[G.R. No. 101632.

January 13, 1997]

GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner, vs. HON. COURT OF APPEALS and PHILIPPINE VILLAGE HOTEL, INC.,respondents. DECISION VITUG, J.: The instant petition for review on certiorari assails the reversal by the Court of Appeals, in a resolution of 14 June 1991, of its earlier 24th May 1990 decision [1] that dismissed for lack of merit the petition for certiorari in CA-G.R. SP No. 20336 of respondent Philippine Village Hotel, Inc. ("PVHI"), challenging the order of the Regional Trial Court ("RTC") of Pasay City which threw out, for lack of jurisdiction, PVHI's petition to set aside the foreclosure of its properties by the Government Service Insurance System ("GSIS"). Private respondent PVHI, then also known as the "Sulo ng Nayon, Inc.," obtained, on 18 September 1972, a loan in the sum of twenty-two million pesos (P22,000,000.00) from the GSIS for the construction of a hotel on a land leased to PVHI by the Nayong Pilipino Foundation. In order to guarantee payment of the loan, PVHI hypothecated the hotel and its contents to the GSIS. [2] On 24 April 1974 and 11 June 1975, the GSIS granted to PVHI two additional loan accommodations in the respective amounts of eight million pesos (P8,000,000.00) and six million five hundred thousand pesos (P6,500,000.00) subject to the same terms and conditions as the initial loan. Subsequently, or some time in June of 1980, PVHI and GSIS entered into a lease-purchase agreement over a building annexed to the hotel (then under construction) for sixty-seven million eight hundred thousand pesos (P67,800,000.00). Under the agreement, PVHI was to pay monthly installments to the GSIS until the cost of the building would have been fully paid for. Meanwhile, PVHI secured from the GSIS debenture bonds totaling seven million pesos (P7,000,000.00). Over the period from 15 December 1972 to 30 June 1986, PVHI paid to the GSIS the sum of ninety-eight million nine hundred twenty-four thousand two hundred twenty-seven pesos and eighty centavos (P98,924,227.80) but, when applied to PVHI's various liabilities in favor of GSIS, the loan obligation covered by the mortgage still remained in arrears. The demands for payment made by GSIS having been met instead by PVHI's constant requests for extension of time to pay, the GSIS finally instituted with the Sheriff of Pasay City separate foreclosure proceedings of real estate and chattel mortgages. In the interim, or on 06 June 1986, the Presidential Commission on Good Government ("PCGG") issued a writ of sequestration over "all assets, properties, records and documents" of the PVHI. On 23 July 1987, the Republic of the Philippines commenced in the Sandiganbayan Civil Case No. 0014 (PCGG Case No. 0015) an action against PVHI President Rebecco Panlilio and his wife Erlinda for reconveyance of the encumbered property, plus damages. PVHI, through the Panlilios, thereupon sought to restrain the impending foreclosure proceedings, aforesaid, by filing with the Sandiganbayan an ex-parte motion for the issuance of a temporary restraining order ("TRO") and preliminary injunction on the ground that the PVHI hotel building, by now a PCGG-sequestered property, was claimed to be beyond the reach of PVHI's creditors. The Sandiganbayan issued, on 15 May 1988, the TRO, prompting the GSIS to file, on 01 June 1988, a petition for certiorari with this Court, docketed G.R. No. 83385, questioning the action of the Sandiganbayan. Later, acting on the manifestation of the PCGG that it had no objection to the foreclosure of the hotel by the GSIS, the Sandiganbayan ultimately denied PVHI's motion to enjoin the foreclosure; accordingly, the GSIS scheduled the foreclosure sale on 25 August 1988. On 16 August 1988, or before the scheduled foreclosure of the property by the GSIS, PVHI filed with the Manila RTC (Branch 24), docketed Civil Case No. 88-45876, a complaint against the GSIS, the Sheriff and Register of Deeds of Pasay City, for a declaration of the release from mortgage of the property, injunction and

damages. Judge Sergio Mabunay of the Manila RTC issued, on 24 August 1988, a TRO thereby constraining the GSIS to so include him as an additional respondent in G.R. No. 83385 for alleged abuse of discretion. On 11 October 1989, Judge Mabunay issued a writ of preliminary injunction against the foreclosure sale. On even date, however, this Court, in G.R. No. 83385, issued a TRO "ordering the respondent Judge Sergio D. Mabunay, x x x to CEASE and DESIST from further proceeding with Civil Case No. 88-45876, x x x more particularly from issuing any injunction against the foreclosure sale by petitioner GSIS of the Philippine Village (Hotel) and its contents, x x x rescheduled for October 13, 1988." [3] On 12 October 1988, this Court also set aside the 11th October 1988 order of Judge Mabunay. PVHI and the Panlilios sought, albeit unsuccessfully, a reconsideration of this Court's twin orders. On 13 and 14 of October 1988, the hotel was finally sold at public auction with the GSIS ultimately being declared the winning bidder. In a move to obtain possession of the hotel, on 11 May 1989, the GSIS filed with the RTC of Pasay City an ex-parte petition, entitled "Philippine Village Hotel, Inc. vs. Government Service Insurance System, Sheriff of Pasay City and Register of Deeds of Pasay City," for a writ of possession in LRC Case No. 3079. PVHI, in turn, filed a motion to dismiss or suspend the proceedings before said court pending the final resolution of G.R. No. 83385 and Civil Case No. 88-45876 with the RTC of Manila. PVHI averred that the newly filed petition by the GSIS was premature since other issues had yet to be resolved, i.e., in Civil Case No. 88-45876, whether or not PVHI had fully paid its mortgage obligation to the GSIS and, in G.R. No. 83385, whether it was the RTC of Manila or the Sandiganbayan which had the proper jurisdiction over the sequestered property. Judge Sofronio G. Sayo, Presiding Judge of RTC Pasay City, directed, on 16 August 1989, the issuance of a writ of possession in LRC Case No. 3079 upon the posting of a bond of two million pesos (P2,000,000.00) by the GSIS. PVHI filed a motion for reconsideration and a supplemental motion for reconsideration of the order but both motions were, on 14 September 1989, denied by the court. On even date of 14 September 1989, PVHI filed with the same Pasay City RTC a petition to set aside the foreclosure sale with an application for the issuance of a temporary restraining order and preliminary injunction, asserting that the foreclosure sale was illegal not only because PVHI had supposedly paid in full its mortgage indebtedness to the GSIS but also because of alleged procedural infirmities that had attended the foreclosure. In time, PVHI and the GSIS executed a Memorandum of Agreement ("MOA") providing, among other matters, that, until 01 March 1990 ("completion date"), GSIS should not consolidate ownership over the hotel nor enforce or implement the writ of possession issued in LRC No. 3079. The MOA, however, failed to get the approval of the President and the Commission on Audit before 01 March 1990 (a condition under the MOA). The GSIS thereupon requested the city sheriff of Pasay City to serve the writ of possession on PVHI. Upon receipt of the writ, PVHI filed a motion to hold in abeyance its implementation. The GSIS opposed the motion. On 05 March 1990, PVHI and the Panlilios filed another complaint against the GSIS, docketed Civil Case No. 90-52276, before the RTC of Manila, Branch 2, presided over by Judge Napoleon Flojo, for the enforcement of the MOA. In LRC Case No. 3079, Judge Sofronio G. Sayo, dismissed, on 14 March 1990, PVHI's petition to set aside the foreclosure sale on the ground of lack of jurisdiction as the court was said to be acting under a limited capacity as a land registration or cadastral court. On 22 March 1990, PVHI filed with the Court of Appeals a petition for certiorari, docketed CA-G.R. SP No. 20336, contending that Judge Sayo gravely abused his discretion in dismissing the petition to have the foreclosure sale set aside. In its comment, the GSIS prayed for the dismissal of the petition on various grounds, i.e., that PVHI engaged in forum-shopping, that the petition for certioraricould not be so used as a substitute for appeal which was the proper remedy available to PVHI, and that PVHI was barred by estoppel since it itself sought relief in Civil Case No. 90-52272. In Civil Case No. 90-52272, Judge Flojo of RTC Manila, on 26 March 1990 following a hearing, issued a writ of preliminary injunction, subject to the filing by PVHI of a bond for two million pesos (P2,000,000.00), to restrain the enforcement of the writ of possession issued by Judge Sayo of the Pasay City RTC. In CA-G.R. SP No. 20336, the Court of Appeals meanwhile rendered, on 24 May 1990, its decision upholding the GSIS and dismissing PVHI's petition against the order of RTC of Pasay City dismissing for lack of jurisdiction PVHI's petition to set aside the foreclosure by the GSIS. The motion for reconsideration and a supplemental motion for reconsideration were denied in the resolution of 21 November 1990. The appellate court (a) cited PNB vs. Adil[4] to say that possession of a foreclosed property by a government institution was

