wherein Vicente Asuncion seeks his

share as a transferee of the usufruct established for Jorge Lorenzo. All that is discussed here is the matter of intervention pro interesse suo vis-a-vis the issue of prematurity of the Decision of the Court of Appeals. Petitioners' principal argument against the Court of Appeals' Decision in favor of private respondent Crisostomo is that he could not have been an assignee or sub-lessee of the fishpond because no contract authorized him to be so. Petitioners' argument is anchored on factual issues that, however, have no room for discussion before this Court. It is well-entrenched doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to questions of law. 31 Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court. 32 Accordingly, this review shall be limited to questions of law arising from the facts as found by both the Court of Appeals and the trial court. Admittedly, the contract between the usufructuaries and petitioner Keh has a provision barring the sublease of the fishpond. However, it was petitioner Keh himself who violated that provision in offering the operation of the fishpond to private respondent. Apparently on account of private respondent's apprehensions as regards the right of petitioners Keh and Lee to transfer operation of the fishpond to him, on January 9, 1978, petitioner Keh executed a document ceding and transferring his rights and interests over the fishpond to petitioner Lee. That the same document might have been a ruse to inveigle private respondent to agree to their proposal that he operate the fishpond is of no moment. The fact is, petitioner Keh did transfer his rights as a lessee to petitioner Lee in writing and that, by virtue of that document, private respondent acceded to take over petitioner Keh's rights as a lessee of the fishpond. Although no written contract to transfer operation of the fishpond to private respondent was offered in evidence, 33 the established facts further show that petitioner Juan Perez and his counsel, petitioner Tansinsin, knew of and acquiesced to that arrangement by their act of receiving from the private respondent the rental for 1978-79. By their act of receiving rental from private respondent through the peculiarly written receipt dated June 6, 1978, petitioners Perez and Tansinsin were put in estoppel to question private respondent's right to possess the fishpond as a lessee. Estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other

rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts. 34 Nevertheless, we hesitate to grant private respondent's prayer that he should be restored to the possession of the fishpond as a consequence of his unjustified ejectment therefrom. To restore possession of the fishpond to him would entail violation of contractual obligations that the usufructuaries have entered into over quite a long period of time now. Supervening events, such as the devaluation of the peso as against the dollar as well as the addition of improvements in the fishpond that the succeeding lessees could have introduced, have contributed to the increase in rental value of the property. To place private respondent in the same position he was in before the lifting of the restraining order in 1980 when he was deprived the right to operate the fishpond under the contract that already expired in 1985 shall be to sanction injustice and inequity. This Court, after all, may not supplant the right of the usufructuaries to enter into contracts over the fishpond through this Decision. Nonetheless, under the circumstances of the case, it is but proper that private respondent should be properly compensated for the improvements he introduced in the fishpond.1wphi1.nt Art. 1168 of the Civil Code provides that when an obligation "consists in not doing and the obligor does what has been forbidden him, it shall also be undone at his expense." The lease contract prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into the agreement for pakiao-buwis with private respondent, not to mention the apparent artifice that was his written agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly what was prohibited of him under the contract to sublease the fishpond to a third party. That the agreement for pakiao-buwis was actually a sublease is borne out by the fact that private respondent paid petitioners Luis Keh and Juan Perez, through petitioner Tansinsin the amount of annual rental agreed upon in the lease contract between the usufructuaries and petitioner Keh. Petitioner Keh led private respondent to unwittingly incur expenses to improve the operation of the fishpond. By operation of law, therefore, petitioner Keh shall be liable to private respondent for the value of the improvements he had made in the fishpond or for P486,562.65 with interest of six percent (6%) per annum from the rendition of the decision of the trial court on September 6, 1989. 35 The law supports the awards of moral and exemplary damages in favor of private respondent and against the petitioners. Their conspiratorial scheme to utilize private respondent's expertise in the operation of fishponds to bail themselves out of financial losses has been satisfactorily established to

warrant a ruling that they violated Article 21 of the Civil Code and therefore private respondent should be entitled to an award of moral damages. Article 21 states that "(a)ny person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Exemplary damages shall likewise be awarded pursuant to Article 2229 of the Civil Code. 36 Because private respondent was compelled to litigate to protect his interest, attorney's fees shall also be awarded. 37 WHEREFORE, in light of the foregoing premises, the decision of the Court of Appeals is AFFIRMED insofar as it (a) directs the release to private respondent of the amounts of P128,572.00 and P123,993.85 deposited with the Paluwagan ng Bayan Savings Bank in Paombong, Bulacan and (b) requires private respondent Crisostomo to pay petitioner Juan Perez the rental for the period June 1979 to January 1980 at the rate of P150,000.00 per annum less the amount of P21,428.00 already paid to usufructuary Maria Perez. It should, however, be subject to the MODIFICATIONS that: 1. Petitioner Luis Keh shall pay private respondent Luis Crisostomo in the amount of P486,562.25 with legal interest from the rendition of the judgment in Civil Case No. 5610-M or on September 6, 1989, and 2. Petitioners be made liable jointly and severally liable for moral damages of P50,000.00, exemplary damages of P20,000 and attorney's fees of P10,000.00. No costs. SO ORDERED. G.R. No. L-22359 November 28, 1924 JULIO DE LA ROSA, plaintiff-appellant, vs. THE BANK OF THE PHILIPPINE ISLANDS, defendant-appellant. Ramon Sotelo for plaintiff-appellant. Araneta and Zaragoza for defendant-appellant. ROMUALDEZ, J.: This action was instituted on June 11, 1923, by means of a complaint on the ground that the defendant bank started a contest of designs and plans for the construction of a building, announcing that the prizes would be awarded not later that on November 30, 1921; that the plaintiff took part in said contest, having performed work and incurred expenses for that purpose; that said bank refrained

from naming judges and awarding the prizes in accordance with the conditions stipulated. The plaintiff prays that judgment be rendered in his favor for the sum of P30,000 as damages, with interest and the costs. The defendant bank answered denying the facts contained in the second and following paragraphs of the complaint. After the trial, the court rendered judgment ordering the defendant bank to pay the plaintiff an indemnity of P4,000 and the costs. Both parties appealed from this judgment, the plaintiff assigning the following errors as committed by the trial court: 1. In holding that the sum of P4,000 was a just and reasonable indemnity to the plaintiff. 2. In not ordering the defendant bank to pay the P30,000 prayed for in the complaint. The defendant bank, in turn, assigned the following errors as committed by the trial court: 1. In holding that the date set for the award of prizes is essential in the contract. 2. In ordering that the sum of P4,000 be paid to the plaintiff. The fundamental question on which the plaintiff's action depends is raised in the first assignment of error made by the defendant bank, or, whether or not the date set for the award of the prizes was essential in the contract and, therefore, whether or not the failure to award the prizes on said date was breach of contract on the part of the defendant. First of all, we find that due to the fact that the bank started and advertised the said contest, offering prizes under certain conditions, and the plaintiff prepared, by labor and expense, and took part in said contest, the bank is bound to comply with the promise made in the rules and conditions prepared and advertised by it. A binding obligation may even originate in advertisements addressed to the general public. (6 R. C. L., 600.) It is an elementary principle that where a party publishes an offer to the world, and before it is withdrawn another acts upon it, the party making the offer is bound to perform his promise. This principle is frequently applied in cases of the offer of rewards, . . . (6 R. C. L., 607.) What is to be determined is whether or not the defendant bank was in default in not awarding the prizes on November, 30, 1921. The plaintiff contends that it was, according to paragraph 2 of article 1100 of the Civil Code, the complete text of which is as follows:

Persons obliged to deliver or to do something are in default from the moment the creditor demands of them judicially or extrajudicially the fulfillment of their obligation. Nevertheless, the demand of the creditor shall not be necessary in order that the default may arise 1. When the obligator or the law expressly so provides; 2. When by reason of the nature and circumstances of the obligation it shall appear that the designation of the time at which the thing was to be delivered or the service rendered was the principal inducement to the creation of the obligation. In reciprocal obligations neither of the obligators shall be in default if the other does not fulfill or does not submit to the fulfillment of that which is incumbent upon him. From the time on the obliges performs his obligation the default begins for the other party. And the party plaintiff contends that the said date was the principal inducement because the current cost of concrete buildings at the time was fixed. The fixation of said price cannot be considered as the principal inducement of the contract, but undoubtedly only for the uniformity of the designs to be presented and to secure greater justice in the appreciation of the relative merits of each work submitted. Such fixation of price, naturally, was not the principal inducement for the contestants. Neither was it for the bank which could not certain that said price would continue to be current price when it desired to construct the building designed. We do not find sufficient reason for considering that the date set for the reward of the prizes was the principal inducement to the creation of the obligation. And, taking into consideration the criterion that must be followed in order to judge whether or not the time for the performance of the obligation is the principal inducement in a given case, we hold that it was not in the instant case. The distinguished Manresa explains the matter in the following terms: 1awphi1.net These words ("principal inducement" in paragraph 2 of article 1100 of the Civil Code) whose special meaning in connection with this article and the circumstances of each obligation does not permit of their being confused with the permanent general idea, and the distinct clearness of consideration of contracts, may give rise to serious doubts by reason of the breadth of expression, and must be judged in each particular case, it being impossible to give a general rule to explain them. It will for instance, be unquestionable that the hypothesis implied in this exception is affected when the matter, for instance, is the delivery of things of the rendition of services to be employed

in agricultural work, and the time of said work has been designated as the date for the fulfillment of the obligation; it will also exist when, for instance, fruits or any objects are to be delivered which might be used by the creditor in industrial operations having a determinate period for carrying them out and designated for their delivery; and, finally, it will also assist whenever, as in these cases, it appears that the obligation would not have been created for a date other than that fixed. The defendant bank cannot be held to have been in default through the mere lapse of time. For this judicial or extrajudicial demand was necessary for the performance of the obligation, and it was not alleged here, nor does it appear that before bringing this action the plaintiff had ever demanded it from the defendant bank in any manner whatsoever. The defendant bank, therefore, was not in default. The plaintiff's allegation that the defendant bank abstained from continuing the contest was not proven. On the contrary, it was proved, and so stated in the decision appealed from, that during the trial of this case in the Court of First Instance the designs were on the way to New York where they were sent to a technical committee. This committee, according to the new evidence before us presented by the defendant bank and which we now hold admissibe and admit, was appointed by the defendant bank for the study and determination of the designs presented and entitled to the prizes advertised, and which rendered its report and awarded the prizes in accordance with the rules and conditions of the contract, except in regard to the date of such award of prizes which, as we have found, is not essential to the contract in question. It appearing that the defendant bank was not in default it is needles to discuss the other questions raised, all depending upon the existence of said default. We find the plaintiff has no cause of action in this case, The judgment appealed from is reversed and the defendant is entirely absolved from the complaint, without any express finding as to costs. So ordered. Johnson, Street, Malcolm, Villamor, Ostrand and Johns, JJ., concur. PEDRO MARTINEZ, Plaintiff-Appellant, G. R. No. 7663 October 20, 1913 -versusMATIAS CAVIVES, ET AL., Defendants-Appellees.

ROBERT LINEAU, ADMINISTRATOR, Intervener-Appellant. DECISION

TRENT, J:

Pedro Martinez, the plaintiff in this case, seeks to recover from Matias Cavives and Severino Cavives, the defendants, on some promissory notes executed by them in 1896. The first note, in the sum of $4,317.15 Mexican currency, was executed on April 8 of that year, and was jointly signed by them and their brother, Carlos Cavives, now deceased. The note calls for interest at ten per cent annum. Matias Cavives obtained $300 on April 30 $200 on May 30 and $200 on June 7 of that year, and Severino Cavives, $600 on June 9 [all Mexican currency], each of which stipulated that the sums mentioned therein had been borrowed under the same terms and conditions as were expressed in the joint obligation of the three brothers above mentioned. The due execution of all these notes is admitted. None of these notes were ever paid by any of the three brothers. On June 14, 1898, the deceased brother Carlos entered into an agreement with the plaintiff whereby all the obligations contracted by the three brothers during the year 1896 were liquidated and a new note was executed and signed by these two parties (Exhibit 4), its amount, $9,483,5 reales, 17 cuartos, purporting to include the principal and interest at the specified rate up to the date of its execution. The evidence of record shows that Carlos Cavives, in executing this note, agreed to obtain the signatures of his brothers to it, but this was never done. During the settlement of the estate of the deceased Carlos, an agreement was entered into by his widow and Pedro Martinez, whereby the latter agreed to accept P3,000 in full satisfaction of his claim against her husband's estate, a sum considerably less than the principal and accumulated interest of the original notes. A note [Exhibit 5] was executed under these conditions, whereby the widow was to pay its face value in annual installments. The contention of the defendants, sustained by the Court below, was that the original obligations had been novated by the agreement made in 1898 between Carlos Cavives and Pedro Martinez. It was held that as either party to this agreement exercised proper diligence in securing the signatures of the other brothers, there was a tacit consent to permit the obligation to stand as a

debt against Carlos Cavives alone. The fact that the compromise settlement made between the plaintiff and the widow of Carlos Cavives made no mention of the amounts borrowed by Matias and Severino Cavives was deemed by the court further proof of the intention of the plaintiff to novate the debts of the three brothers and hold only Carlos liable for their payment. Article 1205 of the Civil Code reads as follows: "Novation, consisting in the substitution of a debtor in the place of the original one, may be made without the knowledge of the latter, but not without the consent of the creditor." So far as Exhibit 4 is concerned, it cannot be presumed that the plaintiff considered the liability of Carlos alone as better than the liability of all three of the brothers, since Carlos promised, at his request, to secure the signatures of his brothers to this document. Nor can it be presumed, in the absence of evidence, that there was any consideration present to induce Carlos to assume what was theretofore strictly a liability of his brothers. So that to construe Exhibit 4 to the effect that by its terms Carlos was substituted as the sole debtor of the plaintiff would mean that the latter accepted less security for his loans than he originally had, and that the former assumed liabilities which he was under no obligation to assume and for which he was no valid consideration. At the time this instrument was executed, then, it was not the intention of either of the signers to release these defendants as debtors of the plaintiff. As to the subsequent silence of both parties to this agreement, We do not consider that it was, at least so far as the plaintiff was concerned, of any significance. He signed Exhibit 4 at the time Carlos Cavives signed it on the condition that the latter would secure the signatures of his two brothers to it, thereby creating a joint obligation against the three. Carlos Cavives never secured the signatures of his brothers. The contract in question contained mutual obligations which were to be fulfilled by each of the signers, i.e., on the part of Carlos to secure the signatures of his brothers to the instrument, and then on the part of the plaintiff to recognized it as a joint obligation of the three brothers covering their indebtedness to him. The last paragraph of Article 1100 of the Civil Code reads as follows: "In mutual obligations, none of the persons bound shall incur default if the other does not fulfill or does not submit to properly fulfill what is incumbent upon him. From the time one of the persons obligated fulfills his obligation, the default begins for the other party."

Until Carlos obtained the signatures of his brothers to this instrument, We cannot say that the plaintiff was in any way bound to acknowledge it as anything more than an executory contract containing a condition precedent which was to be performed by Carlos Cavives before his [the plaintiff's] obligation was due. Mere continued silence on his part could signify nothing until the signatures of the two brothers had been secured. As further indication that this contract [Exhibit 4] was not considered as discharging the original obligation of the defendants in this case, it may be noted that the plaintiff has never surrendered, nor was he ever called upon to surrender so far as this record shows, the original promissory notes executed by these defendants. They are still in his possession. Up to the time of the compromise settlement between the plaintiff and the widow of Carlos, at least, there is not a scintilla of evidence to show that either party to the contract of 1898 considered it as a discharge of the original debtors, Severino and Matias Cavives. The compromise settlement with the widow of Carlos, Exhibit 5, is relied upon to show novation. In this document, plaintiff makes the settlement, in effect, that the whole sum of the liquidated obligation of the brothers set forth in Exhibit 4 was a liability against the estate of Carlos. It is urged that this shows the plaintiff's intention to novate the debt by substituting Carlos as his sole debtor in lieu of the defendants. There is one fact which points strongly against this conclusion. That is, that the present action against these defendants was instituted some months previous to the date of the compromise settlement and has been prosecuted by the plaintiff with due diligence ever since its institution. But admitting, for the moment, that by this compromise settlement he was desirous of so substituting Carlos as his sole debtor in lieu of the defendants, it does not by any means follow that he could do so without the consent of Carlos. The consent of the new debtor is as essential to the novation as is that of the creditor. As We have seen, there is nothing to show that Carlos ever consented to such an arrangement. Indeed, the evidence is all the other way. A mere recital that he had so consented to accept full liability for the debts of his brothers, especially after his death, would not be sufficient to establish the fact. But We cannot believe that this statement was intended to have any such meaning by the plaintiff in view of the fact that at the time it was made he was actively prosecuting a suit against the brothers who were originally liable as his debtors, and the further fact that the total amount due him, including interest, was greatly in excess of the sum due him in 1898. Furthermore, the position taken by these defendants in their Amended

Answer is diametrically opposed to the defense of novation. In that Amended Answer, they say: "That these defendants have never refused to pay the proportion of the total amount borrowed which they justly owe, that is, onethird of it, to Don Francisco Martinez, or his executor or administrator, or to all of his heirs, but they do refuse to pay to one of the heirs what belongs to all of them." Article 1204 of the Civil Code reads: "In order that an obligation may be extinguished by another which substituted it, it is necessary that it should be so expressly declared, or that the old and new be incompatible in all points." In its Decision of December 31, 1904, the Supreme Court of Spain said: "Novation of contracts cannot be presumed in any case unless it is a necessary result of the express will of the parties, or that the old and the new obligations are incompatible in all points." To the same effect is its Decision of January 25, 1899. In its Decision of March 14, 1908, that High Court said [quoting from the syllabus]: "It is not proper to consider an obligation novated by unimportant modifications which do not alter its essence and when it is not extinguished by another which takes its place or substitutes the person of the debtor." To the same effect are the Decisions of April 15, 1909, and July 8, 1910. In Latiolais, Admrx. vs. Citizens' Bank of Louisiana [33 La. Ann., 1444], one Duclozel mortgaged property to the defendant band for the triple purpose of obtaining shares in the capital stock of the bank, bonds which the bank was authorized to issue, and loans to him as a stockholder. Duclozel subsequently sold this mortgaged property to one Sproule, who, as one of the terms of the sale, assumed the liabilities of his vendor to the bank. Sproule sold part of the property to Graff and Chalfant. The debt becoming due, the bank brought suit against the last two named persons and Sproule as owners. Duclozel was not made a party. The bank discontinued these proceedings and subsequently brought suit against Latiolais, administratrix of Duclozel, who had died. The Court said: "But the plaintiff insists that in its petition in the proceeding first brought the bank ratified the sale made by Duclozel to Sproule, and by the latter to other parties, in treating them as owners. Be that so, but it does not follow, in the absence of either a formal and express or of an

implied consent to novate, which should be irresistibly inferred from surrounding circumstances, that it has discharged Duclozel unconditionally, and has accepted those parties as new delegated debtors in his place. Nemo presumitur donare. "Novation is a contract, the object of which is: either to extinguish an existing obligation and to substitute a new one in its place; or to discharge an old debtor and substitute a new one to him; or to substitute a new creditor to an old creditor with regard to whom the debtor is discharged. "It is never presumed. The intention must clearly result from the terms of the agreement or by a full discharge of the original debt. Novation by the substitution of the new debtor can take place without the consent of the debtor, but the delegation does not operate a novation, unless the creditor has expressly declared that he intends to discharge with delegating debtor, and the delegating debtor was not in open failure or insolvency at the time. The mere indication by a debtor of a person who is to pay in his place does not operate a novation. Delegatus debitor est odiosus in lege. "The most that could be inferred would be that the bank in the exercise of a sound discretion, proposed to better its condition by accepting an additional debtor to be and remain bound with the original one." In Fidelity L. & T. Co. vs. Engleby (99 Va., 168), the Court said: "Whether or not a debt has been novated is a question of fact and depends entirely upon the intention novated. In the absence of satisfactory proof to the contrary, the presumption is that the debt has not been extinguished by taking the new evidence of indebtedness; such new evidence, in the absence of an intention expressed or implied, being treated as a conditional payment merely." In Hamlin vs. Drummond [91 Me., 175; 39 A., 551], it was said that novation is never presumed but must always be proven. In Netterstorm vs. Gallistel [110 Ill. App., 352], it was said that the burden of establishing a novation is on the party who asserts its existence; that novation is not easily presumed; and that it must clearly appear before the court will recognize it. There is no express stipulation in any of the documents of record that the obligation of the defendants was novated, and the parole evidence tending to

show that it was novated is not sufficient in law to establish that fact. During the progress to this case, Robert Lineau, administrator of the estate of Francisco Martinez, father of the plaintiff, intervened claiming that the obligations of the defendant were justly due to the estate of the said Francisco Martinez. The notes themselves [Exhibit G] make no mention whatever of Francisco Martinez, nor is there any evidence upon which the relation of principal and agent between Francisco Martinez and Pedro Martinez could be predicated. The notes must therefore be declared the sole property of the plaintiff, and the intervener's claim must be denied. For the foregoing reasons, it is hereby ordered that the defendants Severino Cavives and Matias Cavives, comply with their obligations as set forth in Exhibit G, by the payment of the principal and interest thereon at the rate of ten per cent per annum as called for in the said notes, from the date of their execution up to the full satisfaction of the judgment in this case. It is understood that as to the first note signed by the three brothers, these defendants are each liable for one-third of its principal and accumulated interest; that Matias Cavives is alone liable for the notes executed by him of April 30th, May 30th , and June 7th, 1896, whose amounts are $300, $200, and $200, respectively; and that Severino Cavives is alone liable for the note of June 9, 1896, signed by him, amounting to $600. The judgment appealed from is reversed and in accordance with Sections 3, 4, and 5 of Act No. 1045, and the Decision of this Court in Urbano vs. Ramirez [15 Phil. Rep., 371], the record will be returned to the Court below and a new trial will be had for the sole purpose of ascertaining, after due hearing, the present actual value of Mexican money as compared with Philippine currency, in order to reduce the debt to Philippine currency. Final judgment will then be entered against the defendant in accordance with this decisions. Without costs. Arellano, C.J., Torres, Johnson, Carson and Moreland, JJ., concur. G.R. No. L-11328 January 15, 1918 RUFINA CAUSING, plaintiff-appellant, vs. ALFONSO BENCER, defendant-appellee.