mandatory under Presidential Decree No. 385; (b) held that under Section 8 of Act No. 3135, an appeal was the proper remedy available to PVHI; and (c) ruled that there was no urgent need for the issuance of a writ of certiorari since PVHI itself was able to obtain a writ of preliminary injunction in Civil Case No. 90-52272. On the issue of forum-shopping, the Court of Appeals, after noting that there were altogether eight (8) cases then pending between the parties of which two (2) were instituted by the GSIS ( G.R. No. 83385 and LRC Case No. 3079), said: "Let it be observed that common to all of these cases involving the petitioner PVHI and respondent GSIS is the attempt of the GSIS to foreclose the mortgage executed over the Philippine Village Hotel by petitioner and GSIS's subsequent attempt to take possession thereof, and on the part of PVHI, its repeated attempts to stop the foreclosure and take over of the possession thereof. Furthermore, although the reliefs prayed for in all these cases filed by PVHI's counsel are ostensibly different, the essence of all of them is the same - the ultimate objective of preventing GSIS from foreclosing the mortgage and thereafter from taking possession of the Hotel." [5] Barely five days after the promulgation of the appellate court's resolution, or on 26 November 1990, this Court, en banc, rendered its decision[6] in G.R. No. 83385. The decretal portion read: "WHEREFORE, the Court renders judgment as follows: "1. The proceedings in Civil Case No. 88-45876 (RTC, Manila, Sergio Mabunay, presiding judge) are moot and academic, foreclosure having been implemented and now a fait accompli; "2. Neither PVHI, Rebecco Panlilio, nor their counsel are guilty of forum-shopping in connection with the said Civil Case No. 88-45876, or CA-G.R. SP No. 20336 (Court of Appeals); "3. The Temporary Restraining Order issued in the Resolution dated October 11, 1989, enjoining Judge Sergio Mabunay from further proceedings in Civil Case No. 88-45876 is made permanent; and "4. The prayer for contempt is DENIED.

"SO ORDERED."[7] A motion for clarification/modification of the decision by GSIS was, in its 26th February 1991 resolution, treated by this Court as one for reconsideration and so then denied with finality. Entry of judgment was made on 26 December 1990. On 11 February 1991, the records of the case were remanded to the Sandiganbayan. A motion to quash/set aside the entry of judgment filed by the GSIS was denied on 18 April 1991. With this Court's decision in G.R. No. 83385, PVHI, on 13 December 1990, filed in CA-G.R. SP No. 20336 a manifestation and motion to rectify the appellate court's resolution of 21 November 1990, asseverating that the decision in G.R. No. 83385 "completely overhauls and virtually reverses this Court's (the Court of Appeals) subject Resolution as regards the propriety of PVHI's filing of its Petition to Set Aside Foreclosure Sale dated 13 September 1989 in LRC Case No. 3079 with the courta quo, as well as the issue of forumshopping."[8] Filing a counter-manifestation and opposition, the GSIS questioned PVHI's position which, allegedly, was in reality a second or substituted motion for reconsideration proscribed by Batas Pambansa Blg. 129 and the Internal Rules of the Court of Appeals. On 14 June 1991, the Court of Appeals issued the now assailed resolution ordering Judge Sayo to take cognizance of the petition to set aside the foreclosure sale and thereby reversing, in effect, its decision of 24 May 1990 and resolution of 21 November 1990. The appellate court said: "A perusal of the body of the Supreme Court's decision indicates that the issue of forum shopping was raised only as to petitioner PVHI's twin actions in the Sandiganbayan (Civil Case No. 1114 [sic]) and before Judge Mabunay, Branch 24, of the Regional Trial Court of Manila in Civil Case No. 88-45876). Nonetheless, since the Supreme Court, in its final judgment included the case pending before this Court [CA-G.R. SP No. 20336], the latter is left without any alternative

but to submit to the Supreme Court's ruling, for the orderly administration of justice and to give deferance to [the] highest judicial organ, the Supreme Court. The Supreme Court having spoken, this Court's duty is to obey. x x x. "x x x xxx x x x.

"The Regional Trial Court of Pasay, in LRC Case No. 3079 denied petitioner PVHI's petition to set aside Foreclosure sale on the ground that it had no jurisdiction. The Supreme Court held otherwise, ruling that there is nothing objectionable with petitioner PVHI's remedy. This Court denied the petition for Certiorari` filed by petitioner PVHI directed against the Regional Trial Court's denial on the ground that Certiorari is not the proper remedy. "In the light of the Supreme Court's ruling that Regional Trial Court of Pasay had jurisdiction, the respondent judge gravely abused his discretion in dismissing the case. Indeed, he acted whimsically and capriciously when he ignored the explicit mandate of Section 8 of Act 3138 (sic)."[9] The motion for reconsideration filed by the GSIS having been denied on 21 August 1991, [10] the instant petition for review on certiorari which, in the main, assails the Court of Appeals' resolution of 14 June 1991 has been here instituted. Petitioner GSIS contends that "- A "THE RESPONDENT COURT OF APPEALS ERRED IN ISSUING A RESOLUTION IN VIOLATION OF BATAS PAMBANSA BLG. 129, THE INTERIM RULES OF COURT, AND ITS OWN REVISED INTERNAL RULES, ALL OF WHICH PROHIBIT THE FILING OF SECOND MOTIONS FOR RECONSIDERATION, ESPECIALLY ONE WITHOUT LEAVE OF COURT. "- B "THE RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS OWN DECISION WHICH HAD ALREADY BECOME FINAL AND EXECUTORY. "- C "THE RESPONDENT COURT OF APPEALS ERRED IN VIOLATING THE INTENT AND SPIRIT OF THE RULING IN `GSIS VS. SANDIGANBAYAN' (119 SCRA 655) TO PUT A STOP TO THE HEREIN PARTIES' `BICKERINGS' WHICH WILL CONTINUE TO FESTER AT THE EXPENSE OF THE ORDERLY ADMINISTRATION OF JUSTICE."[11] The second paragraph of Section 11 of Batas Pambansa Blg. 129, as amended by Executive Order No. 33, dated 28 July 1986, provides: "A motion for reconsideration of its decision or final resolution shall be resolved by the Court within ninety (90) days from the time it is submitted for resolution, and no second motion for reconsideration from the same party shall be entertained x x x." A similar prescription is reflected in the Interim Rules and Guidelines for the implementation of B.P. Blg. 129; hence "4. Motions for reconsideration.- No party shall be allowed a second motion for reconsideration of a final order or judgment." The Revised Internal Rules of the Court of Appeals echoes a like rule in Rule 9 thereof; thus "SEC. 3. Second Motion for Reconsideration. - No second or subsequent motion for reconsideration from the same party shall be entertained. However, if the decision or resolution is reconsidered or substantially modified, the party adversely

affected thereby, may in turn file a motion for reconsideration of the amended decision within fifteen (15) days from notice." The prohibition against the filing of a second motion for reconsideration is justified by public policy which demands that at the risk of occasional errors, judgments of courts must become final at some definitive date fixed by law.[12] The rule, however, is certainly not inflexible. Procedural laws are technicalities which are adopted not as ends in themselves but as means conducive to the realization of law and justice. [13] The rules of procedure are not to be applied with severity and rigidity when such application would clearly defeat the very rationale for their conception and existence.[14] In Mauna vs. Civil Service Commission,[15] the Court said: "x x x (I)t is within the power of this Court to temper rigid rules in favor of substantial justice. While it is desirable that the Rules of Court be faithfully and even meticulously observed, courts should not be so strict about procedural lapses that do not really impair the proper administration of justice. If the rules are intended to ensure the orderly conduct of litigation, it is because of the higher objective they seek which is the protection of substantive rights of the parties." [16] The relaxation of procedural rules, or saving a particular case from the operation of technicalities when substantial justice requires it, should no longer be subject to cavil.[17] The circumstances surrounding the controversy between the parties, not to mention the various cases pending before the courts heretofore recited, justified the acceptance and due consideration, by the Court of Appeals, in the same CA-G.R. SP No. 20336, of PVHI's manifestation and motion. The appellate court, it should be stressed, still had full jurisdiction over the case. [18] Certainly, the appellate court was hardly in any position to disregard the decision in G.R. No. 83385. In Ang Ping vs. Regional Trial Court of Manila, Br. 40,[19] the Court, quoting from the ruling in Tugade vs. Court of Appeals,[20] said: "Respondent Court of Appeals really was devoid of any choice at all. It could not have ruled in any other way on the legal question raised. This Tribunal having spoken, its duty was to obey. It is as simple as that. There is relevance to this excerpt from Barrera vs. Barrera (L-31589, July 31, 1970, 34 SCRA 98). `The delicate task of ascertaining the significance that attaches to a constitutional or statutory provision, an executive order, a procedural norm or a municipal ordinance is committed to the judiciary. It thus discharges a role no less crucial than that appertaining to the other two departments in the maintenance of the rule of law. To assure stability in legal relations and avoid confusion, it has to speak with one voice. It does so with finality, logically and rightly, through the highest judicial organ, this Court. What it says then should be definitive and authoritative, binding on those occupying the lower ranks in the judicial hierarchy. They have to defer and to submit' (Ibid., 107. The opinion of Justice Laurel in People vs. Vera, 65 Phil. 56 [1937] was cited.) The ensuing paragraph of the opinion in Barrera further emphasizes the point: `Such a thought was reiterated in an opinion of Justice J.B.L. Reyes and further emphasized in these words: `Judge Gaudencio Cloribel need not be reminded that the Supreme Court, by tradition and in our system of judicial administration, has the last word on what the law is; it is the final arbiter of any justifiable controversy. There is only one Supreme Court from whose decisions all other courts should take their bearings.' (Justice J.B.L. Reyes spoke thus in Albert vs. Court of First Instance of Manila [Br. VI], L26364, May 29, 1968, 23 SCRA 948, 961.)"[21] Precisely, the decision in G.R. No. 83385 by this Court was aimed at putting the proceedings in good order which were messed up by the filing of several cases by the parties with various courts on initially not too complex a matter affecting the same property. As regards the issue of forum-shopping, the Court, in rejecting the move to have private respondent and the Panlilios held in contempt of court, recognized that in the Sandiganbayan case, the action of private respondent had been predicated, albeit erroneously, that sequestered assets in the custody of the Sandiganbayan were beyond the reach of petitioner whereas its action at the RTC Manila had been aimed at having the loan obligation itself declared extinguished by payment. Relevantly, the Court en banc in G.R. No. 83385 said: "Anent PVHI's motion to annul the foreclosure sale, filed in LRC Case No. 3079 (in which the GSIS asked for a writ of possession), the Court finds nothing objectionable in such a recourse. Under Section 8, of Art. No. 3135, the remedy of a party aggrieved by foreclosure is indeed, to have the sale set aside." [22]

Considering that the foreclosure was a fait accompli, private respondent's remedy was to nullify the sale in LRC No. 3079, where petitioner had sought an issuance of a writ of possession of the property. Private respondent's recourse conformed with Section 8 of Act No. 3135; viz: "SEC. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession canceled , specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of the appeal." (Emphasis supplied.) Private respondent, however, wrongly elevated the order of Judge Sayo dismissing the petition (to nullify the foreclosure sale) via a petition for certiorari instead of an ordinary appeal. Nevertheless, certiorari may in meritorious cases be allowed[23] particularly when the petition is filed while the period for appeal has not yet expired. Judge Sayo dismissed private respondent's petition to set aside the foreclosure sale on 14 March 1990, and private respondent filed CA-G.R. SP No. 20336 on 22 March 1990 well within the reglementary period for appeal. Most importantly, the dismissal was founded not on the merits of the petition to annul the foreclosure sale but on a jurisdictional issue. It was petitioner, in fact, which filed the ex-parte petition for a writ of possession in LRC Case No. 3079.[24] The court did not dismiss the ex-parte petition, sought by private respondent, but ordered the issuance of the writ of possession prayed for by petitioner. The denial of the motion for the reconsideration of that order left the private respondent with the remaining alternative of filing a petition to set aside the foreclosure sale in accordance with Section 8 of Act No. 3135. Under these circumstances, certiorari could be justified in order to prevent any possible irreparable damage to private respondent as against an ordinary appeal which may prove to be tedious and inadequate.[25] A reversal of the resolution of 14 June 1991 proposed by petitioner and the eventual dismissal of the petition in CA-G.R. SP No. 20336 would not necessarily end the "bickerings" between the parties. In fact, it may spawn yet another controversy. The value of the property at stake is such that private respondent may not be expected to just let go of any opportunity to resolve, once and for all, the legality of the foreclosure sale. The pendency in the Manila RTC of Civil Case No. 90-52272 wherein, according to the petitioner, private respondent takes a view opposite to that of the nullification of the foreclosure sale notwithstanding, a resolution of the petition to set aside the foreclosure sale in itself appears to be a separate key to the full and final settlement of the controversy between the parties. WHEREFORE, the instant petition for review on certiorari is DENIED. The Regional Trial Court of Pasay City shall resolve with dispatch the petition to have the foreclosure sale in LRC No. 3079 set aside. No costs. SO ORDERED.