Perfecto J. Salas Rodriguez for appellant. De leon and Magalona and J. M.a Arroyo for appellee. STREET, J.: This action was instituted by Rufina Causing upon November 14, 1914, in the Court of First Instance of Iloilo, to annul a contract for the sale of a parcel of land and to recover the property itself from Alfonso Bencer as follows: A parcel of land for rice and sugar cane in the barrio of Bokbokay, Vista Alegre, district of Barotac Viejo municipality of Banate, Province of Iloilo, P. I., having an area of about 70 hectares, bounded on the North by lands belonging to Pacifico Bencer, Maria Salome Causing, and that of Alfonso Balleza; on the South by those of Esteban Navarro, Maria Salome Causing, and the heirs of Jorge Lachica; on the East by the Barotac Viejo River; and on the West by those of Alfonso Bencer, Ignacio Balleza, Alfonso Balleza, and Maria Salome Causing. It appears that in years gone by this land had been owned by the plaintiff, a single woman of full legal age, in common with certain nieces of hers who were then minors and over whom she seems to have exercised an informal guardianship. In the year 1909 negotiations were begun between her and the defendant with a view to the sale of this land to him; and an agreement was effected by which she undertook to convey the property to him for the sum of P1,200. Needing legal assistance in order to get the conveyance drawn up properly, the parties repaired to the office of her relative, Casiano Causing, attorney, but when he learned that the minors had an interest in the property, he informed them that the conveyance could not be legalized without judicial sanction. The efforts to effect the transfer of title by deed was then abandoned for the time being; but Bencer paid her P800 of the purchase price upon August 14, 1909, and took possession of the land, with the understanding that he was to pay the balance later and that meanwhile she would take steps to procure judicial approval of the sale as regards the interests of the minors. In 1910 a new engagement was made in regard to the price to be paid, which was to the effect that Bencer should pay P600 in addition to what he had already paid or P1,400 in all, provided the plaintiff would give him an extension of time to May, 1911, within which to pay the balance. Time went on and neither party performed the engagement. Bencer's failure to pay may have been due in part, as the plaintiff alleges, to his lack of ready money; or it may have been due as he claims, to the fact that the plaintiff had become reluctant to carry out the engagement and did not appear to collect the money at the place stipulated as the place of payment. However this may be, it is evident that the plaintiff was not yet in a position to execute a deed conveying the entire interest in the property, as no steps had been taken to get judicial approval for the sale of the

shares belonging to the minors. However, as these heirs reached majority the plaintiff successively acquired their respective interests by purchase, and before the action in this case was instituted she had become the possessor of all their shares. The property meanwhile increased in value-a circumstance possibly due in part to improvements which the defendant claims to have made on property. In view of the changed conditions, the plaintiff appears to have become desirous of rescinding the contract, and accordingly brought this suit to annul the contract and recover the property, together with the sum of P3,850 alleged to be due as damages for the use and occupation of the land by the defendant during the time he has been in possession. The plaintiff also prayed for general relief. At the hearing the court below dismissed the action in so far as it sought the recovery of the land and damages for use and occupation, but gave judgment in plaintiff's favor for P600 with interest at 6 per cent from August 14, 1910, until paid. From this action of the court the plaintiff has appealed. We can see no valid reason why the plaintiff should be permitted to rescind this contract, It is evidently a case where the contract entailed mutual obligation, and if either party can be said to have been in default it was the plaintiff, Rufina Causing, rather than the defendant, Bencer. In article 1100 of the Civil Code it is declared that in mutual obligations neither party shall be deemed to be in default if the other does not fulfill, or offer to fulfill his own obligation, and that from the time one person obligated fulfills his obligation the default begins for the other party. We find that the contract contemplated a conveyance of the entire interest in the land; and the plaintiff clearly obligated herself to that extent. She was therefore not in a position to compel the defendant to pay until she could offer to him a deed sufficient to pass the whole legal estate; and for the same reason, she cannot now be permitted to rescind the contract on the ground that the defendant has heretofore failed to pay the purchase price. At the time the plaintiff accepted the payment of P800 in 1909, from an agent of the defendant, she executed a receipt in which it was said that this was an advance payment for the land in case the sale that should be effected (anticipo del terreno en caso se effective la venta); and from this it is argued that it was understood that the negotiations were merely provisional and that the sale could be abandoned. We do not so interpret the transaction; and it was evidently not so interpreted by the defendant Bencer, who has been continuously in possession claiming as owner by virtue of the original contract. Reduced to its simplest terms the case presented is this. One of several owners of a piece of property pro indiviso has made a valid contract for the sale thereof with the understanding that she should convey the interest of her coowners or procure the same to be conveyed. Since the contract was executed she

has acquired the interest of the coowners by purchase and is now in a position fully to perform the contract. It results that she is, in our opinion, under a legal obligation to transfer the estate, and is not entitled to rescind the contract and recover the property from the person to whom she contracted to convey it. In this situation either party is entitled to enforce performance, and neither will be relieved from his obligation without the consent of the other. There can be no question of the power of a person to bind himself to sell something which he does not yet possess; acquiring title to the thing sold. The most reasonable interpretation of the action of the plaintiff in buying out the minor heirs as they reached majority was that she thereby intended to place herself in a position to comply with the contract which she had made with the defendant Bencer. Of course if she had never acquired these interests an action for damages would have been Bencer's only remedy. Under the prayer for general relief the court gave judgment in favor of the plaintiff for the sum of P600 the unpaid balance of the purchase money. This was proper. The court also allowed interest on this sum from August 14, 1910. The right of the plaintiff to recover interest for the period prior to the institution of the suit is questionable in point of law, but the justice of allowing it is evident, in view of the fact that the defendant has had continuous use of the property. As the defendant has not appealed, or complained of the action of the court, the judgment will be affirmed in all respects, with costs against the appellant. So ordered. G.R. No. 77648 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and ONG TENG, respondents. G.R. No. 77647 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and EDERLINA NAVALTA, respondents. G.R. No. 77649 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and JOSE LIWANAG, respondents. G.R. No. 77650 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and LEANDRO CANLAS, respondents. G.R. No. 77651 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and VICTORIA SUDARIO respondents. G.R. No.77652 August 7, 1989 CETUS DEVELOPMENT, INC., petitioner, vs. COURT OF APPEALS and FLORA NAGBUYA respondents. MEDIALDEA, J.: This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch Ederlina Navalta, et. al., respondents. The following facts appear in the records: The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard, Quiapo, Manila, originally owned by the Susana Realty. These individual verbal leases were on a month-to month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the Susana Realty who went to the premises monthly. Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc., a corporation duly organized and existing under the laws of the Philippines. From April to June, 1984, the private respondents continued to pay their monthly rentals to a collector sent by the petitioner. In the succeeding months of July, August and September 1984, the respondents failed to pay their monthly individual rentals as no collector came. On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the subject premises and to pay the back rentals for the months of July, August and September, 1984, within fifteen (15) days from the receipt thereof. Immediately upon the receipt of the said demand letters on October 10, 1984, the private respondents paid their respective arrearages in rent which were accepted by the petitioner subject to the unilateral condition that the acceptance was without prejudice to the

filing of an ejectment suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the same condition. For failure of the private respondents to vacate the premises as demanded in the letter dated October 9, 1984, the petitioner filed with the Metropolitan Trial Court of Manila complaints for ejectment against the manner, as follows: (1) 105972-CV, against Ederlina Navalta (2) 105973-CV, against Jose Liwanag; (3) 105974-CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977CV, against Ong Teng. In their respective answers, the six (6) private respondents interposed a common defense. They claimed that since the occupancy of the premises they paid their monthly rental regularly through a collector of the lessor; that their non-payment of the rentals for the months of July, August and September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector; that they were at a loss as to where they should pay their rentals; that sometime later, one of the respondents called the office of the petitioner to inquire as to where they would make such payments and he was told that a collector would be sent to receive the same; that no collector was ever sent by the petitioner; and that instead they received a uniform demand letter dated October 9, 1984. The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as a result thereof, the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision dismissing the six cases, a pertinent portion of which reads, as follows: The records of this case show that at the time of the filing of this complaint, the rentals had all been paid. Hence, the plaintiff cannot eject the defendants from the leased premises, because at the time these cases were instituted, there are no rentals in arrears. The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case, the alleged rental arrearages were paid immediately after receipt of the demand letter, removes its cause of action in an unlawful detainer case, even if the acceptance was without prejudice. x x x. Furthermore, the court has observed that the account involved which constitutes the rentals of the tenants are relatively small

to which the ejectment may not lie on grounds of equity and for humanitarian reasons. Defendants' counterclaim for litigation expenses has no legal and factual basis for assessing the same against plaintiff. WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to costs. Defendants' counterclaim is likewise dismissed. SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647) Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided over by Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals). lwph1.t In its decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit. In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit. Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the following errors: ASSIGNMENT OF ERRORS I RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT PREMISES AND TO PAY THE RENTALS IN ARREARS. II RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION COMMITTED A GRAVE WHEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING THE EXISTENCE OF

VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE RESPONDENT. III RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No. 77647) The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of action when the complaints for unlawful detainer were filed considering the fact that upon demand by petitioner from private respondents for payment of their back rentals, the latter immediately tendered payment which was accepted by petitioner. In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of Court, which provides: Sec. 2. Landlord to proceed against tenant only after demand . No landlord or his legal representative or assign, shall be such action against a tenant for failure to pay rent due or to comply with the conditions of his lease, unless the tenant shall have failed to pay such rent or comply with such conditions for a period of fifteen (15) days or five (5) days in case of building, after demand therefor, made upon qqqm personally, or by serving written notice of such demand upon the person found on the premises, or by posting such notice on the premises if no persons be found thereon. It interpreted the said provision as follows: .....the right to bring an action of ejectment or unlawful detainer must be counted from the time the defendants failed to pay rent after the demand therefor. It is not the failure per se to pay rent as agreed in the contract, but the failure to pay the rent after a demand therefor is made, that entitles the lessor to bring an action for unlawful detainer. In other words, the demand contemplated by the above-quoted provision is not a demand to vacate, but a demand made by the landlord upon his tenant for the latter to pay the rent due if the tenant fails to comply with the said demand with the period provided, his possession becomes unlawful and the landlord may then bring the action for ejectment. (p. 28, , G.R. No. 77647)

We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before resorting for judicial action so much so that when there is full compliance with the demand, there arises no necessity for court action. As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a demand to vacate, the answer can be gleaned from said Section 2. This section presupposes the existence of a cause of action for unlawful detainer as it speaks of "failure to pay rent due or comply with the conditions of the lease." The existence of said cause of action gives the lessor the right under Article 1659 of the New Civil Code to ask for the rescission of the contract of lease and indemnification for damages, or only the latter, allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the demand referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is the option chosen, the demand must be for the lessee to pay rents or to comply with the conditions of the lease and to vacate. Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly the option taken, is that both demands to pay rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan et al. vs. Tomassi, L-16574, February 28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs. Icasiano, 89 Phil. 44).lwph1.t Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate within the periods specified in Section 2, Rule 70, namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer while the second refers to the jurisdictional requirement of demand in order that said cause of action may be pursued. It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet on the part of private respondents to pay rents for three consecutive months. As the terms of the individual verbal leases which were on a month-to-month basis were not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article

1169, New Civil Code which provides that "(t)hose 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." Petitioner has not shown that its case falls on any of the following exceptions where demand is not required: (a) when the obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond his power to perform. The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not arise. This demand is different from the demand required under Section 2, Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be pursued. The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation matured. Coupled with the fact that no collector was sent as previously done in the past, the private respondents cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private respondents lost no time in making tender and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to vacate was premature as it was an exercise of a non-existing right to rescind. In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand to pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action for ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the lessee. Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of action for ejectment especially when accepted with the written condition that it was "without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals merely to preserve the right to file an action for unlawful detainer. However, this line of argument presupposes that a cause of action for ejectment has already accrued, which is not true in the instant case. Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly

established that it has been customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code provides that where no agreement has been designated for the payment of the rentals, the place of payment is at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their rentals as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect. Petitioner also argues that neither is its refused to accept the rentals a defense for non-payment as Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing due." It bears emphasis that in this case there was no unjustified refusal on the part of petitioner or non-acceptance without reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand for payment of the rentals. In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion amounting to lack of jurisdiction in its conclusion affirming the trial court's decision dismissing petitioner's complaint for lack of cause of action. We do not agree, however, with the reasons relied upon. ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. [G.R. No. 103577. October 7, 1996] ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, Petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, Respondents. DECISION MELO, J.:chanroblesvirtualawlibrary The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.chanroblesvirtualawlibrary

The undisputed facts of the case were summarized by respondent court in this wise:chanroblesvirtualawlibrary On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:chanroblesvirtualawlibrary RECEIPT OF DOWN PAYMENTchanroblesvirtualawlibrary P1,240,000.00 - Total amountchanroblesvirtualawlibrary 50,000.00 - Down paymentchanroblesvirtualawlibrary ------------------------------------------chanroblesvirtualawlibrary P1,190,000.00 - Balancechanroblesvirtualawlibrary Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.chanroblesvirtualawlibrary We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.chanroblesvirtualawlibrary On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.chanroblesvirtualawlibrary Clearly, the conditions appurtenant to the sale are the following:chanroblesvirtualawlibrary 1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of the document aforestated;chanroblesvirtualawlibrary 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;chanroblesvirtualawlibrary 3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.chanroblesvirtualawlibrary On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").chanroblesvirtualawlibrary On February 6, 1985, the property originally registered in the name of the Coronels father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh "4")chanroblesvirtualawlibrary

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6C")chanroblesvirtualawlibrary For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.chanroblesvirtualawlibrary On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").chanroblesvirtualawlibrary On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").chanroblesvirtualawlibrary On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7").chanroblesvirtualawlibrary On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").chanroblesvirtualawlibrary (Rollo, pp. 134-136)chanroblesvirtualawlibrary In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereto, after which, the case would be deemed submitted for resolution.chanroblesvirtualawlibrary On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:chanroblesvirtualawlibrary WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now

TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well as the counterclaims of defendants and intervenors are hereby dismissed.chanroblesvirtualawlibrary No pronouncement as to costs.chanroblesvirtualawlibrary So Ordered.chanroblesvirtualawlibrary Macabebe, Pampanga for Quezon City, March 1, 1989.chanroblesvirtualawlibrary (Rollo, p. 106)chanroblesvirtualawlibrary A motion for reconsideration was filed by petitioners before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:chanroblesvirtualawlibrary The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is

that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).chanroblesvirtualawlibrary Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.chanroblesvirtualawlibrary IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.chanroblesvirtualawlibrary SO ORDERED.chanroblesvirtualawlibrary Quezon City, Philippines, July 12, 1989.chanroblesvirtualawlibrary (Rollo, pp. 108-109)chanroblesvirtualawlibrary Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully agreeing with the trial court.chanroblesvirtualawlibrary Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.chanroblesvirtualawlibrary While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial courts decision, we definitely find the instant petition bereft of merit.chanroblesvirtualawlibrary The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that the said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:chanroblesvirtualawlibrary Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.chanroblesvirtualawlibrary While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means

of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract of absolute sale.chanroblesvirtualawlibrary Plainly, such variance in the contending parties contention is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed.chanroblesvirtualawlibrary The Civil Code defines a contract of sale, thus:chanroblesvirtualawlibrary Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.chanroblesvirtualawlibrary Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:chanroblesvirtualawlibrary a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;chanroblesvirtualawlibrary b) Determinate subject matter; andchanroblesvirtualawlibrary c) Price certain in money or its equivalent.chanroblesvirtualawlibrary Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:chanroblesvirtualawlibrary Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event

that prevented the obligation of the vendor to convey title from acquiring binding force.chanroblesvirtualawlibrary Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:chanroblesvirtualawlibrary Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.chanroblesvirtualawlibrary An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor of the promise is supported by a consideration distinct from the price.chanroblesvirtualawlibrary A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.chanroblesvirtualawlibrary A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.chanroblesvirtualawlibrary In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.chanroblesvirtualawlibrary It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full

payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer.chanroblesvirtualawlibrary In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there had been previous delivery of the subject property, the sellers ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.chanroblesvirtualawlibrary With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents.chanroblesvirtualawlibrary It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they --chanroblesvirtualawlibrary Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.chanroblesvirtualawlibrary without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.chanroblesvirtualawlibrary When the "Receipt of Down payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioners father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to

the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.chanroblesvirtualawlibrary The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.chanroblesvirtualawlibrary Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title change to their names and immediately thereafter, to execute the written deed of absolute sale.chanroblesvirtualawlibrary Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the documents were then in order. It just so happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise.chanroblesvirtualawlibrary There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the ones who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.chanroblesvirtualawlibrary

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners father, Constancio P. Coronel, to their names.chanroblesvirtualawlibrary The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."chanroblesvirtualawlibrary Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,chanroblesvirtualawlibrary Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.chanroblesvirtualawlibrary From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.chanroblesvirtualawlibrary Art. 1181. 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.chanroblesvirtualawlibrary Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.chanroblesvirtualawlibrary It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:chanroblesvirtualawlibrary 3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)chanroblesvirtualawlibrary (Rollo, p. 16)chanroblesvirtualawlibrary

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that:chanroblesvirtualawlibrary . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.)chanroblesvirtualawlibrary (Ibid.)chanroblesvirtualawlibrary not aware that they have set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:chanroblesvirtualawlibrary Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.chanroblesvirtualawlibrary Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").chanroblesvirtualawlibrary The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their fathers name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").chanroblesvirtualawlibrary We, therefore, hold that, in accordance with Article 1187 which pertinently provides -chanroblesvirtualawlibrary Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . .chanroblesvirtualawlibrary In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.chanroblesvirtualawlibrary the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.chanroblesvirtualawlibrary Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property.chanroblesvirtualawlibrary We cannot sustain this argument.chanroblesvirtualawlibrary

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:chanroblesvirtualawlibrary Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.chanroblesvirtualawlibrary Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).chanroblesvirtualawlibrary Be it also noted that petitioners claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedents name to their names on February 6, 1985.chanroblesvirtualawlibrary Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:chanroblesvirtualawlibrary Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.chanroblesvirtualawlibrary Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time.chanroblesvirtualawlibrary Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding the contract of sale.chanroblesvirtualawlibrary We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners

rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners allegations. We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).chanroblesvirtualawlibrary Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioners-sellers act of unilaterally and extrajudicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])chanroblesvirtualawlibrary Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal Check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcions authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.chanroblesvirtualawlibrary Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramonas corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.chanroblesvirtualawlibrary Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:chanroblesvirtualawlibrary

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. x x xchanroblesvirtualawlibrary 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 fulfill his obligation, delay by the other begins. (Emphasis supplied.)chanroblesvirtualawlibrary There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.chanroblesvirtualawlibrary With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:chanroblesvirtualawlibrary Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.chanroblesvirtualawlibrary Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.chanroblesvirtualawlibrary Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.chanroblesvirtualawlibrary The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.chanroblesvirtualawlibrary The above-cited provision on double sale presumes title or ownership to pass to the buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.chanroblesvirtualawlibrary In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains:chanroblesvirtualawlibrary The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyers rights

except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).chanroblesvirtualawlibrary (J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).chanroblesvirtualawlibrary Petitioners point out that the notice of lis pendens in the case at bar was annotated on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is a buyer in good faith.chanroblesvirtualawlibrary We are not persuaded by such argument.chanroblesvirtualawlibrary In a case of double sale, what finds relevance and materiality is not whether or not the second buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold.chanroblesvirtualawlibrary As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners title to the property at the time of the registration of the property.chanroblesvirtualawlibrary This Court had occasions to rule that:chanroblesvirtualawlibrary If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs.

Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)chanroblesvirtualawlibrary Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.chanroblesvirtualawlibrary Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts ruling on this point.chanroblesvirtualawlibrary WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.chanroblesvirtualawlibrary SO ORDERED.ch SECOND DIVISION [G.R. No. 108129. September 23, 1999] AEROSPACE CHEMICAL INDUSTRIES, INC., Petitioner, vs. COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., Respondents. DECISION QUISUMBING, J.:chanroblesvirtualawlibrary This petition for review assails the Decision[1] dated August 19, 1992, of the Court of Appeals, which set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a complaint filed by the buyer (herein petitioner) against the seller (private respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and instead found petitioner guilty of delay and therefore liable for damages, as follows: chanroblesvirtualawlibrary WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the complaint with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63 representing the balance of the maintenance cost and tank rental charges incurred by the defendant for the failure of the plaintiff to haul the rest of the sulfuric acid on the designated date.chanroblesvirtualawlibrary Costs against plaintiff-appellee.[2] chanroblesvirtualawlibrary As gleaned from the records, the following are the antecedents: chanroblesvirtualawlibrary

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation (Philphos). The contract[3] was in letter-form as follows: chanroblesvirtualawlibrary 27 June 1986chanroblesvirtualawlibrary AEROSPACE INDUSTRIES INC.chanroblesvirtualawlibrary 203 E. Fernandez St.chanroblesvirtualawlibrary San Juan, Metro Manilachanroblesvirtualawlibrary Attention : Mr. Melecio Hernandezchanroblesvirtualawlibrary Manager.chanroblesvirtualawlibrary Subject : Sulfuric Acid Shipmentchanroblesvirtualawlibrary Gentlemen:chanroblesvirtualawlibrary This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms and conditions:chanroblesvirtualawlibrary A. Commodity : Sulfuric Acid in Bulkchanroblesvirtualawlibrary B. Concentration : 98-99% H2SO4chanroblesvirtualawlibrary C. Quantity : 500MT -100 MT Ex-Basaychanroblesvirtualawlibrary 400 MT Ex-Sangichanroblesvirtualawlibrary D. Price : US$50.00/MT - FOB Cotcot, Basay, Negros Or.chanroblesvirtualawlibrary US$54.00/MT - FOB Sangi, Cebuchanroblesvirtualawlibrary E. Payment : Cash in Philippine currency payable to Philippine Phosphate Fertilizer Corp. (MAKATI) at PCIB selling rate at the time of payment at least five (5) days prior to shipment datechanroblesvirtualawlibrary F. Shipping Conditionschanroblesvirtualawlibrary 1. Laycan : Julychanroblesvirtualawlibrary 2. Loadport : Cotcot, Basay, Negros Or. andchanroblesvirtualawlibrary Atlas Pier, Sangi, Cebuchanroblesvirtualawlibrary x x xchanroblesvirtualawlibrary 11. Other terms and Conditions: To be mutually agreed upon.chanroblesvirtualawlibrary Very truly yours,chanroblesvirtualawlibrary Philippine Phosphate Fertilizer Corp.chanroblesvirtualawlibrary Signed: Herman J. Rustiachanroblesvirtualawlibrary Sr. Manager, Materials & Logisticschanroblesvirtualawlibrary CONFORME:chanroblesvirtualawlibrary AEROSPACE INDUSTRIES, INC.chanroblesvirtualawlibrary Signed: Mr. Melecio Hernandezchanroblesvirtualawlibrary Managerchanroblesvirtualawlibrary

Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to secure the means of transport to pick-up the purchases from private respondents loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu. chanroblesvirtualawlibrary On August 6, 1986, private respondent sent an advisory letter[4] to petitioner to withdraw the sulfuric acid purchased at Basay because private respondent had been incurring incremental expense of two thousand (P2,000.00) pesos for each day of delay in shipment. chanroblesvirtualawlibrary On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty (P553,280.00) pesos for 500 MT of sulfuric acid. chanroblesvirtualawlibrary On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head Services. The vessel was assigned to carry the agreed volumes of freight from designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter, the vessel underwent repairs. chanroblesvirtualawlibrary In a demand letter[5] dated December 12, 1986, private respondent asked petitioner to retrieve the remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15, 1986. Private respondent said that it would charge petitioner the storage and consequential costs for the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to comply. chanroblesvirtualawlibrary On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987, attested to these occurrences. chanroblesvirtualawlibrary Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of sulfuric acid on board. chanroblesvirtualawlibrary Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.[6] On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases, which letters are hereunder excerpted: chanroblesvirtualawlibrary January 26, 1987 x x x chanroblesvirtualawlibrary