G.R. Nos. 101189-90 May 27, 1993 PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. GILBERT SAN ANDRES y SAN JUAN, accused-appellant. The Solicitor General for plaintiff-appellee. Jorge N. Bernardo and Tanjuatco, Oreta, Tanjuatco, Berenguer & Corpus for accused-appellant.

REGALADO, J.:

In an information filed on November 2, 1989 with Regional Trial Court of Morong, Rizal, Branch 79, docketed as Criminal Case No. 0612-M, herein accused-appellant Gilbert San Andres was charged with a violation of Section 4, Article II, of Republic Act No. 6425, as amended, which he allegedly committed as follows: That on or about the 26th day of October, 1989, in the Municipality of Morong, Rizal, Philippines and within the jurisdiction of this Honorable Court the above-named accused, without having been authorized by law, did then and there, wilfully, unlawfully and feloniously sell, deliver and give away to another two (2) rolls of dried marijuana fruiting tops having a total weight of 3.45 grams wrapped with a pad paper with markings, which is a prohibited drug. On the same date 12.18 grams of dried marijuana fruiting tops placed in transparent plastic bag which (sic) were also found in the right pocket of the maong pants of accused Gilbert San Andres y San Juan. CONTRARY TO LAW. 1 During the arraignment, appellant pleaded not guilty to the offenses charged, hence trial on the merits ensued. Appellant's case was tried jointly in the same court with Criminal Case No. 0613-M, entitled "People of the Philippines vs. Ramil Aquino," for violation of Section 8, Article II, of Republic Act No. 6425, as amended. On February 5, 1991, the court a quo rendered judgment 2 finding appellant guilty beyond reasonable doubt of the offense charged and sentencing him to suffer life imprisonment and to pay a fine of P20,000.00, without subsidiary imprisonment in case of insolvency, and to pay the costs of suit. This portion of the trial court's joint decision is now the subject of our present appellate review. The second portion of the trial court's decision, finding accused Ramil Aquino guilty and sentencing him to imprisonment of six (6) years, to pay a fine of P6,000.00 but without subsidiary imprisonment in case of insolvency and to pay the costs of suit, was appealed to the Court of Appeals. The records show that in the afternoon of October 25, 1989, Master Sgt. Angelito Manalo of the Fourth Narcotics Regional Unit, Rizal District, of the PC Narcotics Command, received information at their office at Gate 2, Karangalan Village, Cainta, Rizal, that one alias "Embit", herein appellant Gilbert San Andres, was selling marijuana and illegal drugs to students and teenagers along Tupas Street, Morong, Rizal. 3 A chasing and surveillance operation was conducted in the morning of the following day, October 26, 1989, at Tupas Street, Morong, Rizal where the police informant was able to confirm that appellant is a drug pusher. 4 At around 3:00 P.M. of the same day, an arresting team was formed with Sgt. Alfredo Esguerra acting as the poseur-buyer. 5 The group then proceeded to Morong, Rizal and dropped off Sgt. Esguerra and the informant at Tupas Street. Sgt. Manalo and the others positioned themselves between the Morong Municipal Hall and the creek at the right side of the street. 6 At around 5:30 P.M., they saw Sgt. Esguerra and the informant talk to appellant in front of the bakery store, around 40 meters away from where Sgt. Manalo and his group were located. Then, Sgt. Manalo saw Sgt. Esguerra handing the P20.00 marked bill to appellant who took out two foils of marijuana from the front pocket of his pants and gave them to the poseur-buyer. Thereupon, Sgt. Esguerra gave the arrest signal and the arresting team, composed of Sgt. Manalo, Technical Sgt. Victorino Felix, C1C Rolando Visenio and C1C Manuel Mercader, apprehended herein appellant, together with Ramil Aquino and Gener Cruz who were arrested for possessing marijuana. 7 Sgt. Manalo personally searched appellant and found seven (7) foils of wrapped marijuana inside a transparent plastic bag and one marked P20.00 bill. 8 Appellant, together with his companions, were then brought to the police station where they were investigated. All the marijuana confiscated from appellant, consisting of two (2) rolls of dried marijuana fruiting tops and seven (7) rolls of dried marijuana, were submitted to the PC Crime Laboratory for examination. Forensic Chemist Leslie Chambers submitted Chemistry Report No. D-1179-89 9 which certifies that the specimens submitted for examination were positive for marijuana.

Appellant presented a different version. He testified that at around 4:00 P.M. of October 26, 1989, he was at the store of Gener Cruz, Ramil Aquino, Pepito Concepcion and Celso Trinidad. Two persons arrived, and he saw Pepito Concepcion and the two persons exchange something. 10 Thereafter, the two persons left, and Pepito Concepcion approached him and gave him P20.00 to buy liquor. However, he did not buy liquor and, instead, he and his companions went near the river bank which was around ten (10) steps away from the store, and watched the people fishing. 11 Later, an owner-type jeep and a passenger jeep loaded with people arrived. The persons inside the jeep alighted and suddenly handcuffed them and pointed guns at them. One group chased Pepito Concepcion, while another went down the riverbank and picked up something. Appellant, together with Gener Cruz and Ramil Aquino, were loaded inside the jeep where they were bodily searched. 12 The group found P40.00 in the possession of appellant. Subsequently, appellant and his companions were brought to the detachment office where they were detained and allegedly mauled. Appellant alleges that he saw Sgt. Manalo for the first time at the detachment office and contends that the latter was not part of the group which arrested him and his companions. 13 He denies that he sold marijuana on October 26, 1989 and insists that, when he was searched by the military, there was no marijuana found in his possession and all they found on him was the sum of P40.00. 14 He also claims that the municipal hall where the arresting team was allegedly positioned is 500 to 600 meters away from the store of Gener Cruz where appellant was arrested and, therefore, it was impossible for the members of the arresting team to have been seen and witnessed the alleged buy-bust operation conducted at said store of Gener Cruz.15 Before us, appellant submits that the court a quo gravely erred: 1. in appreciating and/or giving credence to the testimonies of the prosecution witnesses as against his testimony; 2. in not acquitting him, considering that the prosecution failed to present the best witness to prove its case, that is, the person who acted as poseur-buyer; 3. in not finding that the prosecution failed to overcome the presumption of innocence accorded to him under our laws; and 4. in concluding that since the prosecution witnesses had no misunderstanding with him, their testimonies should be relied upon. 16 Appellant asserts that the testimonies of the two prosecution witnesses, Sgt. Angelito Manalo and C1C Manuel Mercader, are full of falsities, inconsistencies and contradictions. He avers that prosecution witness Sgt. Manalo made inconsistent statements as to the exact date and time when the information was received and the surveillance was conducted and also, as to the distance between the store where the buy-bust operation was conducted and where said witness was positioned. Appellant contends that if it were true, as testified to by Sgt. Manalo, that the information was received by the latter in his office at Karangalan Village at 4:00 P.M. of October 26, 1989 and the buy-bust operation was conducted at 5:30 P.M. of the same day, it was physically impossible for the military to have conducted the surveillance, formed the arresting team and implemented the buy-bust operation all in two and a half (2 1/2) hours, considering that the distance between the Narcotics Command Office at Karangalan Village and Morong, Rizal is approximately 30 to 40 meters which will require at least one (1) to one and a half (1 1/2) hours for the car to negotiate. Appellant further points out that on direct examination, Sgt. Manalo testified that he received the information at 4:00 P.M. on October 26, 1989 and that the surveillance was conducted after 4:00 P.M. of said date, but said witness stated on cross-examination that he received the information on October 25, 1989 and conducted the surveillance on the morning of October 26, 1989. It is likewise contended that on direct examination, Sgt.