We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance approximately 272.49 MT.chanroblesvirtualawlibrary We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we are willing to pay the additional order at the prevailing market price, provided the lifting of the total 500 MT be centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu.[7] chanroblesvirtualawlibrary March 20, 1987chanroblesvirtualawlibrary This refers to the remaining balance of the above product quantity which were not loaded to the authorized cargo vessel, M/T Sultan Kayumanggi at your loadport Sangi, Toledo City.chanroblesvirtualawlibrary Please be advised that we will be getting the above product quantity within the month of April 1987 and we are arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT an additional product quantity thereof of 227.51 MT.[8] chanroblesvirtualawlibrary Petitioners letter[9] dated May 15, 1987, reiterated the same request to private respondent. chanroblesvirtualawlibrary On January 25, 1988, petitioners counsel, Atty. Pedro T. Santos, Jr., sent a demand letter[10] to private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return of the purchase price of three hundred seven thousand five hundred thirty (P307,530.00) pesos. Private respondent in reply,[11] on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric acid from Basay, or pay maintenance and storage expenses commencing August 1, 1986. chanroblesvirtualawlibrary On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of 272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the chartered vessel for the full capacity of 500 MT, stating that: chanroblesvirtualawlibrary With regard to our balance of sulfuric acid - product at your shore tank/plant for 272.49 metric ton that was left by M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of 227.51 metric ton of sulfuric acid, 98% concentration.chanroblesvirtualawlibrary The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule to lift the high grade sulfuric acid product is contracted for her full capacity/load which is 500 metric tons more or less.chanroblesvirtualawlibrary We are willing to pay the additional quantity - 227.51 metric tons high grade sulfuric acid in the prevailing price of the said product.[12] x x x chanroblesvirtualawlibrary

By telephone, petitioner requested private respondents Shipping Manager, Gil Belen, to get its additional order of 227.51 MT of sulfuric acid at Isabel, Leyte.[13] Belen relayed the information to his associate, Herman Rustia, the Senior Manager for Imports and International Sales of private respondent. In a letter dated July 22, 1988, Rustia replied: chanroblesvirtualawlibrary Subject: Sulfuric Acid Ex-Isabelchanroblesvirtualawlibrary Gentlemen:chanroblesvirtualawlibrary Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot accommodate your request to lift Sulfuric Acid exIsabel due to Pyrite limitation and delayed arrival of imported Sulfuric Acid from Japan.[14] chanroblesvirtualawlibrary On July 25, 1988, petitioners counsel wrote to private respondent another demand letter for the delivery of the purchases remaining, or suffer tedious legal action his client would commence. chanroblesvirtualawlibrary On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim, stating that it was the petitioner who was remiss in the performance of its obligation in arranging the shipping requirements of its purchases and, as a consequence, should pay damages as computed below: chanroblesvirtualawlibrary Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00chanroblesvirtualawlibrary Less Shipmentschanroblesvirtualawlibrary 70.009 MT sulfuric acid P 72,830.36 chanroblesvirtualawlibrary 151.51 MT sulfuric acid 176,966.27 (249,796.63)chanroblesvirtualawlibrary Balance P303,483.37chanroblesvirtualawlibrary Less Chargeschanroblesvirtualawlibrary Basay Maintenance Expensechanroblesvirtualawlibrary from Aug. 15 to Dec. 15, 1986chanroblesvirtualawlibrary (P2,000.00/day x 122 days) P244,000.00chanroblesvirtualawlibrary Sangi - Tank Rentalchanroblesvirtualawlibrary from Aug. 15, 1986 to Aug. 15, 1987chanroblesvirtualawlibrary (P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)chanroblesvirtualawlibrary Receivable/Counterclaim (P324,516.63)chanroblesvirtualawlibrary Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioners favor, disposing as follows: chanroblesvirtualawlibrary WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the latter to pay the former the following sums:chanroblesvirtualawlibrary

1. P306,060.77 - representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff paid to defendant;chanroblesvirtualawlibrary 2. P91,818.23 - representing unrealized profits, both items with 12% interest per annum from May 4, 1989, when the complaint was filed until fully paid;chanroblesvirtualawlibrary 3. P30,000.00 - as exemplary damages; andchanroblesvirtualawlibrary 4. P30,000.00 - as attorneys fees and litigation expenses, both last items also with 12% interest per annum from date hereof until fully paid.chanroblesvirtualawlibrary Defendants counterclaims are hereby dismissed for lack of merit.chanroblesvirtualawlibrary Costs against defendant.[15] chanroblesvirtualawlibrary In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pick-up the remaining sulfuric acid because its failure was due to force majeure. According to the trial court, it was private respondent who committed a breach of contract when it failed to accommodate the additional order of the petitioner, to replace those that sank in the sea, thus: chanroblesvirtualawlibrary To begin with, even if we assume that it is incumbent upon the plaintiff to lift the sulfuric acid it ordered from defendant, the fact that force majeure intervened when the vessel which was previouly (sic) listing, but which the parties, including a representative of the defendant, did not mind, sunk, has the effect of absolving plaintiff from lifting the sulfuric acid at the designated load port. But even assuming the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to a payment of a 2,000-peso incremental expenses per day to defendant for delayed lifting has not been proven. ...chanroblesvirtualawlibrary Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional order after the transaction in litigation? Why also, did defendant not send plaintiff statements of account until after 3 years? chanroblesvirtualawlibrary All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods which the latter did not actually receive.[16] chanroblesvirtualawlibrary On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as follows: chanroblesvirtualawlibrary Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation to withdraw the full amount of 500 MT of sulfuric acid from the defendants loadport at Basay and Sangi on or before August 15, 1986. As early as August 6, 1986 it had been accordingly warned by the defendant that any delay in the hauling of the commodity would mean expenses on the part of the defendant amounting to P2,000.00 a day. The plaintiff sent its vessel, the M/T Sultan

Kayumanggi, only on November 19, 1987. The vessel, however, was not capable of loading the entire 500 MT and in fact, with its load of only 227.519 MT, it sank.chanroblesvirtualawlibrary Contrary to the position of the trial court, the sinking of the M/T Sultan Kayumanggi did not absolve the plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It was the plaintiffs duty to charter another vessel for the purpose. It did contract for the services of a new vessel, the M/T Don Victor, but did not want to lift the balance of 272.481 MT only but insisted that its additional order of 227.51 MT be also given by the defendant to complete 500 MT. apparently so that the vessel may be availed of in its full capacity. x x x chanroblesvirtualawlibrary We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only for the cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as well as exemplary damages and attorneys fees. [17] chanroblesvirtualawlibrary Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of its obligation. It dismissed the complaint of petitioner and ordered it to pay damages representing the counterclaim of private respondent. chanroblesvirtualawlibrary The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution dated December 21, 1992, for lack of merit. chanroblesvirtualawlibrary Petitioner now comes before us, assigning the following errors: I.chanroblesvirtualawlibrary RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51 M.T. II.chanroblesvirtualawlibrary RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON EVIDENCE. III.chanroblesvirtualawlibrary RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED FACTS THAT PETITIONERS PAYMENT FOR THE

GOODS WAS RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT. IV.chanroblesvirtualawlibrary RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE). V.chanroblesvirtualawlibrary RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT.chanroblesvirtualawlibrary From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows: chanroblesvirtualawlibrary 1. Did the respondent court err in holding that the petitioner committed breach of contract, considering that:chanroblesvirtualawlibrary a) the petitioner allegedly paid the full value of its purchases, yet received only a portion of said purchases?chanroblesvirtualawlibrary b) petitioner and private respondent allegedly had also agreed for the purchase and supply of an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?chanroblesvirtualawlibrary 2. Did the respondent court err in awarding damages to private respondent? chanroblesvirtualawlibrary 3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric acid, be on sellers account pursuant to Article 1504 of the Civil Code?chanroblesvirtualawlibrary To resolve these issues, petitioner urges us to review factual findings of respondent court and its conclusion that the petitioner was guilty of delay in the performance of its obligation. According to petitioner, that conclusion is contrary to the factual evidence. It adds that respondent court disregarded the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming that respondent courts findings conflict with those of the trial court, petitioner prays that the trial courts findings be upheld over those of the appellate court. chanroblesvirtualawlibrary Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal thereof, or on October 3, 1986, hence, it had complied with the

primary condition set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a storm, a force majeure, which sank the vessel. It thus claims exemption from liability to pay damages. Petitioner also contends that it was actually the private respondents shipping officer, who advised petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner insists that when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric acid, private respondent could not comply with the contract commitment due to pyrite limitation. chanroblesvirtualawlibrary While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of the trial court,[18] this Court may review those findings, we find the appellate courts conclusion that petitioner violated the subject contract amply supported by preponderant evidence. Petitioners claim was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm or force majeure caused the petitioners delay and failure to lift the cargo of sulfuric acid at the designated loadports. In contrast, the appellate court discounted Hernandez assertions. For on record, the storm was not the proximate cause of petitioners failure to transport its purchases on time. The survey report submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel, which was unstable, was incapable of carrying the full load of sulfuric acid. Note that there was a premature termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs before continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS survey report, unstable and unseaworthy. chanroblesvirtualawlibrary Witness surveyor Eugenio Rabes incident report, dated December 13, 1986 in Basay, Negros Oriental, elucidated this point: chanroblesvirtualawlibrary Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was temporarily stopped by the vessels master due to ships stability was heavily tilted to port side, ships had tried to transfer the loaded acid to stbdside but failed to do so, due to their auxiliary pump on board does not work out for acid. x x x chanroblesvirtualawlibrary Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel Declared quantity loaded onboard based on datas provided by PHILPHOS representative.chanroblesvirtualawlibrary On November 26, two representative of shipping company arrived Basay to assist the situation, at 1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or welding was suspended due to the explosion of tank

no. 5. Explosion ripped about two feet of the double bottom tank.chanroblesvirtualawlibrary November 27 up to date no progress of said vessel[19] chanroblesvirtualawlibrary While at Sangi, Cebu, the vessels condition (listing) did not improve as the survey report therein noted: chanroblesvirtualawlibrary Declared quantity loaded on board was based on shore tank withdrawal due to ships incomplete tank calibration table. Barge displacement cannot be applied due to ship was listing to Stboard side which has been loaded with rocks to control her stability. [20] chanroblesvirtualawlibrary These two vital pieces of information were totally ignored by trial court. The appellate court correctly took these into account, significantly. As to the weather condition in Basay, the appellate court accepted surveyor Rabes testimony, thus: chanroblesvirtualawlibrary Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the loading operation of sulfuric acid on board the Sultana Kayumanggi?chanroblesvirtualawlibrary A. Fair, sir.[21] chanroblesvirtualawlibrary Since the third party surveyor was neither petitioners nor private respondents employee, his professional report should carry more weight than that of Melecio Hernandez, an employee of petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping requirements of the cargo from the private respondents loadports to the petitioners designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioners agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy vessel. However, despite repeated demands, petitioner did not comply seasonably. chanroblesvirtualawlibrary Additionally, petitioner claims that private respondents employee, Gil Belen, had recommended to petitioner to fully utilize the vessel, hence petitioners request for an additional order to complete the vessels 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts that a contract of sale has been changed or modified has the burden of proving the change or modification by clear and convincing evidence.[22] Repeated requests and additional orders were contained in petitioners letters to private respondent. In contrast, Belens alleged action was only verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could redound to petitioners advantage, not the other partys. If additional orders were at the instance of private respondent, the same must be properly proved together with its relevance to the question of delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of written

agreements is inadmissible, under the parol evidence rule.[23] Belens purported recommendation could not be taken at face value and, obviously, cannot excuse petitioners default. chanroblesvirtualawlibrary Respondent court found petitioners default unjustified, and on this conclusion we agree: chanroblesvirtualawlibrary It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance of the original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early as August 15, 1986. What the defendant could not sell to the plaintiff was the additional 227.51 MT which said plaintiff was ordering, for the reason that the defendant was short of the supply needed. The defendant, however, had no obligation to agree to this additional order and may not be faulted for its inability to meet the said additional requirements of the plaintiff. And the defendants incapacity to agree to the delivery of another 227.51 MT is not a legal justification for the plaintiffs refusal to lift the remaining 272.481.chanroblesvirtualawlibrary It is clear from the plaintiffs letters to the defendant that it wanted to send the M/T Don Victor only if the defendant would confirm that it was ready to deliver 500 MT. Because the defendant could not sell another 227.51 MT to the plaintiff, the latter did not send a new vessel to pick up the balance of the 500 MT originally contracted for by the parties. This, inspite the representations made by the defendant for the hauling thereof as scheduled and its reminders that any expenses for the delay would be for the account of the plaintiff.[24] chanroblesvirtualawlibrary We are therefore constrained to declare that the respondent court did not err when it absolved private respondent from any breach of contract. chanroblesvirtualawlibrary Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified delay in the performance of its obligation under the contract. Where there has been breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them.[25] Article 1170 of the Civil Code provides: chanroblesvirtualawlibrary 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.chanroblesvirtualawlibrary Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation.[26] Art. 1169 states: chanroblesvirtualawlibrary 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.chanroblesvirtualawlibrary

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 or extrajudicially.[27] chanroblesvirtualawlibrary In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed, otherwise petitioner would be charged for the consequential damages owing to any delay. As stated in private respondents letter to petitioner, dated December 12, 1986: chanroblesvirtualawlibrary Subject : M/T KAYUMANGGIchanroblesvirtualawlibrary Gentlemen:chanroblesvirtualawlibrary This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986 regarding your sulfuric acid vessel, M/T KAYUMANGGI.chanroblesvirtualawlibrary As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th December 1986 as we are expecting the arrival of our chartered vessel purportedly to haul our equipments and all other remaining assets in Basay. This includes our sulfuric acid tanks. We regret, therefore, that if these tanks are not emptied on or before the 15th of December, we either have to charge you for the tanks waiting time at Basay and its consequential costs (i.e. chartering of another vessel for its second pick-up at Basay, handling, etc.) as well as all other incremental costs on account of the protracted loading delay.[28] (Italics supplied) chanroblesvirtualawlibrary Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay begin? The above letter constitutes private respondents extrajudicial demand for the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however, we cannot sustain the finding of the respondent court that petitioners delay started on August 6, 1986. The Court of Appeals had relied on private respondents earlier letter to petitioner of that date for computing the commencement of delay. But as averred by petitioner, said letter of August 6th is not a categorical demand. What it showed was a mere statement of fact, that [F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00 per day. Noteworthy, private respondent accepted the full payment by petitioner for purchases on October 3, 1986, without qualification, long after the August 6th letter. In contrast to the August 6th letter, that of December 12th was a categorical demand. chanroblesvirtualawlibrary Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically, the

computation of damages arising from the shipping delay would then have to be from December 15, 1986, given said reasonable period after the December 12th letter. More important, private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and regular business expenses for which the petitioner should not be obliged to pay. chanroblesvirtualawlibrary Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August 31, 1987, solely for petitioners sulfuric acid. It stands to reason that petitioner should reimburse private respondents rental expenses of P32,000 monthly, commencing December 15, 1986, up to August 31, 1987, the period of the extended lease. Note further that there is nothing on record refuting the amount of expenses abovecited. Private respondent presented in court two supporting documents: first, the lease agreement pertaining to the equipment, and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to private respondent representing the rental charges incurred. Private respondent is entitled to recover the payment for these charges. It should be reimbursed the amount of two hundred seventy two thousand (P272,000.00)[29] pesos, corresponding to the total amount of rentals from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank. chanroblesvirtualawlibrary Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other damages by arguing that expenses for the preservation of fungible goods must be assumed by the seller. Rental expenses of storing sulfuric acid should be at private respondents account until ownership is transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states: chanroblesvirtualawlibrary Unless otherwise agreed, the goods remain at the sellers 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 buyers risk whether actual delivery has been made or not, except that: x x x chanroblesvirtualawlibrary (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party at fault. (italics supplied)chanroblesvirtualawlibrary On this score, we quote with approval the findings of the appellate court, thus: chanroblesvirtualawlibrary

. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.chanroblesvirtualawlibrary But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to make it liable for the damages sought by the defendant.chanroblesvirtualawlibrary Article 1170 of the Civil Code provides:chanroblesvirtualawlibrary 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..chanroblesvirtualawlibrary Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-contract with the defendant.[30] chanroblesvirtualawlibrary As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When petitioner failed to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is indubitably liable for proven damages. chanroblesvirtualawlibrary Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the amount of three hundred three thousand, four hundred eighty three pesos and thirty seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses initially paid by private respondent. It is worth noting that the adjustment and allowance of private respondents counterclaim or setoff in the present action, rather than by another independent action, is encouraged by the law. Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption of the courts time.[31] The trend of judicial decisions is toward a liberal extension of the right to avail of counterclaims or set-offs.[32] The rules on counterclaims are designed to achieve the disposition of a whole controversy involving the conflicting claims of interested parties at one time and in one action, provided all parties can be brought before the court and the matter decided without prejudicing the right of any party.[33] Set-off in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will leave the amount of P31,483.37 refundable to petitioner. chanroblesvirtualawlibrary WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of private respondent is REDUCED to Two

hundred seventy two thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET against petitioners advance payment of Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein petitioner. chanroblesvirtualawlibrary Costs against the petitioner. chanroblesvirtualawlibrary SO ORDERED.

FIRST DIVISION [G.R. No. 154017. December 8, 2003] DESAMPARADOS M. SOLIVA, Substituted by Sole Heir PERLITA SOLIVA GALDO, Petitioner, vs. The INTESTATE ESTATE of MARCELO M. VILLALBA and VALENTA BALICUA VILLALBA, respondents. DECISION There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is an action to collect the balance or to rescind the contract within the time allowed by law. In this case, laches barring the claim of petitioner to recover the property has already set in. However, in the interest of substantial justice, and pursuant to the equitable principle proscribing unjust enrichment, she is entitled to receive the unpaid balance of the purchase price plus legal interest thereon. The Casechanroblesvirtuallawlibrary Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify the November 9, 2001 Decision[2] and the May 23, 2002[3] Resolution of the Court of Appeals (CA) in CA-GR CV No. 42024. The assailed Decision disposed as follows:chanroblesvirtuallawlibrary WHEREFORE, the Decision appealed from is AFFIRMED. [4]chanroblesvirtuallawlibrary The assailed Resolution denied petitioners Motion for Reconsideration. The Factschanroblesvirtuallawlibrary The facts are narrated by the CA, as follows:chanroblesvirtuallawlibrary On May 5, 1982, [Petitioner] Desamparados M. Soliva filed a complaint for recovery of ownership, possession and damages against [Respondent] Valenta Balicua Villalba x x x alleging that she is the owner of a parcel of agricultural land situated at Hinaplanan, Claveria, Misamis Oriental, containing an area of 16,542 square meters and covered by Original Certificate of Title No. 8581; that on January 4, 1966, the

late Capt. Marcelo Villalba asked her permission to occupy her house on said land, promised to buy the house and lot upon receipt of his money from Manila and gave her P600.00 for the occupation of the house; that Capt. Villalba died in 1978 without having paid the consideration for the house and lot; and that after [the] death of Capt. Villalba, his widow, [Respondent Valenta], refused to vacate the house and lot despite demands, destroyed the house thereon and constructed a new one.chanroblesvirtuallawlibrary For failure to file an answer, [Respondent Valenta] was declared in default and [petitioner] was allowed to present her evidence ex-parte.chanroblesvirtuallawlibrary On March 26, 1984, the court a quo rendered judgment restoring to [petitioner] her right of ownership and possession of the property and ordering [Respondent Valenta] to pay [her] P25,000.00 as actual damages and P5,000.00 as attorneys fees. Said decision became final and [petitioner] was placed in possession of the subject property.chanroblesvirtuallawlibrary A petition for relief from judgment was filed by [Respondent Valenta] on June 5, 1984 alleging that her failure to file an answer to the complaint was caused by her confusion as to whether the property formed part of the estate of her late husband, Marcelo Villalba; that she referred the matter to Atty. Eleno Kabanlit, the administrator of the estate, but the latter informed her that the property was not included in the inventory of the estate; and that she has a meritorious defense as her late husband had already paid the amount of P2,250.00 out of the purchase price of P3,500.00 for the house and lot.chanroblesvirtuallawlibrary The petition for relief was denied by the court a quo in an Order dated September 3, 1984 on the grounds that the failure of [Respondent Valenta] to file an answer was not due to excusable negligence and that she does not seem to have a valid and meritorious defense.chanroblesvirtuallawlibrary [Respondent Valenta] appealed to [the CA], which rendered a Decision on February 21, 1990 finding that the failure of [Respondent Valenta] to file an answer to the complaint was due to excusable negligence; that she has a meritorious defense, and that the complaint should have been filed not against her but against the administrator of the estate of deceased Marcelo Villalba. The dispositive portion of said Decision reads:chanroblesvirtuallawlibrary WHEREFORE, the order appealed from is hereby REVERSED; the judgment by default in Civil Case No. 8515, subject matter of the petition for relief, is SET ASIDE; the trial court is ORDERED to continue with the proceedings in said case; and [Petitioner] Desamparados M. Soliva x x x is ORDERED to amend [her] complaint by substituting the administrator of the intestate testate (sic) of the late Marcelo M. Villalba for Valenta Baricua-Villalba [respondent] as defendant in said amended complaint. No pronouncement as to costs.chanroblesvirtuallawlibrary

SO ORDERED.chanroblesvirtuallawlibrary Consequently, an amended complaint was filed in Civil Case No. 8515 by substituting the Intestate Estate of Marcelo M. Villalba, represented by its Administrator, Atty. Eleno M. Kabanlit, for [Respondent Valenta], as defendant therein.chanroblesvirtuallawlibrary Answering the complaint, the Administrator alleged that the house and lot were sold to the late Marcelo Villalba by Magdaleno Soliva, the late husband of [petitioner], on December 18, 1965 for P3,500.00 on installment basis and that Marcelo Villalba had paid the total amount of P2,250.00; that no demands were made on [Respondent Valenta] to vacate the property prior to the filing of the original complaint in 1982; and that [Respondent Valenta] has been in continuous, public and uninterrupted possession of the property for seventeen (17) years, i.e., from 1965 to 1982, so that [petitioners] claim of ownership has already prescribed.chanroblesvirtuallawlibrary An answer-in-intervention was filed by [Respondent Valenta] alleging that the original transaction between her late husband and the late husband of [petitioner] covered seventy [two] (72) hectares of land, twenty-nine (29) heads of cattle and the subject house and lot; that [petitioner] and her husband delivered to them only twenty-seven (27) hectares and twelve (12) heads of cattle and they had to pay separately for the house and lot; and that she renovated the house and lot at a cost of not less than P30,000.00 and planted numerous fruit trees and permanent crops, all valued at not less than P50,000.00.chanroblesvirtuallawlibrary On March 11, 1993, the court a quo rendered a Decision, the dispositive portion of which reads:chanroblesvirtuallawlibrary WHEREFORE, judgment is hereby rendered dismissing the complaint and the counterclaims without special pronouncement as to costs, and ordering the reconveyance of subject lot to [respondent] and intervenor.[5] Ruling of the Court of Appealschanroblesvirtuallawlibrary Affirming the RTC, the CA held that laches had already set in. The inaction of petitioner for almost 16 years had barred her action to recover the disputed property from the Villalbas. The appellate court found that 1) until the death of Marcelo Villalba in 1978, his payment of the full purchase price of the disputed house and lot was never demanded; 2) no evidence was presented to show when petitioner had made a verbal demand on Valenta Villalba to vacate the premises; and 3) the complaint for recovery of ownership and possession was filed only on May 5, 1982 -- 16 years after the formers cause of action had accrued.chanroblesvirtuallawlibrary Hence, this Petition.[6] Issueschanroblesvirtuallawlibrary Petitioner submits the following issues for our consideration:chanroblesvirtuallawlibrary