Manalo declared that he was 20 meters away from the store, but he testified on cross-examination that he was 40 meters away. Finally, appellant maintains that it was impossible for Sgt. Manalo to have witnessed the buy-bust operation because the distance between the municipal hall where the latter was allegedly positioned and the store where the buy-bust operation was conducted is 500 to 600 meters, aside form the fact that Tupas Street is a winding road with houses and trees on both sides thereof. We hold that these alleged inconsistencies as to time and distance are too insignificant to merit any serious consideration. In his cross-examination, Sgt. Manalo clarified that he was informed about the illegal activities of appellant in the afternoon of October 25, 1989 and that the surveillance and buy-bust operation were conducted the following day, that is, on October 26, 1989. 17 Furthermore, also during his cross-examination, he testified that he positioned himself between the municipal hall and the creek, not in the municipal hall as erroneously claimed by appellant, and that the street was effected near the creek.18 That said witness was able to clearly see the buy-bust operation is further bolstered by the testimony of appellant himself to the effect that the store of Gener Cruz is only about ten steps away from the "river bank." 19 This fact only serves to reinforce the testimony of the prosecution witness that appellant was apprehended near the creek. 20 At any rate, assuming arguendo that there may be such inconsistencies, we definitely cannot construe the same to mean that the prosecution witness was not present at all during the commission of the crime. As long as they do not detract from the substantial truthfulness and credibility of the prosecution evidence, inconsistencies and contradictions in testimonies may not be considered material, 21 and the court is justified in disregarding such testimonial shortcomings. The rule is well-settled that discrepancies on minor matters do not impair the essential integrity of the prosecution evidence as a whole or reflect on witnesses' honesty. The inconsistencies may be caused by the natural fickleness of memory, which even tend to strengthen rather than weaken the credibility of the prosecution witnesses because they erase any suspicion of rehearsed testimony having been given. What is important is that the testimonies agree on the essential facts and that the respective versions corroborate and substantially coincide with each other to make a consistent and coherent whole. 22 The irrefutable fact is that appellant was caught in flagrante delicto as a result of the buy-bust operation. The inconsistencies asserted by appellant are too trivial to affect the credibility of the prosecution witnesses who are all law enforcers presumed to have regularly performed their duties in the absence of convincing proof to the contrary. 23 Furthermore, appellant failed to convincingly show show any ill motive on the part of the prosecution witnesses to testify falsely and impute to him such a grave offense. Contrary to appellant's theory, the lack of such dubious motives is of considerable evidentiary weight in assessing the credibility of witnesses. In addition, the alleged inconsistencies cannot prevail over the definitive evidence of the prosecution. It has been clearly established that appellant did not sell marijuana and that the marked money, as well as seven (7) other foils of marijuana, were recovered from his person. Appellant miserably failed to come up with a credible explanation as to how the P20.00 marked bill came into his possession. What further aggravated and bolstered the proof of his culpability is the fact that the military recovered seven (7) more foils of marijuana from him. And, again, this is likewise failed to controvert or explain. When confronted with marijuana confiscated from him during the search, appellant merely asseverated that he saw them for the first time only when he was investigated at the detachment. Definitely, the foregoing defensive counterpoise proffered by appellant, which consists purely of bare denials, cannot overcome the clear, logical and forthright testimonies of the prosecution witnesses. Lastly, appellant submits that the non-presentation of the poseur-buyer as a witness is fatal to the case of the prosecution. We hold otherwise.

The testimony of the poseur-buyer, if it had been given, would at best be corroborative because Sgt. Manalo and C1C Mercader sufficiently established, as eyewitnesses, how the crime was committed. It would have been different if the police officers were unable to see the actual sale of the marijuana. In this latter situation, an exception arises and the poseur-buyer should be presented as a witness. 24 However, in the case at bar, the relevant information acquired by said poseur-buyer was equally known to the police officers who gave evidence for the prosecution at trial. They all took part in the planning and implementation of the operation, and all of them were direct witnesses to the actual sale of the marijuana, the appellant's arrest immediately thereafter, and the recovery from him of the marked money and the other marijuana foils. The testimony of the poseur-buyer was, therefore, not indispensable or even necessary; it would have been merely cumulative or corroborative at best. 25 ACCORDINGLY, the challenged judgment of the trial court is hereby AFFIRMED in toto. SO ORDERED.

G.R. No. L-9188 December 4, 1914 GUTIERREZ HERMANOS, plaintiff-appellee, vs. ENGRACIO ORENSE, defendant-appellant. William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant. Rafael de la Sierra for appellee.

TORRES, J.: Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property in question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the property described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit. On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of First Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907, the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon, situated in the pueblo of Guinobatan, Albay, the location, area and boundaries of which were specified in the complaint; that the said property has up to date been recorded in the new property registry in the name of the said Orense, according to certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a public instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the right to repurchase it for the same price within a period of four years from the date of the said instrument; that the plaintiff company had not entered into possession of the purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14, 1911; that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant Orense refused to do so, without any justifiable cause or reason, wherefore he should be compelled to execute the said deed by an express order of the court, for Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he received, nor pay any sum whatever for the losses and damages occasioned by the said sale, aside from the fact that the plaintiff had suffered damage by losing the present value of the property, which was worth P3,000; that, unless such deed of final conveyance were

executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the vendor, Duran, in connivance with the defendant; that the latter had been occupying the said property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said property. Therefore it was prayed that judgment be rendered by holding that the land and improvements in question belong legitimately and exclusively to the plaintiff, and ordering the defendant to execute in the plaintiff's behalf the said instrument of transfer and conveyance of the property and of all the right, interest, title and share which the defendant has therein; that the defendant be sentenced to pay P30 per month for damages and rental of the property from February 14, 1911, and that, in case these remedies were not granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages, together with interest thereon since the date of the institution of this suit, and to pay the costs and other legal expenses. The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant, whose counsel made a general denial of the allegations contained in the complaint, excepting those that were admitted, and specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran executed the deed of sale of the property in favor of the plaintiff with the defendant's knowledge and consent.1awphil.net As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with respect to the execution of the deed did not constitute a cause of action, nor did those alleged in the other form of action for the collection of P3,000, the value of the realty. As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in the complaint, as his ownership was recorded in the property registry, and that, since his title had been registered under the proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and the pretended rights alleged to have been acquired by Jose Duran prior to such registration could not now prevail; that the defendant had not executed any written power of attorney nor given any verbal authority to Jose Duran in order that the latter might, in his name and representation, sell the said property to the plaintiff company; that the defendant's knowledge of the said sale was acquired long after the execution of the contract of sale between Duran and Gutierrez Hermanos, and that prior thereto the defendant did not intentionally and deliberately perform any act such as might have induced the plaintiff to believe that Duran was empowered and authorized by the defendant and which would warrant him in acting to his own detriment, under the influence of that belief. Counsel therefore prayed that the defendant be absolved from the complaint and that the plaintiff be sentenced to pay the costs and to hold his peace forever. After the hearing of the case and an examination of the evidence introduced by both parties, the court rendered the judgment aforementioned, to which counsel for the defendant excepted and moved for a new trial. This motion was denied, an exception was taken by the defendant and, upon presentation of the proper bill of exceptions, the same was approved, certified and forwarded to the clerk of his court. This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the property, Engracio Orense, for the sum of P1,500 by means of a notarial instrument executed and ratified on February 14, 1907. After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its use and occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was based on the allegations that he had been and was then the owner of the said property, which was registered in his name in the property registry; that he had not executed any written power of attorney to Jose Duran, nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to the execution of the deed of sale, the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the said sale.

The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with estafa, for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements, whereas in reality they did not belong to him, but to the defendant Orense. However, at the trial of the case Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he and consented to Duran's selling the said property under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this statement by the defendant, the court acquitted Jose Duran of the charge of estafa. As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the owner of the property, to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other remedies, that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right, title and interest with Orense had in the property sold, and to pay to the same the rental of the property due from February 14, 1911.itc-alf Notwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in order that his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did thereafter confirm and ratify the sale by means of a public instrument executed before a notary. It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.) Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the defendant, the owner of the property, approved the action of his nephew, who in this case acted as the manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to make the said sale. (Civil Code, arts. 1888 and 1892.) Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or without his legal representation according to law. A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party. The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to article 1313 of the Civil Code, remedies all defects which the contract may have contained from the moment of its execution. The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code, the right of action for nullification that could have been brought became legally extinguished from the moment the contract was validly confirmed and ratified, and, in the present case, it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution. On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it would not be just that the said testimony, expressive of his consent to the sale of his property, which determined the acquittal of his nephew, Jose Duran, who then acted as his business manager, and which testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran, should not now serve in passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove

his consent to the sale of his property, for, had it not been for the consent admitted by the defendant Orense, the plaintiff would have been the victim of estafa. If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for the said property. The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure, because the authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant made no objection. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.) The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed that he had given his consent to the sale of his property, meet the requirements of the law and legally excuse the lack of written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran, they produce the effects of an express power of agency. The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned thereto have been duly refuted by the foregoing considerations, so it should be affirmed. The judgment appealed from is hereby affirmed, with the costs against the appellant.

G.R. No. 61594 September 28, 1990 PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner, vs HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG, respondents. Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner. Ledesma, Saludo & Associates for private respondents.

FELICIANO, J.: On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation licensed to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one with private respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The contracts, which became effective on 9 January 1979, provided in pertinent portion as follows: 5. DURATION OF EMPLOYMENT AND PENALTY This agreement is for a period of three (3) years, but can be extended by the mutual consent of the parties.

xxx xxx xxx 6. TERMINATION xxx xxx xxx Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at any time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary. xxx xxx xxx 10. APPLICABLE LAW: This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement. Respondents then commenced training in Pakistan. After their training period, they began discharging their job functions as flight attendants, with base station in Manila and flying assignments to different parts of the Middle East and Europe. On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising both that their services as flight stewardesses would be terminated "effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they had) executed with [PIA]." 2 On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers and evidence supporting their respective positions. The PIA submitted its position paper, 3 but no evidence, and there claimed that both private respondents were habitual absentees; that both were in the habit of bringing in from abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had been discreetly warned by customs officials to advise private respondents to discontinue that practice. PIA further claimed that the services of both private respondents were terminated pursuant to the provisions of the employment contract. In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of private respondents with full backwages or, in the alternative, the payment to them of the amounts equivalent to their salaries for the remainder of the fixed three-year period of their employment contracts; the payment to private respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-USA Manila; and payment of a bonus to each of the private respondents equivalent to their one-month salary. 4 The Order stated that private respondents had attained the status of regular employees after they had rendered more than a year of continued service; that the stipulation limiting the period of the employment contract to three (3) years was null and void as violative of the provisions of the Labor Code and its implementing rules and regulations on regular and casual employment; and that the dismissal, having been carried out without the requisite clearance from the MOLE, was illegal and entitled private respondents to reinstatement with full backwages. On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the latter's award save for the portion

thereof giving PIA the option, in lieu of reinstatement, "to pay each of the complainants [private respondents] their salaries corresponding to the unexpired portion of the contract[s] [of employment] . . .". 5 In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the Order of the Deputy Minister as having been rendered without jurisdiction; for having been rendered without support in the evidence of record since, allegedly, no hearing was conducted by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard and in violation of petitioner's rights under the employment contracts with private respondents. 1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction over the same being lodged in the Arbitration Branch of the National Labor Relations Commission ("NLRC") It appears to us beyond dispute, however, that both at the time the complaint was initiated in September 1980 and at the time the Orders assailed were rendered on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases. Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of employees with at least one (1) year of service without prior clearance from the Department of Labor and Employment: Art. 278. Miscellaneous Provisions . . . (b) With or without a collective agreement, no employer may shut down his establishment or dismiss or terminate the employment of employees with at least one year of service during the last two (2) years, whether such service is continuous or broken, without prior written authority issued in accordance with such rules and regulations as the Secretary may promulgate . . . (emphasis supplied) Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear that in case of a termination without the necessary clearance, the Regional Director was authorized to order the reinstatement of the employee concerned and the payment of backwages; necessarily, therefore, the Regional Director must have been given jurisdiction over such termination cases: Sec. 2. Shutdown or dismissal without clearance. Any shutdown or dismissal without prior clearance shall be conclusively presumed to be termination of employment without a just cause. The Regional Director shall, in such case order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismissal until the time of reinstatement. (emphasis supplied) Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly very explicit about the jurisdiction of the Regional Director over termination of employment cases: Under PD 850, termination cases with or without CBA are now placed under the original jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the first time, are also placed under the Regional Director. Before PD 850, termination cases where there was a CBA were under the jurisdiction of the grievance machinery and voluntary arbitration, while termination cases where there was no CBA were under the jurisdiction of the Conciliation Section. In more details, the major innovations introduced by PD 850 and its implementing rules and regulations with respect to termination and preventive suspension cases are: 1. The Regional Director is now required to rule on every application for clearance, whether there is opposition or not, within ten days from receipt thereof. xxx xxx xxx

(Emphasis supplied) 2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order was null and void because it had been issued in violation of petitioner's right to procedural due process . 6 This claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and Employment. 7 There is another reason why petitioner's claim of denial of due process must be rejected. At the time the complaint was filed by private respondents on 21 September 1980 and at the time the Regional Director issued his questioned order on 22 January 1981, applicable regulation, as noted above, specified that a "dismissal without prior clearance shall be conclusively presumed to be termination of employment without a cause", and the Regional Director was required in such case to" order the immediate reinstatement of the employee and the payment of his wages from the time of the shutdown or dismiss until . . . reinstatement." In other words, under the then applicable rule, the Regional Director did not even have to require submission of position papers by the parties in view of the conclusive (juris et de jure) character of the presumption created by such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and Employment, 8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules and Regulations, the termination of [an employee] which was without previous clearance from the Ministry of Labor is conclusively presumed to be without [just] cause . . . [a presumption which] cannot be overturned by any contrary proof however strong." 3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of its contract rather than by the general provisions of the Labor Code. 9 Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by agreement between the parties; while paragraph 6 provided that, notwithstanding any other provision in the Contract, PIA had the right to terminate the employment agreement at any time by giving one-month's notice to the employee or, in lieu of such notice, one-months salary. A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between the parties. 10 The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they may deem convenient, "provided they are not contrary to law, morals, good customs, public order or public policy." Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed written into the contract. 11 Put a little differently, the governing principle is that parties may not contract away applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationships from the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations. As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they existed at the time the contract of employment was entered into, and hence refused to give effect to said paragraph 5. These Articles read as follows: Art. 280. Security of Tenure. In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and to his backwages computed from the time his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer, except where the employment has been fixed for a specific project or undertaking the completion or termination of which has been determined at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season. An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided, that,any employee who has rendered at least one year of service, whether such service is continuous or broken, shall be considered as regular employee with respect to the activity in which he is employed and his employment shall continue while such actually exists. (Emphasis supplied) In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to examine in detail the question of whether employment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed period was not necessarily unlawful: There can of course be no quarrel with the proposition that where from the circumstances it is apparent that periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the reason for the law does not exist e.g. where it is indeed the employee himself who insists upon a period or where the nature of the engagement is such that, without being seasonal or for a specific project, a definite date of termination is a sine qua non would an agreement fixing a period be essentially evil or illicit, therefore anathema Would such an agreement come within the scope of Article 280 which admittedly was enacted "to prevent the circumvention of the right of the employee to be secured in . . . (his) employment?" As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot the principle of freedom of contract to remedy the evil of employers" using it as a means to prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by lopping off the head. xxx xxx xxx Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out all written or oral agreements conflicting with the concept of regular employment as defined therein should be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely to circumvent security of tenure. It should have no application to instances where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance whatever

being exercised by the former over the latter. Unless thus limited in its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences. (emphasis supplied) It is apparent from Brent School that the critical consideration is the presence or absence of a substantial indication that the period specified in an employment agreement was designed to circumvent the security of tenure of regular employees which is provided for in Articles 280 and 281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement other than the mere specification of a fixed term of the ernployment agreement, or upon evidence aliunde of the intent to evade. Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and private respondents, we consider that those provisions must be read together and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years, 13 and thus to escape completely the thrust of Articles 280 and 281 of the Labor Code. Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute arising out of or in connection with the agreement "only [in] courts of Karachi Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and private respondents. We have already pointed out that the relationship is much affected with public interest and that the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement of dispute; between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship between the parties, upon the other: the contract was not only executed in the Philippines, it was also performed here, at least partially; private respondents are Philippine citizens and respondents, while petitioner, although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances, paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.14 We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act without or in excess of jurisdiction in ordering their reinstatement with backwages. Private respondents are entitled to three (3) years backwages without qualification or deduction. Should their reinstatement to their former or other substantially equivalent positions not be feasible in view of the length of time which has gone by since their services were unlawfully terminated, petitioner should be required to pay separation pay to private respondents amounting to one (1) month's salary for every year of service rendered by them, including the three (3) years service putatively rendered.

ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private respondents are entitled to three (3) years backwages, without deduction or qualification; and (2) should reinstatement of private respondents to their former positions or to substantially equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salary for every year of service actually rendered by them and for the three (3) years putative service by private respondents. The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner. SO ORDERED. G.R. No. L-15127 May 30, 1961

EMETERIO CUI, plaintiff-appellant, vs. ARELLANO UNIVERSITY, defendant-appellee. G.A.S. Sipin, Jr., for plaintiff-appellant. E. Voltaire Garcia for defendant-appellee. CONCEPCION, J.: Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's counter claim, for insufficiency of proof thereon. In the language of the decision appealed from: The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having severed his connection with defendant and having accepted the deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he was studying law in defendant university was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant in this case. Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the following contract covenant and agreement:

"In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash. (Sgd.) Emeterio Cui". It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of 1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities," reading: 1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial scholarships to deserving students for excellence in scholarship or for leadership in extracurricular activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition that such scholarships are good only if the students concerned continue in the same school nullifies the principle of merit in the award of these scholarships. 2. When students are given full or partial scholarships, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution. Scholarships should not be offered merely to attract and keep students in a school. 3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to the effect that they could not transfer to other schools since their credentials would not be released unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such transfer. that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools to pass upon the issue on his right to secure the transcript of his record in defendant University, without being required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript of records, unless said refund were made, and even recommended to said Bureau that it issue a written order directing the defendant to release said transcript of record, "so that the case may be presented to the court for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages, P2,000 as attorney's fees, and P500 as expenses of litigation. In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees. The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had been neither approved by the corresponding department head nor published in the official gazette. We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the

issue before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant, There is one more point that merits refutation and that is whether or not the contract entered into between Cui and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might take more than a government bureau or office to lay down or establish a public policy, as alleged in your communication, but courts consider the practices of government officials as one of the four factors in determining a public policy of the state. It has been consistently held in America that under the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as against public policy, a court must find that the contract as to consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution. Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered.

G.R. No. L-30205 March 15, 1982 UNITED GENERAL INDUSTRIES, INC., plaintiff-appellee, vs. JOSE PALER and JOSE DE LA RAMA, defendants-appellants