1. Whether or not Capt. Marcelo M. Villalba who died in 1978 after declaring that he would not pay anymore the full consideration of the price of the house and lot and after exhausting extrajudicial remedies would bar Desamparados M. Soliva or her successor-in-interest from asserting her claim over her titled property.chanroblesvirtuallawlibrary 2. Whether or not the Decision of the Court of Appeals affirming the Decision of the Regional Trial Court ordering the reconveyance of the subject lot to defendant and intervenor although Capt. Marcelo Villalba nor his wife Valenta Balicua Villalba had not yet paid the full consideration of the price of the house and lot would unjustly enrich spouses Marcelo and Valenta Villalba at the expense of Desamparados M. Soliva.[7]chanroblesvirtuallawlibrary Simply put, the issues boil down to the following: (1) whether petitioner is barred from recovering the disputed property; and (2) whether the conveyance ordered by the court a quo would unjustly enrich respondents at her expense. The Courts Rulingchanroblesvirtuallawlibrary The Petition is partly meritorious. First Issue: Petitioners Claim Already Barredchanroblesvirtuallawlibrary Petitioner contests the appellate courts finding that she slept on her rights for 16 years and thereby allowed prescription and laches to set in and bar her claim. She avers that she undertook extrajudicial measures to collect the unpaid balance of the purchase price from the Villalbas. She also emphasizes that as a result of her original action, the trial court restored her to the possession of the disputed house and lot on March 26, 1984.chanroblesvirtuallawlibrary It is readily apparent that petitioner is raising issues of fact that have amply been ruled upon by the appellate court. The CAs findings of fact are generally binding upon this Court and will not be disturbed on appeal -- especially when, as in this case, they are the same as those of the trial court.[8] Petitioner has failed to show sufficient reason for us to depart from this rule. Accordingly, we shall review only questions of law that have been distinctly set forth.[9] No Invalidation of Sale Due to Nonpayment of Full Pricechanroblesvirtuallawlibrary Petitioner argues that the transaction between the parties was a contract to sell rather than a contract of sale. This argument was properly brushed aside by the appellate court, which held that she was bound by her admission in her Complaint[10] and during the hearings[11] that she had sold the property to the Villalbas.chanroblesvirtuallawlibrary

Petitioner further contends that the oral contract of sale between the parties was invalid, because the late Captain Marcelo Villalba and his wife had failed to comply with their obligation to pay in full the purchase price of the house and lot. She is mistaken.chanroblesvirtuallawlibrary Under Article 1318 of the Civil Code, the following are the essential requisites of a valid contract: 1) the consent of the contracting parties, 2) the object certain which is the subject matter of the contract, and 3) the cause of the obligation which is established. When all the essential requisites are present, a contract is obligatory in whatever form it may have been entered into, save in cases where the law requires that it be in a specific form to be valid and enforceable. [12]chanroblesvirtuallawlibrary With respect to real property, Article 1358(1) of the Civil Code specifically requires that a contract of sale thereof be in a public document. However, an otherwise unenforceable oral contract of sale of realty under Article 1403(2) of the Civil Code may be ratified by the failure to object to the presentation of oral evidence to prove it or by the acceptance of benefits granted by it.[13]chanroblesvirtuallawlibrary All the essential elements of a valid contract are present in this case. No issue was raised by petitioner on this point. Moreover, while the contract between the parties might have been unenforceable under Article 1403(2) of the Civil Code, the admission[14] by petitioner that she had accepted payments under the oral contract of sale took the case out of the scope of the Statute of Frauds.[15] The ratification of the contract rendered it valid and enforceable.chanroblesvirtuallawlibrary Furthermore, contrary to petitioners submission, the nonpayment of the full consideration did not invalidate the contract of sale. Under settled doctrine, nonpayment is a resolutory condition that extinguishes the transaction existing for a time and discharges the obligations created thereunder.[16] The remedy of the unpaid seller is to sue for collection[17] or, in case of a substantial breach, to rescind the contract.[18] These alternative remedies of specific performance and rescission are provided under Article 1191 of the Civil Code as follows:chanroblesvirtuallawlibrary 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.chanroblesvirtuallawlibrary The injured party may choose between 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.chanroblesvirtuallawlibrary The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.chanroblesvirtuallawlibrary

x x x x x x x x x.chanroblesvirtuallawlibrary The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil Code as follows:chanroblesvirtuallawlibrary Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or extrajudicially or by a notarial act. After the demand, the court may not grant him a new term.chanroblesvirtuallawlibrary Upon the facts found by the trial and the appellate courts, petitioner did not exercise her right either to seek specific performance or to rescind the verbal contract of sale until May 1982, when she filed her complaint for recovery of ownership and possession of the property. This factual finding brings to the fore the question of whether by 1982, she was already barred from recovering the property due to laches and prescription. Action Barred by Lacheschanroblesvirtuallawlibrary In general, laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which -- by the exercise of due diligence -- could or should have been done earlier.[19] It is the negligence or omission to assert a right within a reasonable period, warranting the presumption that the party entitled to assert it has either abandoned or declined to assert it.[20]chanroblesvirtuallawlibrary Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on their rights for an unreasonable length of time -- either by negligence, folly or inattention -- have allowed their claims to become stale.[21] Vigilantibus, sed non dormientibus, jura subveniunt. The laws aid the vigilant, not those who slumber on their rights.[22]chanroblesvirtuallawlibrary The following are the essential elements of laches:chanroblesvirtuallawlibrary (1) Conduct on the part of the defendant that gave rise to the situation complained of; or the conduct of another which the defendant claims gave rise to the same;chanroblesvirtuallawlibrary (2) Delay by the complainant in asserting his right after he has had knowledge of the defendants conduct and after he has had an opportunity to sue;chanroblesvirtuallawlibrary (3) Lack of knowledge by or notice to the defendant that the complainant will assert the right on which he bases his suit; andchanroblesvirtuallawlibrary (4) Injury or prejudice to the defendant in the event relief is accorded to the complainant.[23]chanroblesvirtuallawlibrary

Petitioner complied with her obligation to deliver the property in 1966.[24] However, respondents husband failed to comply with his reciprocal obligation to pay, when the money he had been expecting from Manila never materialized.[25] He also failed to make further installments after May 13, 1966.[26] As early as 1966, therefore, petitioner already had the right to compel payment or to ask for rescission, pursuant to Article 1169 of the Civil Code, which reads:chanroblesvirtuallawlibrary 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.chanroblesvirtuallawlibrary However, the demand by the creditor shall not be necessary in order that delay may exist:chanroblesvirtuallawlibrary x x x x x x x x xchanroblesvirtuallawlibrary 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. (Italics supplied)chanroblesvirtuallawlibrary Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of evidence, the lower courts brushed aside her assertions that she had availed herself of extrajudicial remedies to collect the balance or to serve an extrajudicial demand on Villalba, prior to her legal action in 1982. Meanwhile, respondent had spent a considerable sum in renovating the house and introducing improvements on the premises.[27]chanroblesvirtuallawlibrary In view thereof, the appellate court aptly ruled that petitioners claim was already barred by laches. It has been consistently held that laches does not concern itself with the character of the defendants title, but only with the issue of whether or not the plaintiff -- by reason of long inaction or inexcusable neglect -- should be barred entirely from asserting the claim, because to allow such action would be inequitable and unjust to the defendant.[28] chanroblesvirtuallawlibrary Likewise, it must be stressed that unlike prescription, laches is not concerned merely with the fact of delay, but even more with the effect of unreasonable delay.[29] In Vda. de Cabrera v. CA,[30] we explained:chanroblesvirtuallawlibrary In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred from recovering possession of property by virtue of laches. Under the Land Registration Act (now the Property Registration Decree), no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession. The same is not true with regard to laches. As we have stated earlier in Mejia de Lucas vs. Gamponia, while the defendant may not be considered as having acquired title by virtue of his and his predecessors long continued possession (37 years) the original owners right to recover x x x the possession of the

property and the title thereto from the defendant has, by the latters long period of possession and by patentees inaction and neglect, been converted into a stale demand.[31]chanroblesvirtuallawlibrary The contention of petitioner that her right to recover is imprescriptible because the property was registered under the Torrens system[32] also fails to convince us. It was the finding of the trial court that the property was not yet covered by a free patent on January 4, 1966, when Captain Villalba acquired possession thereof. Indeed, the evidence shows that as of that date, the documents relating to the property were still in the name of Pilar Castrence, from whom petitioner purchased the property on April 27, 1966;[33] that she applied for a free patent therefor between January 4 and April 27, 1966;[34] and that the original certificate of title over the lot was issued to her under Free Patent No. (x-1) 3732 only on August 16, 1974.[35]chanroblesvirtuallawlibrary It is apparent, then, that petitioner sold the house and lot to respondent on January 4, 1966, before she had even acquired the title to convey it. Moreover, she applied for a free patent after she lost, by operation of law,[36] the title she had belatedly acquired from Castrence. These circumstances raise serious questions over the formers good faith in delaying the assertion of her rights to the property. They bar her from seeking relief under the principle that one who comes to court must come with clean hands.[37] Action Barred by Prescriptionchanroblesvirtuallawlibrary Moreover, we find that the RTC and the CA correctly appreciated the operation of ordinary acquisitive prescription in respondents favor. To acquire ownership and other real rights over immovables under Article 1134 of the Civil Code, possession must be for 10 years. It must also be in good faith and with just title. [38]chanroblesvirtuallawlibrary Good faith consists of the reasonable belief that the person from whom the possessor received the thing was its owner, but could not transmit the ownership thereof.[39] On the other hand, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.[40]chanroblesvirtuallawlibrary The RTC and the CA held that the Villalbas had continuously possessed the property from January 4, 1966 until May 5, 1982[41] or for a total of 16 years. Capt. Villalba came into possession through a sale by petitioner, whom he believed was the owner, though -- at the time of the sale -- she was not. Clearly, all the elements of ordinary acquisitive prescription were present.chanroblesvirtuallawlibrary Petitioner is thus precluded from invoking the 30-year prescriptive period for commencing real action over immovables. Prescription of the action is without

prejudice to acquisitive prescription, according to Article 1141 of the Civil Code, which we quote:chanroblesvirtuallawlibrary Art. 1141. Real actions over immovables prescribe after thirty years.chanroblesvirtuallawlibrary This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (Italics supplied) Second Issue: Unjust Enrichmentchanroblesvirtuallawlibrary While petitioner is now barred from recovering the subject property, all is not lost for her. By Respondent Villalbas own admission,[42] a balance of P1,250 of the total purchase price remains unpaid. Reason and fairness suggest that petitioner be allowed to collect this sum. It is a basic rule in law that no one shall unjustly enrich oneself at the expense of another. Niguno non deue enriquecerse tortizamente condao de otro. For indeed, to allow respondent to keep the property without paying fully for it amounts to unjust enrichment on her part.chanroblesvirtuallawlibrary Since the obligation consists of the payment of a sum of money, and Respondent Villalba has incurred delay in satisfying that obligation, legal interest at six percent (6%) per annum[43] is hereby imposed on the balance of P1,250, to be computed starting May 5, 1982 -- when the claim was made judicially -- until the finality of this Courts judgment. Following our ruling in Eastern Shipping Lines, Inc. v. CA, [44] the sum so awarded shall likewise bear interest at the rate of 12 percent per annum from the time this judgment becomes final and executory until its satisfaction.chanroblesvirtuallawlibrary WHEREFORE, the Petition is partly GRANTED. The Decision of the Court of Appeals is AFFIRMED, with the MODIFICATION that respondent is ordered to pay the balance of the purchase price of P1,250 plus 6 percent interest per annum, from May 5, 1982 until the finality of this judgment. Thereafter, interest of 12 percent per year shall then be imposed on that amount upon the finality of this Decision until the payment thereof. No costs. chanroblesvirtuallawlibrary SO ORDERED. FIRST DIVISION [G.R. No. 123552. February 27, 2003] TWIN TOWERS CONDOMINIUM CORPORATION, Petitioner, vs. THE COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION, ANTONIO LITONJUA and SECURITIES AND EXCHANGE COMMISSION, Respondents. The Casechanroblesvirtuallawlibrary

Before us is a petition for review on certiorari[1] to nullify the Decision[2] dated August 31, 1995 of the Court of Appeals and its Resolution[3] dated January 16, 1996 denying petitioners motion for reconsideration. The Court of Appeals dismissed petitioners appeal from the Decision en banc[4] of the Securities and Exchange Commission, which reversed the order of the SEC Hearing Officer.[5] The Court of Appeals dismissed the appeal for lack of merit and for non-compliance with the requirement on certification of non-forum shopping.[6] The Antecedent Factschanroblesvirtuallawlibrary On June 30, 1988, petitioner Twin Towers Condominium Corporation (petitioner for brevity) filed a complaint[7] with the Securities and Exchange Commission (SEC for brevity) against respondents ALS Management & Development Corporation (ALS for brevity) and Antonio Litonjua (Litonjua for brevity). The complaint prayed that ALS and Litonjua be ordered to pay solidarily the unpaid condominium assessments and dues with interests and penalties covering the four quarters of 1986 and 1987 and the first quarter of 1988.chanroblesvirtuallawlibrary The complaint alleged, among others, that petitioner, a non-stock corporation, is organized for the sole purpose of holding title to and managing the common areas of Twin Towers Condominium (Condominium for brevity). Membership in petitioner corporation is compulsory and limited to all registered owners of units in the Condominium. ALS, as registered owner of Unit No. 4-A (Unit for brevity) of the Condominium, is a member of petitioner. Litonjua, who is the corporate president of ALS, occupies the Unit.chanroblesvirtuallawlibrary Petitioner collects from all its members quarterly assessments and dues as authorized by its Master Deed and Declaration of Restrictions (Master Deed for brevity) and its By-Laws. As of the filing of the complaint with the SEC, petitioners records of account show that ALS failed to pay assessments and dues starting 1986 up to the first quarter of 1988. Petitioner claimed against both ALS and Litonjua P118,923.20 as unpaid assessments and dues. This amount includes accrued interests of P30,808.33 and penalty charges of P7,793.34, plus P 1,500.00 as unpaid contingency fund assessment for 1987.[8] chanroblesvirtuallawlibrary In their joint Answer with Counterclaim, ALS and Litonjua asserted that petitioner failed to state a cause of action against Litonjua. ALS and Litonjua argued that petitioners admission that ALS and not Litonjua is the registered owner of the Unit and member of petitioner exonerates Litonjua from any liability to petitioner. While ALS is a juridical person that cannot by itself physically occupy the Unit, the natural person who physically occupies the Unit does not assume the liability of ALS to petitioner. Neither does the agent who acts for the corporation become personally liable for the corporations obligation.chanroblesvirtuallawlibrary

As counterclaim, ALS claimed damages against petitioner arising from petitioners act of repeatedly preventing ALS, its agents and guests from using the parking space, swimming pool, gym, and other facilities of the Condominium. In addition, Litonjua claimed damages against petitioner for the latters act of including Litonjuas name in the list of delinquent unit owners which was posted on petitioners bulletin board. [9]chanroblesvirtuallawlibrary On December 11, 1991, the SEC Hearing Officer ordered petitioner to pay Litonjua moral and exemplary damages for maliciously including Litonjuas name in the list of delinquent unit owners and for impleading him as a respondent. On the other hand, the SEC Hearing Officer ordered ALS to pay the assessments and dues to petitioner. [10] However, the Hearing Officer did not determine the exact amount to be paid by ALS because petitioner failed to lay down the basis for computing the unpaid assessments and dues.[11] The dispositive portion of the decision reads thus:chanroblesvirtuallawlibrary WHEREFORE, premises considered, judgment is hereby rendered as follows:chanroblesvirtuallawlibrary 1. Ordering respondent ALS to pay the legal assessments/dues due the complainant within thirty (30) days from finality of this Decision; andchanroblesvirtuallawlibrary 2. Ordering the complainant to pay respondent Antonio Litonjua the sum of THREE HUNDRED THOUSAND PESOS (P300,000.00) as moral damages, FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages, and TWO HUNDRED THOUSAND PESOS (P200,000.00) as and by way of attorneys fees.chanroblesvirtuallawlibrary SO ORDERED.[12]chanroblesvirtuallawlibrary Not satisfied with the SEC Hearing Officers decision, both parties filed their respective appeals to the SEC en banc.[13] Petitioner assailed the award of moral and exemplary damages as well as attorneys fees in favor of Litonjua. On the other hand, ALS appealed that portion of the decision ordering it to pay to petitioner the assessments and dues.chanroblesvirtuallawlibrary In a decision dated July 30, 1993, the SEC en banc nullified the award of damages and attorneys fees to Litonjua on the ground that the SEC had no jurisdiction over Litonjua. The SEC en banc held that there is no intra-corporate relationship between petitioner and Litonjua who is not the registered owner of the Unit and thus, not a member of petitioner. The SEC en banc stated that petitioner could not invoke the doctrine of piercing the veil of ALS corporate fiction since disregarding the corporate entity is a function of the regular courts.chanroblesvirtuallawlibrary Furthermore, the SEC en banc remanded the case to the Hearing Officer to determine the value of the services petitioner failed to render to ALS because of the latters non-use of the Condominium facilities. The SEC en banc ruled that the value

of these services could be deducted from the unpaid assessments and dues that ALS owes petitioner.chanroblesvirtuallawlibrary Thus, the SEC en banc declared:chanroblesvirtuallawlibrary WHEREFORE, in view of the foregoing, the order appealed from is hereby reversed insofar as it awards moral and exemplary damages and attorneys fees to respondent Litonjua as the same is null and void for lack of jurisdiction of this Commission over the said party.[14]chanroblesvirtuallawlibrary As regards that portion of the appealed Order directing respondent ALS to pay the legal assessment/dues to the complainant TTC within thirty (30) [days] from finality of the said decision, the same is hereby modified by remanding the case to the hearing officer for determination of the value of the services withheld by the complainant TTC from respondent ALS in order that the same may be deducted from the amount of legal assessments and dues which the respondent corporation shall pay to the complainant.chanroblesvirtuallawlibrary SO ORDERED.[15] (Emphasis supplied)chanroblesvirtuallawlibrary Petitioner appealed the SEC en banc Decision to the Court of Appeals contending grave error or grave abuse of discretion by the SEC en banc. The Ruling of the Court of Appealschanroblesvirtuallawlibrary The Court of Appeals dismissed petitioners appeal on both procedural and substantive grounds. Procedurally, the Court of Appeals found the petition defective for failure to contain a sworn certification of non-forum shopping as required by Section 6 of Administrative Circular No. 1-95 and Section 2 of Revised Circular No. 28-91.chanroblesvirtuallawlibrary On the merits, the Court of Appeals substantially affirmed the decision of the SEC en banc that there is no ground to pierce the veil of ALS corporate fiction. The Court of Appeals held that there is nothing in the records to show that ALS is engaged in unlawful, business or that Litonjua is using ALS to defraud third parties. The fact alone that ALS is in arrears in paying its assessments and dues does not make ALS or Litonjua guilty of fraud which would warrant piercing the corporate veil of ALS. Thus, it was improper for petitioner to post Litonjuas name instead of ALS in the list of delinquent unit owners since Litonjua is not a member of petitioner.chanroblesvirtuallawlibrary The Court of Appeals also sustained the claim of petitioner against ALS for unpaid assessments and dues but found that petitioner failed to substantiate by preponderance of evidence the basis for computing the unpaid assessments and dues. Thus, the Court of Appeals remanded the case to the SEC Hearing Officer for further reception of evidence and for determination of the exact amount of ALS liability to petitioner. The Court of Appeals, however, directed the SEC Hearing Officer to deduct from ALS unpaid assessments and dues the value of the services denied to

ALS because of the latters non-use of the Condominium facilities. In allowing the deduction, the Court of Appeals declared the Condominiums House Rule 26.3 as ultra vires. House Rule 26.3, which petitioner claims as its basis for denying the use of the Condominium facilities to ALS, authorizes withholding of the use of the Condominium facilities from delinquent unit owners. The Court of Appeals, however, ruled that petitioner is not expressly authorized by its Master Deed and ByLaws to prohibit delinquent members from using the facilities of the Condominium.chanroblesvirtuallawlibrary The Court of Appeals went further and declared the interest and penalty charges prescribed by House Rule 26.5[16] on delinquent accounts as exorbitant or grossly excessive, although this was not raised as an issue. While in its complaint, petitioner sought to recover P118,923.20 as unpaid assessments and dues, in its amended petition for review, petitioner sought P994,529.75, more than eight times the amount it originally claimed from ALS.[17]chanroblesvirtuallawlibrary In the dispositive portion of its assailed decision, the Court of Appeals declared:chanroblesvirtuallawlibrary WHEREFORE, the instant petition is hereby DENIED and is accordingly DISMISSED.[18]chanroblesvirtuallawlibrary Hence, this petition. The Issueschanroblesvirtuallawlibrary In its Memorandum, petitioner assigns the following errors in the decision of the Court of Appeals:chanroblesvirtuallawlibrary 1. IN DISMISSING THE PETITION ALLEGEDLY BECAUSE OF PETITIONERS FAILURE TO COMPLY WITH THE PERTINENT PROVISIONS OF SUPREME COURT CIRCULAR NOS. 1-95 AND 28-91 ON THE CERTIFICATION AGAINST FORUM SHOPPING;chanroblesvirtuallawlibrary 2. IN ORDERING A REMAND OF THE CASE BACK TO THE HEARING OFFICER FOR THE RECEPTION OF EVIDENCE FOR SERVICES SUPPOSEDLY NOT RENDERED BY PETITIONER;chanroblesvirtuallawlibrary 3. IN DECLARING HOUSE RULE NO. 26.3 AS ULTRA VIRES;chanroblesvirtuallawlibrary 4. IN FINDING THE PENALTIES AND INTERESTS PRESCRIBED IN HOUSE RULE 26.5[19] AS EXORBITANT AND GROSSLY EXCESSIVE;chanroblesvirtuallawlibrary 5. IN REFUSING TO RECOGNIZE THE FACT THAT RESPONDENT LITONJUA AND NOT ALS IS THE REAL OWNER OF APARTMENT UNIT 4A; andchanroblesvirtuallawlibrary

6. IN FAILING TO FIND THAT THERE IS ON RECORD OVERWHELMING EVIDENCE TO SHOW THE BASIS OF THE DUES AND ASSESSMENTS BEING COLLECTED FROM THE PRIVATE RESPONDENTS.[20] The Ruling of the Courtchanroblesvirtuallawlibrary The petition is partly meritorious.chanroblesvirtuallawlibrary A perusal of the foregoing issues readily reveals that petitioner raises two aspects of the case for consideration - the procedural aspect and the substantive aspect.chanroblesvirtuallawlibrary We will discuss the procedural aspect first. Non-compliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91.chanroblesvirtuallawlibrary Petitioner submits that the Court of Appeals erred in dismissing its appeal for noncompliance with Supreme Court Circular No. 1-95 and Revised Circular No. 28-91. Petitioner asserts that when it filed its petition, both circulars were not yet in full force.chanroblesvirtuallawlibrary Petitioner filed its petition for review with the Court of Appeals on August 18, 1993 and its amended petition on September 3, 1993. Both the original and amended petitions were filed before the effectivity of Revised Administrative Circular No. 195 on June 1, 1995. However, contrary to petitioners claim, before the issuance of Revised Administrative Circular No. 1-95, there was already an existing circular requiring a sworn certification of non-forum shopping from a party filing a petition for review with the Court of Appeals.chanroblesvirtuallawlibrary Circular No. 28-91, which took effect on January 1, 1992, required a sworn certification of non-forum shopping in cases filed with the Court of Appeals and the Supreme Court. Circular No. 28-91 specifically provides for summary dismissal of petitions which do not contain a sworn certification of non-forum shopping. Sections 2 and 3 of Circular No. 28-91 state:chanroblesvirtuallawlibrary 2. Certification - The party must certify under oath that he has not commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency, and that to the best of his knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency. If there is any action pending, he must state the status of the same. If he should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different Divisions thereof, or any other tribunal or agency, he should notify the court, tribunal or agency within five (5) days from such notice.chanroblesvirtuallawlibrary 3. Penalties -chanroblesvirtuallawlibrary

a. Any violation of this Circular shall be a cause for the summary dismissal of the multiple petition or complaint.chanroblesvirtuallawlibrary x x x.chanroblesvirtuallawlibrary Clearly, petitioner cannot claim that at the time of the filing of its petitions with the Court of Appeals, it was not required under any existing Supreme Court Circular to include in its petitions a sworn certification of non-forum shopping. Circular No. 2891 applies in the instant case, being the Circular in force at the time. Petitioner cannot even feign ignorance of Circular No. 28-91 as its petitions were filed more than one year after the Circulars effectivity. The rule against forum shopping has long been established and Circular No. 28-91 merely formalized the prohibition and provided the appropriate penalties against violators.[21] chanroblesvirtuallawlibrary The Court of Appeals did not err in dismissing the petition for this procedural lapse. However, special circumstances or compelling reasons may justify relaxing the rule requiring certification on non-forum shopping.[22] Technical rules of procedure should be used to promote, not frustrate justice. While the swift unclogging of court dockets is a laudable objective, granting substantial justice is an even more urgent ideal.[23] The certificate of non-forum shopping is a mandatory requirement. Nonetheless, this requirement must not be interpreted too literally to defeat the ends of justice.[24]chanroblesvirtuallawlibrary In the instant case, the merits of petitioners case should be considered special circumstances or compelling reasons that justify tempering the hard consequence of the procedural requirement on non-forum shopping. In the interest of justice, we reinstate the petition.chanroblesvirtuallawlibrary Essentially, the substantive issues for resolution in the instant petition can be summarized into four, as follows:chanroblesvirtuallawlibrary 1. Whether petitioner can collect assessments and dues despite its denial to ALS of the use of the Condominium facilities pursuant to House Rule 26.3;chanroblesvirtuallawlibrary 2. Whether ALS can validly offset against its unpaid assessments and dues the value of the services withheld by petitioner;chanroblesvirtuallawlibrary 3. Whether a remand of the case to the proper trial court is necessary to determine the amounts involved; andchanroblesvirtuallawlibrary 4. Whether the penalties prescribed in House Rule 26.2 are grossly excessive and exorbitant. First Issue: Payment of assessments and dues. Petitioners authority to assess dues.chanroblesvirtuallawlibrary Petitioner was organized to hold title to the common areas of the Condominium and to act as its management body. The Condominium Act, the law governing condominiums, states that:chanroblesvirtuallawlibrary

Title to the common areas, including the land, or the appurtenant interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the condominium corporation) in which the holders of separate interests shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the common areas. xxx[25]chanroblesvirtuallawlibrary The Condominium Act provides that the Master Deed may authorize the condominium corporation to collect reasonable assessments to meet authorized expenditures.[26] For this purpose, each unit owner may be assessed separately for its share of such expenditures in proportion (unless otherwise provided) to its owners fractional interest in the common areas.[27] Also, Section 20 of the Condominium Act declares:chanroblesvirtuallawlibrary Section 20. An assessment upon any condominium made in accordance with a duly registered declaration of restrictions shall be an obligation of the owner thereof at the time the assessment is made. xxx (Emphasis supplied)chanroblesvirtuallawlibrary Petitioner is expressly authorized by its Master Deed to impose reasonable assessments on its members to maintain the common areas and facilities of the Condominium. Section 4, Part II of petitioners Master Deed provides:chanroblesvirtuallawlibrary Section 4. ASSESSMENTS. From and after date Ayala Investment & Development Corporation formally conveys the condominium project to the Condominium Corporation, the owner of each unit shall be proportionately liable for the common expenses of the condominium project, which shall be assessed against each unit owner in the project and paid to the Condominium Corporation as provided in Part I Section 8 (b) hereof at such times and in such manner as shall be provided in the By-Laws of the Condominium Corporation,chanroblesvirtuallawlibrary a.) Regular assessments for such amounts as shall be necessary to meet the operating expenses of the Condominium Corporation as well as such amounts, determined in accordance with the provisions of the ByLaws, to be made for the purpose of creating and maintaining a special fund for capital expenditures on the common areas of the project; including the cost of extraordinary repairs, reconstruction or restoration necessitated by damage, depreciation, obsolescence, expropriation or condemnation of the common areas or part thereof, as well as the cost of improvements or additions thereto authorized in accordance with the provisions of the ByLaws;chanroblesvirtuallawlibrary b.) xxxchanroblesvirtuallawlibrary

c.) There may be assessed against the unit owners, in the manner prescribed herein or in the By-Laws of the Condominium Corporation, such other assessments as are not specifically provided for herein;chanroblesvirtuallawlibrary d.) The amount of any such assessment, plus interest penalties, attorneys fees and other charges incurred for the collection of such assessment, shall constitute a lien upon the unit and on the appurtenant interest of the unit owner in the Condominium Corporation. Such lien shall be constituted in the manner provided in the By-Laws of the Condominium Corporation. The foreclosure, transfer of conveyance, as well as redemption of the unit shall include the unit owners appurtenant interest in the Condominium Corporation. The Condominium Corporation shall have the power to bid at the foreclosure sale.[28] chanroblesvirtuallawlibrary Thus, petitioners right to collect assessments and dues from its members and the corollary obligation of its members to pay are beyond dispute.chanroblesvirtuallawlibrary There is also no question that ALS is a member of petitioner considering that ALS is the registered owner of the Unit. Under the automatic exclusive membership clause in the Master Deed,[29] ALS became a regular member of petitioner upon its acquisition of a unit in the Condominium.chanroblesvirtuallawlibrary As a member of petitioner, ALS assumed the compulsory obligation to share in the common expenses of the Condominium. This compulsory obligation is further emphasized in Section 8, paragraph c, Part I of the Master Deed, to wit:chanroblesvirtuallawlibrary Each member of the Condominium Corporation shall share in the common expenses of the condominium project in the same sharing or percentage stated xxx[30] (Emphasis supplied)chanroblesvirtuallawlibrary Undoubtedly, as a member of petitioner, ALS is legally bound to pay petitioner assessments and dues LO maintain the common areas and facilities of the Condominium. ALS obligation arises from both the law and its contract with the Condominium developer and other unit owners.chanroblesvirtuallawlibrary Petitioners Master Deed provides that a member of the Condominium corporation shall share in the common expenses of the condominium project.[31] This obligation does not depend on the use or non-use by the member of the common areas and facilities of the Condominium. Whether or not a member uses the common areas or facilities, these areas and facilities will have to be maintained. Expenditures must be made to maintain the common areas and facilities whether a member uses them frequently, infrequently or never at all.chanroblesvirtuallawlibrary

ALS asserts that the denial by petitioner to ALS and Litonjua of the use of the Condominium facilities deprived petitioner of any right to demand from ALS payment of any condominium assessments and dues. ALS contends that the right to demand payment of assessments and dues carries with it the correlative obligation to allow the use of the Condominium facilities. ALS is correct if it had not defaulted on its assessment and dues before the denial of the use of the facilities. However, the records clearly show that petitioner denied ALS and Litonjua the use of the facilities only after ALS had defaulted on its obligation to pay the assessments and dues. The denial of the use of the facilities was the sanction for the prior default incurred by ALS.chanroblesvirtuallawlibrary In essence, what ALS wants is to use its own prior non-payment as a justification for its future non-payment of its assessments and dues. Stated another way, ALS advances the argument that a contracting party who is guilty of first breaching his obligation is excused from such breach if the other party retaliates by refusing to comply with his own obligation.chanroblesvirtuallawlibrary This obviously is not the law. In reciprocal obligations, when one party fulfills his obligation, and the other does not, delay by the other begins. Moreover, when one party does not comply with his obligation, the other party does not incur delay if he does not perform his own reciprocal obligation because of the first partys noncompliance. This is embodied in Article 1169 of the Civil Code, the relevant provision of which reads:chanroblesvirtuallawlibrary 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.chanroblesvirtuallawlibrary Thus, before ALS incurred its arrearages, petitioner allowed ALS to use the facilities. However, ALS subsequently defaulted and thus incurred delay. It was only then that petitioner disallowed ALS and Litonjua from using the facilities. Clearly, petitioners denial to ALS of the Condominium facilities, after ALS had defaulted, does not constitute a valid ground on the part of ALS to refuse paying its assessments and dues. Validity of House Rule 26.3.chanroblesvirtuallawlibrary Petitioners House Rules and Regulations (House Rules for brevity) expressly authorize denial of the use of condominium facilities to delinquent members. Specifically, House Rule 26.3 provides that:chanroblesvirtuallawlibrary 26. ASSESSMENTS:chanroblesvirtuallawlibrary xxxchanroblesvirtuallawlibrary 26.3 Names of unit owners with delinquent accounts who fail to pay two consecutive quarters shall be posted in the bulletin board. Unit owners with delinquent

accounts, their tenants, guests/visitors and relatives shall not be allowed the use of all facilities of the condominium such as the swimming pool, gym, social hall, etc. (Emphasis supplied)chanroblesvirtuallawlibrary The issue on the validity of House Rule 26.3 was raised for the first time on appeal. It is settled that an issue not raised during trial could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process.[32] Nonetheless, the Court of Appeals opted to address this issue.chanroblesvirtuallawlibrary Petitioner justifies House Rule 26.3 by invoking Section 36, paragraph 11 of the Corporation Code which grants every corporation the power to exercise such powers as may be essential or necessary to carry out its purpose or purposes as stated in its Articles of Incorporation. Petitioner was organized for the main purpose of holding title to and managing the common areas of the Condominium. Petitioner claims that there is here implied the power to enact such measures as may be necessary to carry out the provisions of the Articles of Incorporation, By-Laws and Master Deed to deal with delinquent members. This, asserts petitioner, includes the power to enact House Rule 26.3 to protect and safeguard the interests not only of petitioner but also of its members.chanroblesvirtuallawlibrary For their part, ALS and Litonjua assail the validity of House Rule 26.3 alleging that it is ultra vires. ALS and Litonjua maintain that neither the Master Deed nor the ByLaws of petitioner expressly authorizes petitioner to prohibit delinquent members from using the Condominium facilities. Being ultra vires, House Rule 26.3 binds no one. Even assuming that House Rule 26.3 is intra vires, the same is iniquitous, unconscionable, and contrary to morals, good customs and public policy. Thus, ALS claims it can validly deduct the value of the services withheld from the assessments and dues since it was barred from using the Condominium facilities for which the assessments and dues were being collected.chanroblesvirtuallawlibrary The Court of Appeals sustained respondents argument and declared House Rule 26.3 ultra vires on the ground that petitioner is not expressly authorized by its Master Deed or its By-Laws to promulgate House Rule 26.3.chanroblesvirtuallawlibrary House Rule 26.3 clearly restricts delinquent members from the use and enjoyment of the Condominium facilities. The question is whether petitioner can validly adopt such a sanction to enforce the collection of Condominium assessments and dues.chanroblesvirtuallawlibrary We rule that House Rule 26.3 is valid.chanroblesvirtuallawlibrary Section 45 of the Corporation Code provides:chanroblesvirtuallawlibrary Sec. 45. Ultra vires acts of corporations. - No corporation under this code shall possess or exercise any corporate powers except those conferred by this Code or by

its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred.chanroblesvirtuallawlibrary The term ultra vires refers to an act outside or beyond corporate powers, including those that may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal.[33] The Corporation Code defines an ultra vires act as one outside the powers conferred by the Code or by the Articles of Incorporation, or beyond what is necessary or incidental to the exercise of the powers so conferred. Moreover, special laws governing certain classes of corporations, like the Condominium Act, also grant specific corporate powers to corporations falling under such special laws.chanroblesvirtuallawlibrary The Condominium Act, petitioners By-Laws and the Master Deed expressly empower petitioner to promulgate House Rule 26.3. Section 9 of the Condominium Act provides:chanroblesvirtuallawlibrary Section 9. The owner of a project shall, prior to the conveyance of any condominium therein, register a declaration of restrictions relating to such project, which restrictions xxx shall inure to and bind all condominium owners in the project. xxx The Register of Deeds shall enter and annotate the declaration of restrictions upon the certificate of title covering the land included within the project, if the land is patented or registered under the Land Registration or Cadastral acts.chanroblesvirtuallawlibrary xxxchanroblesvirtuallawlibrary Such declaration of restrictions, among other things, may also provide:chanroblesvirtuallawlibrary (a) As to any management body-chanroblesvirtuallawlibrary 1. For the powers thereof, Including power to enforce the provisions of the declaration of restrictions;chanroblesvirtuallawlibrary xxxchanroblesvirtuallawlibrary 3. Provisions for maintenance xxx and other services benefiting the common areas, xxx (Emphasis supplied)chanroblesvirtuallawlibrary The Condominium Act clearly provides that the Master Deed may expressly empower the management body, petitioner in the instant case, to enforce all provisions in the Master Deed and Declaration of Restrictions.chanroblesvirtuallawlibrary Pursuant to Section 9 (a) (1) and (3) of the Condominium Act, the Master Deed expressly authorizes petitioner to exercise all the powers granted to the management body by the Condominium Act, petitioners Articles of Incorporation and By-Laws, the Master Deed, and the Corporation Code. Section 3, Part II of the Master Deed reads:chanroblesvirtuallawlibrary

Section 3. MANAGEMENT BODY. - The Condominium Corporation to be formed and organized pursuant to Section 7 of Part I, above, shall constitute the management body of the project. As such management body, the powers of the Condominium Corporation shall be such as are provided by the Condominium Act, by the Articles of Incorporation and the By-Laws of the Corporation, by this instrument and by the applicable provisions of the Corporation Code as are not inconsistent with the Condominium Act. Among such powers but not by way of limitation, it shall have the power to enforce the provisions thereof in accordance with the ByLaws of the corporation. (Emphasis supplied)chanroblesvirtuallawlibrary Thus, the Master Deed clearly empowers petitioner to enforce the provisions of the Master Deed in accordance with petitioners By-Laws.chanroblesvirtuallawlibrary Petitioners By-Laws expressly authorize petitioners Board of Directors to promulgate rules and regulations on the use and enjoyment of the common areas. Thus, paragraph 2, Section 2 of petitioners By-Laws states:chanroblesvirtuallawlibrary Without limiting the general nature of the foregoing powers, the Board of Directors shall have the power to enforce the limitations, restrictions, and conditions contained in the Master Deed and Declaration of Restrictions of the project; promulgate rules and regulations concerning the use, enjoyment and occupancy of the units, common areas and other properties in the condominium project, to make and collect assessments against members as unit owners to defray the costs and expenses of the condominium project and the corporation and to secure by legal means the observance of the provisions of the Condominium Act, the Master Deed, the Articles of Incorporation, these By-Laws, and the rules and regulations promulgated by it in accordance herewith. The members of the corporation bind themselves to comply faithfully with all these provisions.[34] (Emphasis supplied)chanroblesvirtuallawlibrary Evidently, the Condominium Act, the Master Deed and petitioners By-Laws grant petitioner the express power to promulgate rules and regulations concerning the use, enjoyment and occupancy of the common areas.chanroblesvirtuallawlibrary Moreover, House Rule 26.3, which prohibits delinquent members from using the common areas, is necessary to ensure maintenance of the common areas. Petitioners purpose in enacting House Rule 26.3 is to enforce effectively the provisions of the Master Deed. House Rule 26.3 is well within the powers of petitioner to adopt as the same is reasonably necessary to attain the purpose for which both petitioner and the Condominium project were created. Thus, Section 7 of the Master Deed declares:chanroblesvirtuallawlibrary Section 7. CONDOMINIUM CORPORATION. - A corporation to be known as THE TWIN TOWERS CONDOMINIUM (hereinafter referred to as the Condominium

Corporation), shall be formed and organized pursuant to the Condominium Act and the Corporation Code to hold title to all the aforestated common areas of the condominium project including the land, to manage THE TWIN TOWERS CONDOMINIUM and to do such other things as may be necessary, incidental and convenient to the accomplishment of said purposes xxx[35] (Emphasis supplied)chanroblesvirtuallawlibrary Petitioner would be unable to carry out its main purpose of maintaining the Condominium common areas and facilities if members refuse to pay their dues and yet continue to use these areas and facilities. To impose a temporary ban on the use of the common areas and facilities until the assessments and dues in arrears are paid is a reasonable measure that petitioner may undertake to compel the prompt payment of assessments and dues. Second Issue: Offsetting the value of services withheld against ALS unpaid assessments and dues. ALS claim for reduction of its assessments and dues because of its non-use of the Condominium facilities.chanroblesvirtuallawlibrary We rule that ALS has no right to a reduction of its assessments and dues to the extent of its non-use of the Condominium facilities. ALS also cannot offset damages against its assessments and dues because ALS is not entitled to damages for alleged injury arising from its own violation of its contract. Such a breach of contract cannot be the source of rights or the basis of a cause of action.[36] To recognize the validity of such claim would be to legalize ALS breach of its contract. ALS claim for unrendered repair services barred by estoppel.chanroblesvirtuallawlibrary ALS also justifies its non-payment of dues on the ground of the alleged failure of petitioner to repair the defects in ALS Unit. However, this claim for unrendered repairs was never raised before the SEC Hearing Officer or the SEC en banc. The issue on these alleged unrendered repairs, which supposedly caused ALS Unit to deteriorate, was raised for the first time on appeal. The Court of Appeals did not pass upon the same.chanroblesvirtuallawlibrary Neither in the proceedings in the SEC nor in the appellate court did ALS present evidence to substantiate its allegation that petitioner failed to render the repair services. Also, ALS failed to establish whether it claimed for the costs of the repair because ALS advanced these expenses, or for the value of damages caused to the Unit by the water leakage.chanroblesvirtuallawlibrary ALS is therefore barred at this late stage to interpose this claim. In Del Rosario v. Bonga,[37] the Court held:chanroblesvirtuallawlibrary As a rule, no question will be entertained on appeal unless it has been raised in the court below. Points of law, theories, issues and arguments not brought to the

attention of the lower court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time at that late stage. Basic considerations of due process impel this rule.chanroblesvirtuallawlibrary As this claim was a separate cause of action which should have been raised in ALS Answer with Counterclaim, ALS failure to raise this claim is deemed a waiver of the claim. Third Issue: Remand of the case to the proper trial court. Question of fact.chanroblesvirtuallawlibrary The Court of Appeals ruled that there is a need to remand the case considering that there is no sufficient evidence on record to establish the amount of petitioners claim against ALS for unpaid assessments and dues.chanroblesvirtuallawlibrary The question of whether petitioners claim of P994,529.75 for unpaid assessments and dues against ALS is supported by sufficient evidence is a purely factual issue and inevitably requires the weighing of evidence. This Court is not a trier of facts, and it is not the function of this Court to re-examine the evidence submitted by the parties.[38] In cases brought before this Court from the Court of Appeals under Rule 45 of the Rules of Court, this Courts jurisdiction is limited to reviewing errors of law which must be distinctly set forth.[39] In this mode of appeal, the findings of fact of the Court of Appeals and other courts of origin are conclusive. [40]chanroblesvirtuallawlibrary Jurisprudence is settled that:chanroblesvirtuallawlibrary (a)s a rule, the jurisdiction of this Court in cases brought to it from the Court of Appeals xxx is limited to the review and revision of errors of law allegedly committed by the appellate court, as its findings of fact are deemed conclusive. As such this Court is not duty-bound to analyze and weigh all over again the evidence already considered in the proceedings below.[41]chanroblesvirtuallawlibrary This rule admits of several exceptions. This Court may review the findings of fact of the Court of Appeals:chanroblesvirtuallawlibrary (a) where there is grave abuse of discretion; (b) when the finding is grounded entirely on speculations, surmises or conjectures; (c) when the inference made is manifestly mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based on a misapprehension of facts; (e) when the factual findings are conflicting; (F) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; (g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and, (h) where the findings of fact of the Court of Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where the facts set forth by the petitioner are not disputed by

the respondent, or where the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record. [42]chanroblesvirtuallawlibrary However, none of these exceptions exists in the instant case.chanroblesvirtuallawlibrary The SEC Hearing Officer found that, while petitioner is entitled to collect the unpaid assessments and dues from ALS, petitioner has failed to establish clearly the basis for computing the correct amount of the unpaid assessments and dues. Indeed, there is no evidence laying down the basis of petitioners claim other than allegations of previous demands and statements of accounts. Whether petitioner has sufficiently established its claim by preponderance of evidence requires an examination of the probative weight of the evidence presented by the parties. Evidently, this is a question of fact the resolution of which is beyond the purview of the petition for review where only errors of law may be raised. On the other hand, the decision of the Court of Appeals, finding insufficient evidence on record, was made under its power to review both questions of fact and law. Remand to the proper trial court.chanroblesvirtuallawlibrary While we sustain the ruling of the Court of Appeals, the case can no longer be remanded to the SEC Hearing Officer. Republic Act No. 8799, which took effect on August 8, 2000, transferred SECs jurisdiction over cases involving intra-corporate disputes to courts of general jurisdiction or the appropriate regional trial courts. Section 5.2 of R.A. No. 8799 reads:chanroblesvirtuallawlibrary 5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court; Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.chanroblesvirtuallawlibrary Based on the Resolution issued by this Court in AM No. 00-8-10-SC,[43] the Court Administrator and the Securities and Exchange Commission should cause the transfer of the records of SEC-AC Nos. 377 and 378 to the proper regional trial court for further reception of evidence and computation of the correct amount of assessments and dues that ALS shall pay to petitioner. Fourth Issue: Penalties prescribed in House Rule 26.2.chanroblesvirtuallawlibrary

ALS and Litonjua did not question before either the SEC or the Court of Appeals the validity of the penalties prescribed in the Condominiums House Rule 26.2. Nevertheless, the Court of Appeals ruled that House Rule 26.2 prescribes grossly excessive penalties and interests. The resolution of this issue is not necessary in arriving at a complete and just resolution of this case. At any rate, we find the interest and penalties prescribed under House Rule 26.2 reasonable considering the premier location of the Condominium at the heart of Makati City. It is inevitable that ALS unpaid assessments and dues would escalate because ALS delinquency started since 1986.chanroblesvirtuallawlibrary House Rule 26.2 clearly provides for a 24% interest and an 8% penalty, both running annually, on the total amount due in case of failure to pay, to wit:chanroblesvirtuallawlibrary 26.2. Late payment of accounts of members shall be charged an interest rate of 24% per annum. In addition, a penalty at the rate of 8% per annum shall be charged on delinquent accounts. The 24% interest shall be imposed on unpaid accounts starting with the 21st day of the quarter until fully paid.chanroblesvirtuallawlibrary To reiterate, the Condominium Act expressly provides that the Master Deed may empower the management body of the Condominium to enforce the provisions of the declaration of restrictions.[44] The Master Deed authorizes petitioner, as the management body, to enforce the provisions of the Master Deed in accordance with petitioners By-Laws. Thus, petitioners Board of Directors is authorized to determine the reasonableness of the penalties and interests to be imposed against those who violate the Master Deed. Petitioner has validly done this by adopting the House Rules.chanroblesvirtuallawlibrary The Master Deed binds ALS since the Master Deed is annotated on the condominium certificate of title of ALS Unit. The Master Deed is ALS contract with all Condominium members who are all co-owners of the common areas and facilities of the Condominium. Contracts have the force of law between the parties and are to be complied with in good faith.[45] From the moment the contract is perfected, the parties are bound to comply with what is expressly stipulated as well as with what is required by the nature of the obligation in keeping with good faith, usage and the law.[46] Thus, when ALS purchased its Unit from petitioner, ALS was bound by the terms and conditions set forth in the contract, including the stipulations in the House Rules of petitioner, such as House Rule 26.2.chanroblesvirtuallawlibrary In sum, as a member of petitioner, ALS is indisputably bound by the Condominiums House Rules which are authorized by the By-Laws, the Master Deed and the Condominium Act. Award of attorneys fees.chanroblesvirtuallawlibrary

The award of attorneys fees as damages is the exception rather than the rule. The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate.[47] Counsels fees are not awarded every time a party prevails in a suit.[48] An award of attorneys fees and expenses of litigation is proper under the instances provided for in Article 2208 of the Civil Code, one of which is where the defendant acted in gross and evident bad faith. In this case, however, we find no cogent reason to award attorneys fees in the absence of showing of gross and evident bad faith on the part of ALS in refusing to satisfy petitioners claim.cy WHEREFORE, the petition is GRANTED and the assailed Decision of the Court of Appeals is SET ASIDE. ALS Management & Development Corporation is ordered to pay Twin Towers Condominium Corporation all overdue assessments and dues, including interest and penalties from date of default, as shall be determined by the proper Regional Trial Court in accordance with this Decision. The proper Regional Trial Court shall complete the computation within sixty (60) days from its receipt of this Decision and the records of SEC-AC Nos. 377 and 378. Costs of suit against ALS Management & Development Corporation.chanroblesvirtuallawlibrary SO ORDERED.ch FIRST DIVISION [G.R. No. 140047.July 13, 2004] PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION,Petitioner, vs. V.P. EUSEBIO CONSTRUCTION, INC.; 3PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO; SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., Respondents. DECISION DAVIDE, JR., C.J.:chanroblesvirtuallawlibrary This case is an offshoot of a service contract entered into by a Filipino construction firm with the Iraqi Government for the construction of the Institute of Physical Therapy-Medical Center, Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing.chanroblesvirtuallawlibrary In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan Guarantee Corporation[1] (hereinafter Philguarantee)sought reimbursement from the respondents of the sum of money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio Construction, Inc. (VPECI).chanroblesvirtuallawlibrary

The factual and procedural antecedents in this case are as follows:chanroblesvirtuallawlibrary On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical TherapyMedical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal Trading and Contracting Company (hereinafter Ajyal), a firm duly licensed with the Kuwait Chamber of Commerce for a total contract price of ID5,416,089/046 (or about US$18,739,668). [2]chanroblesvirtuallawlibrary On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction business, entered into a joint venture agreement with Ajyal wherein the former undertook the execution of the entire Project, while the latter would be entitled to a commission of 4% of the contract price.[3] Later, or on 8 April 1981, respondent 3-Plex, not being accredited by or registered with the Philippine Overseas Construction Board (POCB), assigned and transferred all its rights and interests under the joint venture agreement to VPECI, a construction and engineering firm duly registered with the POCB.[4] However, on2 May 1981, 3-Plex and VPECI entered into an agreement that the execution of the Project would be under their joint management.[5]chanroblesvirtuallawlibrary The SOB required the contractors to submit (1) a performance bond of ID271,808/610 representing 5% of the total contract price and (2) an advance payment bond of ID541,608/901 representing 10% of the advance payment to be released upon signing of the contract.[6] To comply with these requirements, respondents 3-Plex and VPECIapplied for the issuance ofa guarantee with petitioner Philguarantee, a government financial institution empowered to issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts abroad.[7]chanroblesvirtuallawlibrary Petitioner Philguarantee approved respondents application.Subsequently, letters of guarantee[8] were issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the performance and advance payment bonds, but they were not accepted by SOB.What SOB required was a letter-guarantee from Rafidain Bank, the government bank of Iraq.Rafidain Bank then issued a performance bond in favor of SOB on the condition that another foreign bank, not Philguarantee, would issue a counter-guarantee to cover its exposure.Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from the petitioner.Thus, three layers of guarantees had to be arranged.[9]chanroblesvirtuallawlibrary

Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F [10] (Performance Bond Guarantee) in the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F[11] (Advance Payment Guarantee) in the amount ofID541,608/901, both for a term of eighteen months from 25 May 1981.These letters of guarantee were secured by (1) a Deed of Undertaking[12] executed by respondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos; and (2) a surety bond[13] issued by respondent First Integrated Bonding and Insurance Company, Inc. (FIBICI).The Surety Bond was later amended on 23 June 1981 to increase the amount of coverage from P6.4 million to P6.967 million and to change the bank in whose favor the petitioners guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait.[14]chanroblesvirtuallawlibrary On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract[15] for the construction of the Institute of Physical Therapy Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within a period of 547 days or 18 months.Under the Contract, the Joint Venture would supply manpower and materials, and SOB would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange rate of1 Dinar to 3.37777 US Dollars. [16]chanroblesvirtuallawlibrary The construction, which was supposed to start on 2 June 1981, commenced only on the last week of August 1981.Because of this delay and the slow progress of the construction work due to some setbacks and difficulties, the Project was not completed on 15 November 1982 as scheduled.But in October 1982, upon foreseeing the impossibility of meeting the deadline and upon the request of Al Ahli Bank, the joint venture contractor worked for the renewal or extension of the Performance Bond and Advance Payment Guarantee. Petitioners Letters of Guarantee Nos. 81194-F (Performance Bond) and 81-195-F (Advance Payment Bond) with expiry date of 25 November 1982 were then renewed or extended to 9 February 1983 and 9 March 1983, respectively.[17] The surety bond was also extended for another period of one year, from 12 May 1982 to 12 May 1983.[18] The Performance Bond was further extended twelve times with validity of up to 8 December 1986,[19] while the Advance Payment Guarantee was extended three times more up to 24 May 1984 when the latter was cancelled after full refund or reimbursement by the joint venture contractor.[20] The surety bond was likewise extended to 8 May 1987. [21]chanroblesvirtuallawlibrary As of March 1986, the status of the Project was 51% accomplished, meaning the structures were already finished. The remaining 47% consisted in electro-mechanical

works and the 2%, sanitary works, which both required importation of equipment and materials.[22]chanroblesvirtuallawlibrary On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counterguarantee.chanroblesvirtuallawlibrary Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the performance guarantee for being a drastic action in contravention of its mutual agreement with the latter that (1) the imposition of penalty would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the developments on the negotiations for a foreign loan to finance the completion of the project.[23] It also wrote SOB protesting the call for lack of factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi governments lack of foreign exchange with which to pay its (VPECIs) accomplishments and (2) SOBs noncompliance for the past several years with the provision in the contract that 75% of the billings would be paid in US dollars.[24] Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project.[25]chanroblesvirtuallawlibrary On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related expenses. [26]chanroblesvirtuallawlibrary Both petitioner Philguarantee and respondent VPECI sought the assistance of some government agencies of the Philippines.On 10 August 1987, VPECI requested the Central Bank to hold in abeyance the payment by the petitioner to allow the diplomatic machinery to take its course, for otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed against a Filipino contractor.[27]chanroblesvirtuallawlibrary On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the performance counter-guarantee for VPECIs project in Iraq. [28]chanroblesvirtuallawlibrary On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner for the advances made on its counterguarantee.[29]chanroblesvirtuallawlibrary

The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January 1988.[30] Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83 representing interest and penalty charges demanded by the latter bank.[31]chanroblesvirtuallawlibrary On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorneys fees pursuant to their joint and solidary obligations under the deed of undertaking and surety bond.[32] When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a sum of money against the respondents before the RTC of Makati City.chanroblesvirtuallawlibrary After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause of action against the respondents.It opined that at the time the call was made on the guarantee which was executed for a specific period, the guarantee had already lapsed or expired.There was no valid renewal or extension of the guarantee for failure of the petitioner to secure respondents express consent thereto.The trial court also found that the joint venture contractor incurred no delay in the execution of the Project.Considering the Project owners violations of the contract which rendered impossible the joint venture contractors performance of its undertaking, no valid call on the guarantee could be made.Furthermore, the trial court held that no valid notice was first made by the Project owner SOBto the joint venture contractor before the call on the guarantee.Accordingly, it dismissed the complaint, as well as the counterclaims and cross-claim, and ordered the petitioner to pay attorneys fees ofP100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the Santos Spouses, plus costs. [33]chanroblesvirtuallawlibrary In its 14 June 1999 Decision,[34] the Court of Appeals affirmed the trial courts decision, ratiocinating as follows:chanroblesvirtuallawlibrary First, appellant cannot deny the fact that it was fully aware of the status of project implementation as well as the problems besetting the contractors, between 1982 to 1985, having sent some of its people to Baghdad during that period.The successive renewals/extensions of the guarantees in fact, was prompted by delays, not solely attributable to the contractors, and such extension understandably allowed by the SOB (project owner) which had not anyway complied with its contractual commitment to tender 75% of payment in US Dollars, and which still retained overdue amounts collectible by VPECI.chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary Second, appellant was very much aware of the violations committed by the SOB of its contractual undertakings with VPECI, principally, the payment of foreign currency (US$) for 75% of the total contract price, as well as of the complications and injustice that will result from its payment of the full amount of the performance

guarantee, as evident in PHILGUARANTEEs letter dated 13 May 1987 .chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary Third, appellant was fully aware that SOB was in fact still obligated to the Joint Venture and there was still an amount collectible from and still being retained by the project owner, which amount can be set-off with the sum covered by the performance guarantee.chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary Fourth, well-apprised of the above conditions obtaining at the Project site and cognizant of the war situation at the time in Iraq, appellant, though earlier has made representations with the SOB regarding a possible amicable termination of the Project as suggested by VPECI, made a complete turn-around and insisted on acting in favor of the unjustified call by the foreign banks.[35]chanroblesvirtuallawlibrary The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Court of Appeals erred in affirming the trial courts ruling that Ichanroblesvirtuallawlibrary RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE. IIchanroblesvirtuallawlibrary PETITIONER CANNOT CLAIM SUBROGATION. IIIchanroblesvirtuallawlibrary IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLE UNDER THEIR DEED OF UNDERTAKING. [36]chanroblesvirtuallawlibrary The main issue in this case is whether the petitioner is entitled to reimbursement of what it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed of undertaking and surety bond from the respondents.chanroblesvirtuallawlibrary The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable the nature and extent of its liability are analogous to those of suretyship.Its liability accrued upon the failure of the respondents to finish the construction of the Institute of Physical Therapy Buildings in Baghdad.chanroblesvirtuallawlibrary 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 contract is called suretyship. [37]chanroblesvirtuallawlibrary Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. In both contracts, there is a promise to answer for the debt or default of another.However, in this jurisdiction, they may be distinguished thus:chanroblesvirtuallawlibrary 1. A surety is usually bound with his principal by the same instrument executed at the same time and on the same consideration. On the other hand, the contract of guaranty is the guarantor's own separate undertaking often supported by a consideration separate from that supporting the contract of the principal; the original contract of his principal is not his contract.chanroblesvirtuallawlibrary 2. A surety assumes liability as a regular party to the undertaking; while the liability of a guarantor is conditional depending on the failure of the primary debtor to pay the obligation.chanroblesvirtuallawlibrary 3. The obligation of a surety is primary, while that of a guarantor is secondary.chanroblesvirtuallawlibrary 4. A surety is an original promissor and debtor from the beginning, while a guarantor is charged on his own undertaking.chanroblesvirtuallawlibrary 5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not bound to take notice of the non-performance of his principal.chanroblesvirtuallawlibrary 6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to the principal or by want of notice of the default of the principal, no matter how much he may be injured thereby.A guarantor is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. [38]chanroblesvirtuallawlibrary In determining petitioners status, it is necessary to read Letter of Guarantee No. 81194-F, which provides in part as follows:chanroblesvirtuallawlibrary In consideration of your issuing the above performance guarantee/counter-guarantee, we hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad, Iraq, plus interest and other incidental expenses related thereto.chanroblesvirtuallawlibrary In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest and other incidental expenses. (Emphasis supplied) [39]chanroblesvirtuallawlibrary

Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the petitioner is a guarantor and not a surety.That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time and in the form he bound himself.[40] In other words, an unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had.A conditional guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous event, beyond the mere default of the principal, and generally upon notice of the principals default and reasonable diligence in exhausting proper remedies against the principal. [41]chanroblesvirtuallawlibrary It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of an unconditional guaranty, not conditional guaranty.But as earlier ruled the fact that petitioners guaranty is unconditional does not make it a surety.Besides, surety is never presumed.A party should not be considered a surety where the contract itself stipulates that he is acting only as a guarantor.It is only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one of suretyship.[42]chanroblesvirtuallawlibrary Having determined petitioners liability as guarantor, the next question we have to grapple with is whether the respondent contractor has defaulted in its obligations that would justify resort to the guaranty.This is a mixed question of fact and law that is better addressed by the lower courts, since this Court is not a trier of facts.chanroblesvirtuallawlibrary It is a fundamental and settled rule that the findings of fact of the trial court and the Court of Appeals are binding or conclusive upon this Court unless they are not supported by the evidence or unless strong and cogent reasons dictate otherwise.[43] The factual findings of the Court of Appeals are normally not reviewable by us under Rule 45 of the Rules of Court except when they are at variance with those of the trial court. [44] The trial court and the Court of Appeals were in unison that the respondent contractor cannot be considered to have defaulted in its obligations because the cause of the delay was not primarily attributable to it.chanroblesvirtuallawlibrary A corollary issue is what law should be applied in determining whether the respondent contractor has defaulted in the performance of its obligations under the service contract.The question of whether there is a breach of an agreement, which

includes default or mora,[45] pertains to the essential or intrinsic validity of a contract. [46]chanroblesvirtuallawlibrary No conflicts rule on essential validity of contracts is expressly provided for in our laws.The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex contractus or proper law of the contract. This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci intentionis). The law selected may be implied from such factors as substantial connection with the transaction, or the nationality or domicile of the parties.[47] Philippine courts would do well to adopt the first and most basic rule in most legal systems, namely, to allow the parties to select the law applicable to their contract, subject to the limitation that it is not against the law, morals, or public policy of the forum and that the chosen law must bear a substantive relationship to the transaction. [48]chanroblesvirtuallawlibrary It must be noted that the service contract between SOB and VPECI contains no express choice of the law that would govern it.In the United States and Europe, the two rules that now seem to have emerged as kings of the hill are (1) the parties may choose the governing law; and (2) in the absence of such a choice, the applicable law is that of the State that has the most significant relationship to the transaction and the parties.[49] Another authority proposed that all matters relating to the time, place, and manner of performance and valid excuses for non-performance are determined by the law of the place of performance or lex loci solutionis, which is useful because it is undoubtedly always connected to the contract in a significant way. [50]chanroblesvirtuallawlibrary In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and the place of performance is in Iraq.Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq.However, since that foreign law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as the processual presumption, comes into play.Where foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours. [51]chanroblesvirtuallawlibrary Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: In reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what is incumbent upon him.chanroblesvirtuallawlibrary Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. [52] It is the non-fulfillment of an obligation with respect to time.[53]chanroblesvirtuallawlibrary

It is undisputed that only 51.7% of the total work had been accomplished.The 48.3% unfinished portion consisted in the purchase and installation of electro-mechanical equipment and materials, which were available from foreign suppliers, thus requiring US Dollars for their importation.The monthly billings and payments made by SOB[54] reveal that the agreement between the parties was a periodic payment by the Project owner to the contractor depending on the percentage of accomplishment within the period. [55] The payments were, in turn, to be used by the contractor to finance the subsequent phase of the work. [56] However, as explained by VPECI in its letter to the Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars adversely affected the completion of the project; thus:chanroblesvirtuallawlibrary 4. Despite protests from the plaintiff, SOB continued paying the accomplishment billings of the Contractor purely in Iraqi Dinars and which payment came only after some delays.chanroblesvirtuallawlibrary 5. SOB is fully aware of the following:chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary 5.2That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency (US$), to finance the purchase of various equipment, materials, supplies, tools and to pay for the cost of project management, supervision and skilled labor not available in Iraq and therefore have to be imported and or obtained from the Philippines and other sources outside Iraq.chanroblesvirtuallawlibrary 5.3That the Ministry of Labor and Employment of the Philippines requires the remittance into the Philippines of 70% of the salaries of Filipino workers working abroad in US Dollars;chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary 5.5That the Iraqi Dinar is not a freely convertible currency such that the same cannot be used to purchase equipment, materials, supplies, etc. outside of Iraq;chanroblesvirtuallawlibrary 5.6That most of the materials specified by SOB in the CONTRACT are not available in Iraq and therefore have to be imported;chanroblesvirtuallawlibrary 5.7That the government of Iraq prohibits the bringing oflocal currency (Iraqui Dinars) out of Iraq and hence, importedmaterials, equipment, etc., cannot be purchased or obtained using Iraqui Dinars as medium of acquisition.chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary 8.Following the approved construction program of the CONTRACT, upon completion of the civil works portion of the installation of equipment for the building, should immediately follow, however, the CONTRACT specified that these equipment which are to be installed and to form part of the PROJECT have to be

procured outside Iraq since these are not being locally manufactured. Copy f the relevant portion of the Technical Specification is hereto attached as Annex C and made an integral part hereof;chanroblesvirtuallawlibrary chanroblesvirtuallawlibrary 10.Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist the Iraqi government in completing the PROJECT, the Contractor without any obligation on its part to do sobut with the knowledge and consent of SOB and the Ministry of Housing & Construction of Iraq, offered to arrange on behalf of SOB, a foreign currency loan, through the facilities of Circle International S.A., the Contractors Sub-contractor and SACE MEDIO CREDITO which will act as the guarantor for this foreign currency loan.chanroblesvirtuallawlibrary Arrangements were first made with Banco di Roma. Negotiation started in June 1985. SOB is informed of the developments of this negotiation, attached is a copy of the draft of the loan Agreement between SOB as the Borrower and Agent. The Several Banks, as Lender, and counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine (Mediocredito) Sezione Speciale Per LAssicurazione Del Credito AllExportazione (Sace). Negotiations went on and continued until it suddenly collapsed due to the reported default by Iraq in the payment of its obligations with Italian government, copy of the news clipping dated June 18, 1986 is hereto attached as Annex D to form an integral part hereof;chanroblesvirtuallawlibrary 15.On September 15, 1986, Contractor received information from Circle International S.A. that because of the news report that Iraq defaulted in its obligations with European banks, the approval by Banco di Roma of the loan to SOB shall be deferred indefinitely, a copy of the letter of Circle International together with the news clippings are hereto attached as Annexes F and F-1, respectively. [57]chanroblesvirtuallawlibrary As found by both the Court of Appeals and the trial court, the delay or the noncompletion of the Project was caused by factors not imputable to the respondent contractor.It was rather due mainly to the persistent violations by SOB of the terms and conditions of the contract, particularly its failure to pay 75% of the accomplished work in US Dollars.Indeed, where one of the parties to a contract does not perform in a proper manner the prestation which he is bound to perform under the contract, he is not entitled to demand the performance of the other party.A party does not incur in delay if the other party fails to perform the obligation incumbent upon him.chanroblesvirtuallawlibrary The petitioner, however, maintains that the payments by SOB of the monthly billings in purely Iraqi Dinars did not render impossible the performance of the Project by VPECI.Such posture is quite contrary to its previous representations.In his 26 March 1987 letter to the Office of the Middle Eastern and African Affairs (OMEAA), DFA,

Manila, petitioners Executive Vice-President Jesus M. Taedo stated that while VPECI had taken every possible measure to complete the Project, the war situation in Iraq, particularly the lack of foreign exchange, was proving to be a great obstacle; thus:chanroblesvirtuallawlibrary VPECI has taken every possible measure for the completion of the project but the war situation in Iraq particularly the lack of foreign exchange is proving to be a great obstacle.Our performance counterguarantee was called last 26 October 1986 when the negotiations for a foreign currency loan with the Italian government through Banco de Roma bogged down following news report that Iraq has defaulted in its obligation with major European banks.Unless the situation in Iraq is improved as to allay the banks apprehension, there is no assurance that the project will ever be completed. [58]chanroblesvirtuallawlibrary 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 because it must appear that the tolerance or benevolence of the creditor must have ended. [59]chanroblesvirtuallawlibrary As stated earlier, SOB cannot yet demand complete performance from VPECI because it has not yet itself performed its obligation in a proper manner, particularly the payment of the 75% of the cost of the Project in US Dollars.The VPECI cannot yet be said to have incurred in delay.Even assuming that there was delay and that the delay was attributable to VPECI, still the effects of that delay ceased upon the renunciation by the creditor, SOB, which could be implied when the latter granted several extensions of time to the former. [60] Besides, no demand has yet been made by SOB against the respondent contractor.Demand is generally necessary even if a period has been fixed in the obligation. And default generally begins from the moment the creditor demands judicially or extra-judicially the performance of the obligation.Without such demand, the effects of default will not arise. [61]chanroblesvirtuallawlibrary Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor.[62] It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI.[63] In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor.chanroblesvirtuallawlibrary As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had collectibles from SOB which could be set off with the amount

covered by the performance guarantee.In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated 10 February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint venture contractor from the petitioner would be deducted from the dues of the two contractors. [64]chanroblesvirtuallawlibrary Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, the petitioner raised as among the arguments to be presented in support of the cancellation of the counter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Project was more than enough to cover the counterguarantee of ID271,808/610; thus:chanroblesvirtuallawlibrary 6.1 Present the following arguments in cancelling the counterguarantee:chanroblesvirtuallawlibrary 75% . chanroblesvirtuallawlibrary 281,414/066 .[65]chanrobles virtuallawlibrary In a nutshell, since the petitioner was aware of the contractors outstanding receivables from SOB, it should have set up compensation as was proposed in its project situationer.chanroblesvirtuallawlibrary Moreover, the petitioner was very much aware of the predicament of the respondents.In fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated:chanroblesvirtuallawlibrary VPECI also maintains that the delay in the completion of the project was mainly due to SOBs violation of contract terms and as such, call on the guarantee has no basis.chanroblesvirtuallawlibrary While PHILGUARANTEE is prepared to honor its commitment under the guarantee, PHILGUARANTEE does not want to bean instrument in any case of inequity committed against a Filipino contractor.It is for this reason that we are constrained to seek your assistance not only in ascertaining the veracity of Al Ahli Banks claim that it has paid Rafidain Bank but possibly averting such an event.As any payment effected by the banks will complicate matters, we cannot help underscore the urgency of VPECIs bid for government intervention for the amicable termination of

the contract and release of the performance guarantee. [66]chanroblesvirtuallawlibrary But surprisingly, though fully cognizant of SOBs violations of the service contract and VPECIs outstanding receivables from SOB, as well as the situation obtaining in the Project site compounded by the Iran-Iraq war, the petitioner opted to pay the second layer guarantor not only the full amount of the performance bond counterguarantee but also interests and penalty charges.chanroblesvirtuallawlibrary This brings us to the next question:May the petitioner as a guarantor secure reimbursement from the respondents for what it has paid under Letter of Guarantee No. 81-194-F?chanroblesvirtuallawlibrary As a rule, a guarantor who pays for a debtor should be indemnified by the latter[67] and would be legally subrogated to the rights which the creditor has against the debtor.[68] However, a person who makes payment without the knowledge or against the will of the debtor has the right to recover only insofar as the payment has been beneficial to the debtor.[69] If the obligation was subject to defenses on the part of the debtor, the same defenses which could have been set up against the creditor can be set up against the paying guarantor.[70]chanroblesvirtuallawlibrary From the findings of the Court of Appeals and the trial court, it is clear that the payment made by the petitioner guarantor did not in any way benefit the principal debtor, given the project status and the conditions obtaining at the Project site at that time.Moreover, the respondent contractor was found to have valid defenses against SOB, which are fully supported by evidence and which have been meritoriously set up against the paying guarantor, the petitioner in this case.And even if the deed of undertaking and the surety bond secured petitioners guaranty, the petitioner is precluded from enforcing the same by reason of the petitioners undue payment on the guaranty.Rights under the deed of undertaking and the surety bond do not arise because these contracts depend on the validity of the enforcement of the guaranty.chanroblesvirtuallawlibrary The petitioner guarantor should have waited for the natural course of guaranty:the debtor VPECI should have, in the first place, defaulted in its obligation and that the creditor SOB should have first made a demand from the principal debtor.It is only when the debtor does not or cannot pay, in whole or in part, that the guarantor should pay.[71] When the petitioner guarantor in this case paid against the will of the debtor VPECI, the debtor VPECI may set up against it defenses available against the creditor SOB at the time of payment.This is the hard lesson that the petitioner must learn.chanroblesvirtuallawlibrary As the government arm in pursuing its objective of providing the necessary support and assistance in order to enable [Filipino exporters and contractors to operate viably under the prevailing economic and business conditions,[72] the petitioner should

have exercised prudence and caution under the circumstances. As aptly put by the Court of Appeals, it would be the height of inequity to allow the petitioner to pass on its losses to the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank and constantly apprised it of the developments in the Project implementation.chanroblesvirtuallawlibrary WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit, and the decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.chanroblesvirtuallawlibrary No pronouncement as to costs.chanroblesvirtuallawlibrary SO ORDERED.c G.R. No. L-42999 October 30, 1936 ACME FILMS, INC., Plaintiff-Appellant, vs. THEATERS SUPPLY CORPORATION, Defendant-Appellant. VILLA-REAL, J.: chanrobles virtual law library These are two appeals taken, the one by the plaintiff company Acme Films, Inc., and the other by the defendant company Theaters Supply Corporation, from the judgment of the Court of First Instance of Manila, the dispositive part of which reads as follows: Wherefore, denying the defendant's counterclaim, judgment is rendered sentencing said defendant to pay to the plaintiff the sum of P50 corresponding to the promissory notes for the months of February and March, 1934, with interest thereon at 8 per cent per annum plus 10 per cent as attorney's fees without costs. So ordered. In support of its appeal, the plaintiff-appellant Acme Films, Inc., assigns the following alleged errors as committed by the court a quo in its said judgment, to wit: 1. In finding that the consideration of the promissory notes issued upon herein was plaintiff's obligation to supply defendant cinematographic films, and in failing to find that such notes have absolutely no bearing relation or connection with plaintiff's undertaking to supply defendant with such films.chanroblesvirtualawlibrary chanrobles virtual law library 2. In holding that the cancellation of plaintiff's agreement to supply defendant with the said cinematographic films effected the cancellation of such of said promissory notes as might fall due after April, 1934.chanroblesvirtualawlibrary chanrobles virtual law library 3. In failing to award judgment in favor of plaintiff and against defendant in accordance with the prayer of plaintiff's complaint, and in denying plaintiff's motion for new trial and motion for reconsideration.

The defendant-appellant Theaters Supply Corporation, in turn, assigns in support of its appeal the following alleged errors as committed by the court a quo in its said judgment, to wit: 1. The lower court erred in not ordering the plaintiff to pay the defendant the sum of P550 representing the damages suffered by the defendant by reason of plaintiff's arbitrary breach of a contract, in manifest disregard of the provisions of article 1101 of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual law library 2. The lower court erred in holding that Bosque's testimony in with the damages is vague and general, and that it is well settled that an affirmation of this kind relative to damages suffered, being a mere conclusion, proves nothing.chanroblesvirtualawlibrary chanrobles virtual law library 3. The lower court erred in denying the defendant-appellant's motion for a new trial. This case originated in a complaint filed by the plaintiff Acme Films, Inc., against the defendant Theaters Supply Corporation, praying: (a) That the defendant company be ordered to pay to it the sum of P175; (b) that the defendant company pay the sum of P17.50 as attorney's fees, and (c) that it be granted any other just and equitable remedy.chanroblesvirtualawlibrary chanrobles virtual law library The defendant company, answering the complaint, denies each and every allegation contained therein and as a cross-complaint prays that the plaintiff company be ordered to pay it the sum of P550 by way of damages for breach of contract, plus legal interest thereon from the date of the filing of the complaint, until fully paid, with costs to said plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library The following facts, which have not been denied by the defendant company, were established by the plaintiff company during the trial, to wit: chanrobles virtual law library On December 29, 1933, the defendant-appellant executed and delivered to the plaintiff-appellant eight promissory notes for the sum of P25 each, payable on successive dates, with interest at 8 per cent per annum on the unpaid balance of P175, seven of which promissory notes (Exhibit A to E, inclusive) had been unpaid. Said promissory notes are of the same tenor and contain the same conditions, except the date of maturity, as follows: MANILA, P. I., Dec. 29, 1933 chanrobles virtual law library NOTE NO. 2 chanrobles virtual law library P25 chanrobles virtual law library On or before February 28, 1934, for value received, I promise to pay to the order of Acme Films, Inc., at its main office in the City of

Manila, P. I. the sum of pesos twenty-five only (P25) Philippine Cy. with interest at the rate of eight per centum (8%) per annum on the unpaid balance of P175. This is one of a series of eight (8) promissory notes for an aggregate total of P200 (two hundred pesos) all executed on this date. In case of non-payment of this note of maturity all succeeding notes shall forthwith become due and payable at the election of the payee, in which case, we also promise to pay to said Acme Films, Inc. an additional sum equivalent to ten per centum (10%) of the whole amount then remaining unpaid for and as attorney's fees in addition to costs provided by law. THEATERS SUPPLY CORPORATION By G. G. BOSQUE The defendant-appellant paid the promissory note upon maturity thereof in January, 1934; but did not which matured on February 8, 1934, nor the corresponding interest thereon, the payment of each of the remaining promissory notes having ipso facto matured, as per agreement.chanroblesvirtualawlibrary chanrobles virtual law library In support of its cross-complaint the defendant-appellant attempted to prove that it entered into "Booking Contracts" with the plaintiff-appellant (Exhibits 1 to 5, inclusive); that the plaintiff company failed to supply the following films: on April 4, 1934, the films "Night Rider", All Talking Comedy, Novelty & Cartoon and Pathe News; on April 5, 1934, the films "Monster Walks", "Whispering Shadow", All Talking Novelty and Pathe News; on April 11, 1934, the films "Skyway", All Talking Comedy, Novelty & Cartoon and Pathe News; on April 12, 1934, the films "Crashing Broadway", Whispering Shadow" and Novelty & News; on April 18, 1934, the films "Mounted Fury", All Talking Comedy, Cartoon & Novelty and Pathe News; on April 19, 1934, the films "The Phantom", Whispering Shadow", All Talking Comedy and Cartoon & Pathe News; on April 25, 1934, the films "Son of Oklahoma", All Talking Comedy, All Talking Novelty and Cartoon & Pathe News; on March 27, 1934, the films "Phantom Broadcast", "Whispering Shadow 1" and Pathe News; on March 28, 1934, the films "Phantom Broadcast", "Whispering Shadow 1" and Paths News; on the same date, March 28, 1934, the films "Blind Adventure", All Talking Comedy, Cartoon and Pathe News; and on March 29, 1934, the films "Lucky Devils", "Whispering Shadow" and Pathe News; that among the films to be shown which the plaintiff failed to supply, there were serials: that such serials had to be advertised in advance, said advertisements consisting not only in the printing of programs but also in the exhibition of posters which paraded around the poblacion where the films were to be shown, and in the employment of bands of music to go through the different streets of the poblacion announcing the showing of said films; that by reason of the plaintiff's failure to supply the films which it was

bound to supply under the Booking Contracts (Exhibit 5), the defendant company was forced to take films from the Universal Pictures Corporation, paying therefor five per cent more than what it paid to the plaintiff company under the contracts in question; that on March 26, 1935, the plaintiff company wrote a letter (Exhibit 6) to the defendant company notifying the latter that all subsequent booking contracts were cancelled; that the defendant on said date wrote a letter (Exhibit 7) stating that while it was willing to discontinue negotiating with the appellant, it should be understood that the cancellation became effective on April 1, 1934, and that any serial already commenced must continue to be shown until the end; that notwithstanding this letter the plaintiff company failed to supply the films stated in the cross-complaint thereby causing damages to the defendant in the sum of P400 to P500.chanroblesvirtualawlibrary chanrobles virtual law library The first question to be decided in the appeal of the plaintiff company, Acme Films, Inc., which is raised in the first assignment of alleged error, is whether or not the court a quo erred in arriving at the conclusion that the cause or consideration of the promissory notes which are the subject matter of the complaint was the plaintiff company's obligation to supply the defendant with cinematographic films.chanroblesvirtualawlibrary chanrobles virtual law library A simple reading of the promissory notes in question shows that they were issued for value received, and that upon maturity of each note unpaid balance of P175. If under the promissory notes in question the defendant company bound itself to partially pay an amount already received, plus interest at eight per cent on the unpaid balance, the obligation to supply cinematographic films could not have been the cause or consideration of the execution thereof, but a pre-existent debt. Furthermore, as the booking contract became effective only on February 24, 1934, which supply began on said date and on March 3 and 20, 1934, respectively, there could be no unpaid balance of P175, because the supply of films in question was based on a commission on the proceeds of their exhibition on the dates above-stated, which commission was undoubtedly payable after each exhibition.chanroblesvirtualawlibrary chanrobles virtual law library We therefore hold that the first assignment of alleged error is well founded.chanroblesvirtualawlibrary chanrobles virtual law library The second question to be decided is that raised by the plaintiff-appellant in its second assignment of alleged error consisting in whether or not the court a quo erred in holding that the cancellation of said plaintiff-appellant's agreement to supply the defendant-appellant with the cinematographic films in question produced ipso facto the cancellation of the promissory notes the payment of which would mature after the month of April, 1934.chanroblesvirtualawlibrary chanrobles virtual law library

If, as already stated, the obligation contracted by the plaintiff-appellant to supply the defendant-appellant with cinematographic films was not and could not be the cause or consideration of the issuance of said promissory notes, it is logical to conclude not result in the cancellation of the promissory notes the maturity of which would take place after said cancellation, there being no relation of cause and effect between both contracts.chanroblesvirtualawlibrary chanrobles virtual law library With respect to the defendant-appellant's appeal, the first question to be decided is that raised in its first assignment of alleged error, consisting in whether or not the court a quo erred, in not ordering the plaintiff to pay to the defendant the sum of P550 as damages suffered by the latter for the arbitrary breach of contract by the plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library It is not denied that the plaintiff company failed to supply the defendant with the cinematographic films which were the subject matter of the contracts entered into on March 20, 1934 (Exhibits 1 and 2), and two films under the contract of March 24, 1934 (Exhibit 3), one of said films being a serial entitled "Whispering Shadow". Guillermo Garcia Bosque testified that because the plaintiff company had failed to supply said films, the defendant had to resort to the Universal Pictures Corporation and ask for films to replace those which said plaintiff had failed to supply under the contract, having had to pay therefore five per cent more than for those films contracted with said plaintiff Acme Films, Inc., and that the total cost thereof, including the printing of programs, posters paraded through the streets with bands of music to announce the showing of the films which the plaintiff company failed to supply, amount to from P400 to P500. The plaintiff company did not submit evidence to rebut the testimony of said witness and the fact that the estimate inadmissible. It was incumbent upon the plaintiff company to submit evidence in rebuttal, or at least ascertain the amount of the different items in cross-examination. There being no evidence to the contrary, it is logical to admit that the defendant company spent at least the sum of P400.chanroblesvirtualawlibrary chanrobles virtual law library Inasmuch as the plaintiff company had failed to comply with a part of its booking contract, and as the defendant company had suffered damages as a result thereof, the former is liable to indemnify the damages caused to the latter, in accordance with the provisions of article 1101 of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual law library In view of the foregoing considerations, we are of the opinion and so hold: (1) That the defendant company is bound to pay to the plaintiff company the sum of P175 representing the total amount of the seven matured and unpaid promissory notes, plus interest at eight per cent per annum on said sum of P175 from February 28, 1934, until fully paid, and an additional sum equivalent to ten per cent of said sum of

P175 as attorney's fees; and (2) that the plaintiff company, in turn, is bound to, pay to the defendant company the sum of P400, as damages suffered by the latter for breach by the former of its booking contract, plus interest thereon at six per cent per annum from July 29, 1934, the date of the filing of the cross-complaint, until fully paid.chanroblesvirtualawlibrary chanrobles virtual law library Wherefore, the appealed judgment is reversed and the defendant company Theaters Supply Corporation is ordered to pay the sum of P175 to the plaintiff company, plus the corresponding interest thereon at eight per cent per annum from February 28, 1934, until fully paid, and a sum equivalent to ten per cent of said sum of P175 as attorney's fees; and the plaintiff company Acme Films, Inc., in turn, is ordered to, pay the sum of P400 to the defendant company Theaters Supply Corporation, plus legal interest thereon at six per cent per annum from the date of the filing of the cross-complaint, until fully paid, without special pronouncement as to costs. So ordered.chanroblesvirtua G.R. No. 81551 April 27, 1989 PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner, vs. PHILIPPINE NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) AND NICOLAS SACEDA, respondents. Apolo, Anasco & Associates for petitioner. The Solicitor General for public respondent. Citizens Legal Assistance Office for private respondent. GRIO-AQUINO, J.: Assailed in this petition for certiorari is the resolution promulgated on November 16, 1987 by the NLRC in POEA CASE NO. (L) 84-07-660 affirming the decision of the POEA Officer-In-Charge, Honesto Cueva, who granted private respondent Nicolas Saceda's claims for stand-by pay and withheld allotments. The following undisputed facts were lifted from the Solicitor General's Comment on the petition: 1. In the first week of December, 1981, petitioner Philippine National Construction Corporation (hereinafter called PNCC), a duly registered construction company, through its predecessorin-interest Construction and Development Corporation of the Philippines (CDCP), hired private respondent Nicolas L. Saceda as HT Driver I (Actg. Scraper Operator) for its Suyallil North Port road project in the Kingdom of Saudi Arabia. Respondent Saceda was hired at an hourly rate of US$1.55 for 24 months contract period to be effective upon his departure. He left the Philippines on January 8, 1982.

2. On January 8, 1984, private respondent Saceda completed his two (2) years overseas contract. However, it was extended by petitioner up to January 27, 1984. 3. On February 9,1984,private respondent was dispatched to Jeddah, Saudi Arabia for immediate repatriation to the Philippines. He was first booked for departure on February 21, 1984. 4. However, private respondent refused to depart because he wanted to await the final disposition on the complaint he filed against petitioner PNCC for payment of his completion bonus, unused vacation/sick leave and unpaid wages from December 1, 1983 up to January 27, 1984. The decision of the Saudi labor authorities which was favorable to private respondent was rendered on March 24, 1984. Private respondent agreed to be repatriated on March 27, 1984, after petitioner PNCC paid him the award granted by the Saudi labor authorities. 5. Upon his arrival in the Philippines, private respondent Saceda found out that the allotment representing 70% of his salary for the period November 16,1983 to January 15,1984, amounting to $408.00 was not paid by petitioner PNCC to bis designated beneficiary in the Philippines. Despite repeated demands, petitioner failed to pay said claim without justifiable reason. 6. On August l6,1984,private respondent Saceda filed a complaint with the Workers Adjudication and Assistance Office, Philippine Overseas Employment Administration (POEA), docketed as POEA Case No. L-84- 07-660, for non-payment of withheld salary/allotment and stand-by pay corresponding to the period January 27, 1984 to March 27,1984 in the sum of US$744.00. He claimed that he was not repatriated soon upon the termination of his contract but was made to wait and remain Idle for two months. (pp. 27-29, Rollo.) On April 30, 1986, Honesto Cueva, officer-in-charge of the POEA, rendered a decision, the dispositive portion of which reads as follows: WHEREFORE, in view of the foregoing considerations, this Office hereby ordered herein respondent Philippine National Construction Corporation (PNCC) to pay herein complainant Nicolas Saceda the peso equivalent based on the prevailing

exchange rate at the time of actual payment of the following amounts: 1. US$206.40 representing stand-by pay for the period covered from January 27, 1984 to February 21, 1984; 2. US$408.00 representing the withheld allotment within ten (10) calendar days upon receipt of this DECISION." (Annex A, pp. 8, 13, Rollo.) As mentioned earlier, the NLRC affirmed the above decision of the POEA in toto. In its petition for certiorari, the petitioner questions only the award of standby pay to Saceda for being allegedly devoid of legal basis. The petition has no merit. The legal basis of the NLRC's award of "stand-by" pay to Saceda during the period that he was made to wait while his employer worked for the ticketing, booking and processing of his exit visa and travel documents for his return trip to the Philippines, is the employment contract. Under the contract, the PNCC was obliged to notify the employee "two months before the end of the term of the contract" whether his contract would be extended or he would be repatriated. Within that two-month period, the employer, which keeps in its possession the employee's passport and travel documents for the duration of his employment, is supposed to work for the ticketing and processing of the employee's travel documents so that he may immediately return to the Philippines upon the expiration of his contract. Petitioner alleged that it takes at least one month to have travel papers processed by the Saudi Arabian authorities. Clearly, the two-month period stipulated in the contract is more than enough for the purpose. Hence, petitioner alone is to blame for its failure to obtain Saceda's travel papers within the two-month period before his contract came to an end. Since it was through its fault that Saceda's departure was delayed, it must give him standby pay. The stand-by compensation which the employer is required to pay the employee while the latter waits for his travel papers, is actually the damages caused to him by the employer's delay in getting his travel papers ready. As correctly pointed out by the Solicitor General in his Comment, the basis of the employer's liability for such damages is Article 1170 of the Civil Code which provides: 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.

As it was the petitioners obligation to get Saceda's travel documents ready for his repatriation to the Philippines upon the termination of his overseas contract, the petitioner must answer in damages for the delay in Saceda's departure which compelled him to "stand-by," idle and jobless in a foreign land, while waiting for his employer to hand him his ticket and travel papers for his trip home. The measure of those damages is the income he could have earned if he were repatriated promptly in order that he could work again in his country. The fact that Saceda refused to depart on February 21, 1984 because he wanted to wait for the outcome of the complaint which he filed against petitioner for the payment of his completion bonus, unused vacation/sick leaves, and unpaid wages from December 1, 1983 up to January 27, 1984 (when his extended contract of employment expired) does not shift to him the blame for his delayed departure, for, as it turned out, his suit was justified. The decision promulgated by the Saudi Labor Authorities on March 24,1984 upheld his claims. Since Saceda was compelled to litigate by reason of the petitioner's unjust refusal to pay his valid and demandable claims, the petitioner is answerable for the damages he suffered by having to stay on to see his case through. The petitioner should, therefore, pay him stand-by compensation from January 28, 1984 up to March 27, 1984 when he was repatriated after the petitioner paid the judgment in his favor. WHEREFORE, the petition is dismissed. As above modified, We affirm the decision of the NLRC in POEA Case No. (L) 84-07-660, with costs against the petitioner. SO ORDERED. G.R. No. 98695 January 27, 1993 JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C. SYQUIA, petitioners, vs. THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC., respondents. Pacis & Reyes Law Offices for petitioners. Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia, were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a complaint 1 in the then Court of First Instance against herein private respondent, Manila Memorial Park Cemetery, Inc. for recovery

of damages arising from breach of contract and/or quasi-delict. The trial court dismissed the complaint. The antecedent facts, as gathered by the respondent Court, are as follows: On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants herein, filed a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery, Inc. The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August 27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J. Syquia and defendantappellee, the former, father of deceased Vicente Juan J. Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the Manila Memorial Park Cemetery in the morning of July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment procedures; that on September 4, 1978, preparatory to transferring the said remains to a newly purchased family plot also at the Manila Memorial Park Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche underground with the assistance of certain employees of defendant-appellant (sic); that as the concrete vault was being raised to the surface, plaintiffs-appellants discovered that the concrete vault had a hole approximately three (3) inches in diameter near the bottom of one of the walls closing out the width of the vault on one end and that for a certain length of time (one hour, more or less), water drained out of the hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated and upset with concern that the water which had collected inside the vault might have risen as it in fact did rise, to the level of the coffin and flooded the same as well as the remains of the deceased with ill effects thereto; that pursuant to an authority granted by the Municipal Court of Paraaque, Metro Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians and certain personnel of defendant-appellant (sic) caused the opening of the concrete vault on September 15, 1978; that upon opening the vault, the following became apparent to the plaintiffs-appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin

was entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the viewing glass panel located directly above the head and torso of the deceased; (c) the entire lining of the coffin, the clothing of the deceased, and the exposed parts of the deceased's remains were damaged and soiled by the action of the water and silt and were also coated with filth. Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a defect-free concrete vault designed to protect the remains of the deceased and the coffin against the elements which resulted in the desecration of deceased's grave and in the alternative, because of defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in failing to seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages, exemplary damages in the amount determined by the court, 20% of defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs of suit. 2 In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement vault would be waterproof; that there could be no quasi-delict because the defendant was not guilty of any fault or negligence, and because there was a pre-existing contractual relation between the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia, chose the gravesite despite knowing that said area had to be constantly sprinkled with water to keep the grass green and that water would eventually seep through the vault. The trial court also accepted the explanation given by defendant for boring a hole at the bottom side of the vault: "The hole had to be bored through the concrete vault because if it has no hole the vault will (sic) float and the grave would be filled with water and the digging would caved (sic) in the earth, the earth would caved (sic) in the (sic) fill up the grave." 3 From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed the flooding of the vault; that there was no desecration; that the boring of the hole was justifiable; and in not awarding damages.

The Court of Appeals in the Decision 4 dated December 7, 1990 however, affirmed the judgment of dismissal. Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991. 5 Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the Court of Appeals committed the following errors when it: 1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of the vault and the entrance thereto of filth and silt; 2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration was committed; 3. overlooked and refused to consider relevant, undisputed facts, such as those which have been stipulated upon by the parties, testified to by private respondent's witnesses, and admitted in the answer, which could have justified a different conclusion; 4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and 5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and exemplary damages, and attorney's fees. At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the deceased kin of the bereaved petitioners. The latter allege that such act was either a breach of private respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence private respondent has committed, the latter is liable for desecrating the grave of petitioners' dead. In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its contract with petitioners; or, alternatively, whether private respondent was guilty of a tort. We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to answer the foregoing questions in the negative. There is not enough ground, both in fact and in law, to justify a reversal of the decision of the respondent Court and to uphold the pleas of the petitioners. With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of Appeals found no negligent act on

the part of private respondent to justify an award of damages against it. Although a pre-existing contractual relation between the parties does not preclude the existence of a culpa aquiliana, We find no reason to disregard the respondent's Court finding that there was no negligence. Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict . . . . (Emphasis supplied). In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a contract entitled "Deed of Sale and Certificate of Perpetual Care" 6 on August 27, 1969. That agreement governed the relations of the parties and defined their respective rights and obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it would be held liable not for a quasi-delict or culpa aquiliana, but for culpa contractual as provided by Article 1170 of the Civil Code, to wit: 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. The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17 of the Rules and Regulations of private respondent provides that: Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone, brick or concrete, the actual installment of which shall be made by the employees of the Association. 7 Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment, and was, on the same day, installed by private respondent's employees in the grave which was dug earlier. After the burial, the vault was covered by a cement lid. Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure it distributed that the . . . lot may hold single or double internment (sic) underground in sealed concrete vault." 8 Petitioners claim that the vault provided by private respondent was not sealed, that is, not waterproof. Consequently, water seeped through the cement enclosure and damaged everything inside it. We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and Regulations of the Manila

Memorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed." 9 On the other hand, the word "seal" is defined as . . . any of various closures or fastenings . . . that cannot be opened without rupture and that serve as a check against tampering or unauthorized opening." 10 The meaning that has been given by private respondent to the word conforms with the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be equated with "waterproof". Well settled is the rule that when the terms of the contract are clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of the stipulation shall control. 11 Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 12 As ruled by the respondent Court: When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the attached Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-appellee's undertaking to merely provide a concrete vault. He can not now claim that said concrete vault must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739). Where there is nothing in the contract which is contrary to law, morals, good customs, public order, or public policy, the validity of the contract must be sustained (Phil. American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting party cannot incur a liability more than what is expressly specified in his undertaking. It cannot be extended by implication, beyond the terms of the contract (Rizal Commercial Banking Corporation vs. Court of Appeals, supra). And as a rule of evidence, where the terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of their intentions, is the only instrument of evidence in respect of that agreement which the law will recognize, so long as its (sic) exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco, Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal

meaning of its stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13 We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be so, can private respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the hole made possible the entry of more water and soil than was natural had there been no hole. The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place." 14 In the absence of stipulation or legal provision providing the contrary, the diligence to be observed in the performance of the obligation is that which is expected of a good father of a family. The circumstances surrounding the commission of the assailed act boring of the hole negate the allegation of negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who said that: Q It has been established in this particular case that a certain Vicente Juan Syquia was interred on July 25, 1978 at the Paraaque Cemetery of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon. Court what or whether you have participation in connection with said internment (sic)? A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning a vault was taken and placed in the grave and when the vault was placed on the grave a hole was placed on the vault so that water could come into the vault because it was raining heavily then because the vault has no hole the vault will float and the grave would be filled with water and the digging would caved (sic) in and the earth, the earth would (sic) caved in and fill up the grave. 15 (Emphasis ours) Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-mentioned explanation, private respondent has exercised the diligence of a good father of a family in

preventing the accumulation of water inside the vault which would have resulted in the caving in of earth around the grave filling the same with earth. Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in favor of petitioners. In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are constrained to AFFIRM in toto the decision of the respondent Court of Appeals dated December 7, 1990. No costs. SO ORDERED. G.R. No. 96505 July 1, 1993 LEGASPI OIL CO., INC., petitioner, vs. THE COURT OF APPEALS and BERNARD OSERAOS, respondent. MELO, J.: The petition for review on certiorari before us seeks to set aside the decision dated March 23, 1990 of the Court of Appeals in CA-G.R. CV No. 05828, penned by the Honorable Justice Abelardo Dayrit with whom Justices Javellana and Kalalo concurred, which dismissed petitioner's complaint for damages (p. 48, Rollo). Petitioner does not dispute the facts of the case, as found by respondent Court of Appeals. The findings of the respondent Court are thus adopted, to wit: From the evidence presented by the plaintiff-appellee [now petitioner Legaspi Oil Company, Inc.], it appears that defendant-appellant [now private respondent Bernard Oseraos] acting through his authorized agents, had several transactions with appellee Legaspi Oil Co. for the sale of copra to the latter. The price at which appellant sells the copra varies from time to time, depending on the prevailing market price when the contract is entered into. One of his authorized agents, Jose Llover, had previous transactions with appellee for the sale and delivery of copra. The records show that he concluded a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975 (Exhibit G-5) and another sale for 30 tons of P102.00 per 100 kilos on September 23, 1975 (Exhibit G-3). Subsequently, on November 6, 1975, another designated agent signed a contract in behalf of appellant for the sale of 100 tons of copra at P79.00

per 100 kilos with the delivery terms of 25 days effective December 15, 1975 (Exhibit G-2). At this point, it must be noted that the price of copra had been fluctuating (going up and down), indicating its unsteady position in the market. On February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976 (Exhibit G, for the plaintiff). As compared to appellant's transaction on November 6, 1975, the current price agreed upon is slightly higher than the last contract. In all these contracts though, the selling price had always been stated as "total price" rather than per 100 kilos. However, the parties had understood the same to be per 100 kilos in their previous transactions. After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of 53,666 kilos as per running account card (Exhibit "F"). Accordingly, demands were made upon appellant to deliver the balance with a final warning embodied in a letter dated October 6, 1976, that failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price differential to be charged against appellant. On October 22, 1976, since there was still no compliance, appellee exercised its option under the contract and purchased the undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant. (pp. 43-44, Rollo) On November 3, 1976, petitioner filed a complaint against private respondent for breach of a contract and for damages. After trial, the then Court of First Instance (now Regional Trial Court) of Albay in Civil Case No. 5529 rendered a decision holding herein private respondent (then defendant) Oseraos liable for damages in the amount of P48,152.76, attorney's fees (P2,000), and litigation costs. Oseraos appealed to respondent Court which thereafter rendered a reversal decision on March 23, 1990, ordering the dismissal of the complaint. Hence, the instant petition for review on certiorari.

The sole issued posed by the petition is whether or not private respondent Oseraos is liable for damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by the parties. After a review of the case, we believe and thus hold, that private respondent is guilty of fraud in the performance of his obligation under the sales contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976. However within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving an undelivered balance of 53,666 kilograms. Petitioner made repeated demands upon private respondent to comply with his contractual undertaking to deliver the balance of 53,666 kilograms but private respondent elected to ignore the same. In a letter dated October 6, 1976, petitioner made a final demand with a warning that, should private respondent fail to complete delivery of the balance of 53,666 kilograms of copra, petitioner would purchase the balance at the open market and charge the price differential to private respondent. Still private respondent failed to fulfill his contractual obligation to deliver the remaining 53,666 kilograms of copra. On October 22, 1976, since there was still no compliance by private respondent, petitioner exercised its right under the contract and purchased 53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per 100 kilograms or a total price differential of P46,152.76. Under the foregoing undisputed circumstances, the actuality of private respondent's fraud cannot be gainsaid. In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull 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 of the Philippines is the deliberate and intentional evasion of the normal fulfillment of obligation; it is distinguished from negligence by the presence of deliberate intent, which is lacking in the latter (Tolentino's Civil Code of the Philippines, Vol. IV, p. 110). The conduct of private respondent clearly manifests his deliberate fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines, those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private respondent is liable for damages. The next point of inquiry, therefore, is the amount of damages which private respondent is liable to pay petitioner. As aforementioned, on account of

private respondent's deliberate breach of his contractual obligation, petitioner was compelled to buy the balance of 53,666 kilos of copra in the open market at the then prevailing price of P168 per 100 kilograms thereby paying P46,152.76 more than he would have paid had private respondent completed delivery of the copra as agreed upon. Thus, private respondent is liable to pay respondent the amount of P46,152.76 as damages. In case of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably attributed to the non performance of the obligation (Magat vs. Medialdea, 121 SCRA 418 [1983]). Article 1101 of the old Civil Code, later to be reproduced as Article 1170 of our present Civil Code, was the basis of our decision in an old case, Acme Films, Inc. vs. Theaters Supply Corporation, (63 Phil, 657 [1936]), wherein we held: It is not denied that the plaintiff company failed to supply the defendant with the cinematographic films which were the subject matter of the contracts entered into on March 20, 1934 (Exhibits 1 and 2), and two films under the contract of March 24, 1934 (Exhibit 3), one of said films being a serial entitled "Whispering Shadow". Guillermo Garcia Bosque testified that because the plaintiff company had failed to supply said films, the defendants had to resort to the Universal Pictures Corporation and ask for films to replace those which said plaintiff had failed to supply under the contract, having had to pay therefor five per cent more than for those films contracted with said plaintiff Acme Films, Inc., and that the total cost thereof, including the printing of programs, posters paraded through the streets with bands of music to announce the showing of the films which the plaintiff company failed to supply, amount to from P400 to P550. The plaintiff company did not submit evidence to rebut the testimony of said witness and the fact that the estimate of the expenses is approximate does not make said estimate inadmissible. It was incumbent upon the plaintiff company to submit evidence in rebuttal, or at least ascertain the amount of the different items in crossexamination. There being no evidence to the contrary, it is logical to admit that the defendant company spent at least the sum of P400. Inasmuch as the plaintiff company had failed to comply with a part of its booking contract, and as the defendant company had suffered damages as a result thereof, the former is liable to

indemnify the damages caused to the latter, in accordance with the provisions of Article 1101 of the Civil Code. (at page 663.) WHEREFORE, the instant petition is hereby GRANTED. The decision of the respondent Court of Appeals in CA-G.R. CV No. 05828 is ANNULLED and SET ASIDE and the decision of the trial court in Civil Case No. 5529 REINSTATED, with costs against private respondent. SO ORDERED. FIRST DIVISION [G.R. No. 133107. March 25, 1999] RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and FELIPE LUSTRE, Respondents. DECISION KAPUNAN, J.:chanroblesvirtualawlibrary A simple telephone call and an ounce-of good faith on the part of petitioner could have prevented the present controversy. chanroblesvirtualawlibrary On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the purchase price to be paid in 24 equal monthly installments. Private respondent thus issued 24 postdated checks for the amount of P14,976.00 each. The first was dated April 10, 1991; subsequent checks were dated every 10th day of each succeeding month. chanroblesvirtualawlibrary To secure the balance, private respondent executed a promissory note[1] and a contract of chattel mortgage[2] over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph 11 thereof, provided for an acceleration clause stating that should the mortgagor default in the payment of any installment, the whole amount remaining unpaid shall become due. In addition, the mortgagor shall be liable for 25% of the principal due as liquidated damages. chanroblesvirtualawlibrary On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to petitioner Rizal Commercial Banking Corporation (RCBC). chanroblesvirtualawlibrary All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and debited by RCBC from private respondent's account, except for RCBC Check No. 279805 representing the payment for August 10, 1991, which was unsigned. Previously, the amount represented by RCBC Check No. 279805 was debited from private respondent's account but was later recalled and re-credited to him. Because of the recall, the last two checks, dated February 10, 1993 and March 10, 1993, were no

longer presented for payment. This was purportedly in conformity with petitioner bank's procedure that once a client's account was forwarded to its account representative, all remaining checks outstanding as of the date the account was forwarded were no longer presented for payment. chanroblesvirtualawlibrary On the theory that respondent defaulted in his payments, the check representing the payment for August 10, 1991 being unsigned, Petitioner, in a letter dated January 21, 1993, demanded from private respondent the payment of the balance of the debt, including liquidated damages. The latter refused, prompting petitioner to file an action for replevin and damages before the Pasay City Regional Trial Court (RTC). Private respondent, in his Answer, interposed a counterclaim for damages. chanroblesvirtualawlibrary After trial, the RTC[3] rendered a decision disposing of the case as follows: chanroblesvirtualawlibrary WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:chanroblesvirtualawlibrary I. The complaint, for lack of cause of action, is hereby DISMISSED and plaintiff RCBC is hereby ordered,chanroblesvirtualawlibrary A. To accept the payment equivalent to the three checks amounting to a total of P44,938.00, without interestchanroblesvirtualawlibrary B. To release/cancel the mortgage on the car xxx upon payment of the amount of P44,938.00 without interest.chanroblesvirtualawlibrary C. To pay the cost of suitchanroblesvirtualawlibrary II. On The Counterclaimchanroblesvirtualawlibrary A. Plaintiff RCBC to pay Atty. Lustre the amount of P200,000.00 as moral damages.chanroblesvirtualawlibrary B. RCBC to pay P100,000.00 as exemplary damages.chanroblesvirtualawlibrary C. RCBC to pay Atty. Obispo P50,000.00 as Attorney's fees. Atty. Lustre is not entitled to any fee for lawyering for himself.chanroblesvirtualawlibrary All awards for damages are subject to payment of fees to be assessed by the Clerk of Court, RTC, Pasay City.chanroblesvirtualawlibrary SO ORDERED.chanroblesvirtualawlibrary On appeal by petitioner, the Court of Appeals affirmed the decision of the RTC, thus: chanroblesvirtualawlibrary We xxx concur with the trial court's ruling that the Chattel Mortgage contract being a contract of adhesion that is, one wherein a party, usually a corporation, prepares the stipulations the contract, while the other party merely affixes his signature or his "adhesion" thereto xxx - is to be strictly construed against appellant bank which prepared the form Contract xxx. Hence xxx paragraph 11 of the Chattel Mortgage

contract [containing the acceleration clause] should be construed to cover only deliberate and advertent failure on the part of the mortgagor to pay an amortization as it became due in line with the consistent holding of the Supreme Court construing obscurities and ambiguities in the restrictive sense against the drafter thereof xxx in the light ofchanroblesvirtualawlibrary Article 1377 of the Civil Code. chanroblesvirtualawlibrary In the case at bench, plaintiff-appellant's imputation of default to defendant-appellee rested solely on the fact that the 5th check issued by appellee xxx was recalled for lack of signature. However, the check was recalled only after the amount covered thereby had been deducted from defendant-appellee's account, as shown by the testimony of plaintiff's own witness Francisco Bulatao who was in charge of the preparation of the list and trial balances of bank customers xxx. The "default" was therefore not a case of failure to pay, the check being sufficiently funded, and which amount was in fact already debitted [sic] from appellee's account by the appellant bank which subsequently re-credited the amount to defendant-appellee's account for lack of signature. All these actions RCBC did on its own without notifying defendant until sixteen (16) months later when it wrote its demand letter dated January 21, 1993.chanroblesvirtualawlibrary Clearly, appellant bank was remiss in the performance of its functions for it could have easily called the defendant's attention to the lack of signature on the check and sent the check to, or summoned, the latter to affix his signature. It is also to be noted that the demand letter contains no explanation as to how defendant-appellee incurred arrearages in the amount of P66,255.70, which is why defendant-appellee made a protest notation thereon.chanroblesvirtualawlibrary Notably, all the other checks issued by the appellee dated subsequent to August 10, 1991 and dated earlier than the demand letter, were duly encashed. This fact should have already prompted the appellant bank to review its action relative to the unsigned check. xxx[4] chanroblesvirtualawlibrary We take exception to the application by both the trial and appellate courts of Article 1377 of the Civil Code, which states: chanroblesvirtualawlibrary The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.chanroblesvirtualawlibrary It bears stressing that a contract of adhesion is just as binding as ordinary contracts. [5] It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing.[6] Nevertheless, contracts of adhesion are not invalid per se;[7] they are not entirely prohibited.[8] The one who adheres to the

contract is in reality free to reject it entirely; if he adheres, he gives his consent.[9] chanroblesvirtualawlibrary While ambiguities in a contract of adhesion are to be construed against the party that prepared the same,[10] this rule applies only if the stipulations in such contract are obscure or ambiguous. If the terms thereof are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.[11] In the latter case, there would be no need for construction.[12] chanroblesvirtualawlibrary Here, the terms of paragraph 11 of the Chattel Mortgage Contract[13] are clear. Said paragraph states: chanroblesvirtualawlibrary 11. In case the MORTGAGOR fails to pay any of the installments, or to pay the interest that may be due as provided in the said promissory note, the whole amount remaining unpaid therein shall immediately become due and payable and the mortgage on the property (ies) herein-above described may be foreclosed by the MORTGAGEE, or the MORTGAGEE may take any other legal action to enforce collection of the obligation hereby secured, and in either case the MORTGAGOR further agrees to pay the MORTGAGEE an additional sum of 25% of the principal due and unpaid, as liquidated damages, which said sum shall become part thereof. The MORTGAGOR hereby waives reimbursement of the amount heretofore paid by him/it to the MORTGAGEE.chanroblesvirtualawlibrary The above terms leave no room for construction. All that is required is the application thereof. chanroblesvirtualawlibrary Petitioner claims that private respondent's check representing the fifth installment was "not encashed,[14] such that the installment for August 1991 was not paid. By virtue of paragraph 11 above, petitioner submits that it "was justified in treating the entire balance of the obligation as due and demandable."[15] Despite demand by petitioner, however, private respondent refused to pay the balance of the debt. Petitioner, in sum, imputes delay on the part of private respondent. chanroblesvirtualawlibrary We do not subscribe to petitioner's theory. chanroblesvirtualawlibrary Article 1170 of the Civil Code states that those who in the performance of their obligations are guilty of delay are liable for damages. The delay in the performance of the obligation, however, must be either malicious or negligent.[16] Thus, assuming that private respondent was guilty of delay in the payment of the value of the unsigned check, private respondent cannot be held liable for damages. There is no imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check. Indeed, we agree with the Court of Appeals' finding that such omission was mere "inadvertence" on the part of private respondent. Toyota salesperson Jorge Geronimo testified that he even verified

whether private respondent had signed all the checks and in fact returned three or four unsigned checks to him for signing: chanroblesvirtualawlibrary Atty. Obispo:chanroblesvirtualawlibrary After these receipts were issued, what else did you do about the transaction? chanroblesvirtualawlibrary A: During our transaction with Atty. Lustre, I found out when he issued to me the 24 checks, I found out 3 to 4 checks are unsigned and I asked him to sign these checks.chanroblesvirtualawlibrary Atty. Obispo:chanroblesvirtualawlibrary What did you do?chanroblesvirtualawlibrary A: I asked him to sign the checks. After signing the checks, I reviewed again all the documents, after I reviewed all the documents and found out that all are completed and the downpayments was completed, we released to him the car.[17] chanroblesvirtualawlibrary Even when the checks, were delivered to petitioner, it did not object to the unsigned check. In view of the lack of malice or negligence on the part of private respondent, petitioner's blind and mechanical invocation of paragraph 11 of the contract of chattel mortgage was unwarranted. chanroblesvirtualawlibrary Petitioners conduct, in the light of the circumstances of this case, can only be described as mercenary. Petitioner had already debited the value of the unsigned check from private respondent's account only to re-credit it much later to him. Thereafter, petitioner encashed checks subsequently dated, then abruptly refused to encash the last two. More than a year after the date of the unsigned check, Petitioner, claiming delay and invoking paragraph 11, demanded from private respondent payment of the value of said check and. that of the last two checks, including liquidated damages. As pointed out by the trial court, this whole controversy could have been avoided if only petitioner bothered to call up private respondent and ask him to sign the check. Good faith not only in compliance with its contractual obligations,[18] but also in observance of the standard in human relations, for every person "to act with justice, give everyone his due, and observe honesty and good faith."[19] behooved the bank to do so. chanroblesvirtualawlibrary Failing thus, petitioner is liable for damages caused to private respondent.[20] These include moral damages for the mental anguish, serious anxiety, besmirched reputation, wounded feelings and social humiliation suffered by the latter.[21] The trial court found that private respondent was chanroblesvirtualawlibrary [a] client who has shared transactions for over twenty years with a bank xxx. The shabby treatment given the defendant is unpardonable since he was put to shame and embarrassment after the case was filed in Court. He is a lawyer in his own right, married to another member of the bar. He sired children who are all professionals in

their chosen field. He is known to the community of golfers with whom he gravitates. Surely, the filing of the case made defendant feel so bad and bothered.chanroblesvirtualawlibrary To deter others from emulating petitioners callous example, we affirm the award of exemplary damages.[22] As exemplary damages are warranted, so are attorney's fees.[23] chanroblesvirtualawlibrary We, however, find excessive the amount of damages awarded by the trial court in favor of private respondent with respect to his counterclaims and, accordingly, reduce the same as follows: chanroblesvirtualawlibrary (a) Moral damages - fromP200,000.00 to P100,000.00, chanroblesvirtualawlibrary (b) (b)Exemplarydamages from P100,000.00 to P75,000.00, chanroblesvirtualawlibrary (c) (c) Attorney's fees - from P 50,000,00 to P 30,000.00.chanroblesvirtualawlibrary WHEREFORE, subject to these modifications, the decision of the Court of Appeals is AFFIRMED.chanroblesvirtualawlibrary SO ORDERED. chanroblesvirtualawlibrary