ABAD SANTOS, J.: This is an appeal from a decision of the Court of First Instance of Manila, Branch IX, in Civil Case No. 60418, United General Industries, Inc. vs. Jose Paler and Jose de la Rama. Since the appeal death with a question of law only, We reproduce the decision which reads as follows: When this case was called for pre-trial today, neither the defendants, nor their counsel appeared, notwithstanding the fact that said defendants were notified of the pre-trial. Upon motion of the plaintiff, said defendants were declared in default. Likewise, upon motion of counsel for the plaintiff, this case was submitted for judgment on the pleadings. Plaintiff's complaint alleges that on January 20, 1962, the defendant, Jose Paler and his wife Purificacion Paler, purchased from the plaintiff (1) Zenith 23" TV set with serial No. 3493594 on installment basis; that to secure the payment of the purchase price, the defendant, Jose Paler and his wife executed in favor of the plaintiff a promissory note in the amount of P2,690.00; that, to consider the guarantee the payment of the aforementioned promissory on defendant Jose Paler and his wife constituted a chattel mortgage over the above- described television set in favor of the plaintiff which mortgage was duly registered in the chattel mortgage registry; that by virtue of the violation by defendant Jose Paler and his wife of the terms and conditions of the chattel mortgage, the plaintiff filed a criminal action against the above-named persons for estafa under Art. 319 of the Revised Penal Code with the City Fiscal's Office of Pasay City; that to settle extra-judicially the criminal case aforementioned against the defendant, Jose Paler and his wife, the said defendant Jose Paler and his co-defendant, Jose de la Rama, executed in favor of plaintiff a promissory note dated April 11, 1964 in the amount of P3,083.58 (exhibit A); and that; notwithstanding repeated demands, said defendants have failed to pay plaintiff the sum of P3,083.58 with 1% interest per month from April 11, 1964 until full payment is made, pursuant to the terms of the promissory note marked Exhibit A. In their answer, the defendants admit the fact that they executed a promissory note dated April 11, 1964 in favor of plaintiff in the amount of P3,083.58, with 12% interest per annum. They further admit the fact that said obligation has not been paid the plaintiff notwithstanding repeated demands made. Considering the admissions of the defendants in their answer, judgment on the pleadings, as prayed for may, therefore, be rendered. WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, sentencing said defendants to pay to the plaintiff the sum of P3,083.58, with 12% interest thereon per annum from the date the complaint was filed on October 14, 1965 until full payment is made and attorney's fees in the sum of P250.00. With costs against the defendants. (Record on Appeal, pp. 20-22.) The appellants, Paler and de la Rama, claim in their appeal that the complaint should have been dismissed because "the obligation sought to be enforced by plaintiff-appellee against defendants-appellants arose or was incurred in consideration for the compounding of a crime." Obviously, the appellants are referring to the portion of the decision which states: " ... the plaintiff filed a criminal action against the above-named persons (Jose Paler and his wife) for estafa under Art. 319 of the Revised Penal Code with the City Fiscal's Office of Pasay City; that to settle extra-judicially the criminal case aforementioned against the defendant, Jose Paler and his wife, the said defendant Jose Paler and his co-defendant, Jose de la Rama, executed in favor of plaintiff a promissory note dated April 11, 1964 in the amount of P3,083.58 (Exhibit A)."

There is some merit in this contention. In Arroyo vs. Berwin, 36 Phil. 386 (1917), it was held that an agreement to stifle the prosecution of a crime is manifestly contrary to public policy and due administration of justice and will not be enforced in a court of law. See also Monterey vs. Gomez, et al., 104 Phil. 1059 (1958). Under the law and jurisprudence, there can be no recovery against Jose de la Rama who incidentally appears to have been an accommodation signer only of the promissory note which is vitiated by the illegality of the cause. But it is different with Jose Paler who bought a television set from the appellee, did not pay for it and even sold the set without the written consent of the mortgagee which accordingly brought about the filing of the estafa case. He has an obligation to the appellee independently of the promissory note which was co-signed by Jose de la Rama. For Paler to escape payment of a just obligation will result in an untrust enrichment at the expense of another. This we cannot in conscience allow. Article 19 of the Civil Code mandates "Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." And Article 2208 of the same Code states that attorney's fees and expenses of litigation, other than judicial costs, can be recovered "Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim." (Par. 5.) Here Paler wilfully refused to pay a debt which he clearly ought to have paid. He has even imposed a burden on this Court by filing an unnecessary and frivolous appeal. The award of P250.00 in favor of the appellee who had to file a printed brief is manifestly inadequate. WHEREFORE, the judgment of the court a quo is modified to excluding Jose de la Rama therefrom and increasing the award for attorney's fees to P1,000.00; it is affirmed in all other respects. Triple costs. SO ORDERED.

G.R. No. L-10551 IGNACIO ARROYO, plaintiff-appellant, vs. ALFRED BERWIN, defendant-appellee. J. M. Arroyo for appellant. No appearance for appellee. CARSON, J.: The complaint filed in this action is as follows: 1. That both the plaintiff and the defendant are residents of the municipality of Iloilo, Province of Iloilo, Philippine Islands. 2. That the defendant is a procurador judicial in the law office of the Attorney John Bordman, and is duly authorized by the court to practice in justice of the peaces courts of the Province of Iloilo. 3. That the defendant, as such procurador judicial, represented Marcela Juanesa in the justice of the peace court of Iloilo in proceeding for theft prosecuted by the plaintiff Ignacio Arroyo; that said cause was decided by the said justice of the peace against the accused, and the latter appealed to the Court of First Instance of Iloilo. 4. That on August 14, 1914, which was the day set for the hearing of the appeal of the said cause against Marcela Juaneza for theft, Case No. 3120, the defendant requested the plaintiff to agree to dismiss the said criminal proceeding, and, on August 14, 1914, stipulated with the plaintiff in the presence of Roque Samson, among other things, that his client Marcela Juaneza

would recognize the plaintiffs ownership in the land situated on Calle San Juan, suburb of Molo, municipality of Iloilo, Province of Iloilo, where his said client ordered the cane cut, which land and which cut cane are referred to in the cause for theft above-mentioned; and the defendant furthermore agreed that the plaintiff should obtain a Torrens title to the said land during the next term of the court for the trial of cadastral cases, and that the defendants client, Marcela Juaneza, would not oppose the application for registration to be filed by the said applicant; provided that the plaintiff would ask the prosecuting attorney to dismiss the said proceedings filed against Marcela Juaneza and Alejandro Castro for the crime of theft. 5. That the plaintiff on his part complied with the agreement, and requested the prosecuting attorney to dismiss the above-mentioned criminal cause; that the latter petitioned the court and the court did dismiss the said cause; that in exchange the defendant does not wish to comply with the above-mentioned agreement; that the plaintiff delivered to the defendant for the signature of the said Marcela Juaneza a written agreement stating that the defendants said client recognized the plaintiffs ownership in the described land and that she would not oppose the plaintiffs application for registration; and that up to the present time, the defendant has not returned to the plaintiff the said written agreement, notwithstanding the plaintiffs many demands. Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply with the agreement by causing the latters said client Marcela Juaneza to sign the document in which she recognizes the plaintiffs ownership of the land on which she ordered the cane cut and states that she will not oppose the plaintiffs application for the registration of the said land, and, further, by awarding to the plaintiff the costs of the present suit, as well as any other relief that justice and equity require. The trial judge dismissed this complaint on the ground of the illegality of the consideration of the alleged contract, and without stopping to consider any other objection to the complaint than that indicated by the court below, we are of opinion that the order appealed from must be affirmed. An agreement by the owner of stolen goods to stifle the prosecution of the person charged with the theft, for a pecuniary or other valuable consideration, is manifestly contrary to public policy and the due administration of justice. In the interest of the public it is of the utmost importance that criminals should be prosecuted, and that all criminal proceedings should be instituted and maintained in the form and manner prescribed by law; and to permit an offender to escape the penalties prescribed by law by the purchase of immunity from private individuals would result in a manifest perversion of justice. Article 1255 of the Civil Code provides that: The contracting parties may make the agreement and establish the clauses and conditions which they may dream advisable, provided they are not in contravention of law, morals, or public order. Article 1275 provides that: Contracts without consideration or with an illicit one have no effect whatsoever. A consideration is illicit when it is contrary to law and good morals.

The order entered in the court below should, therefore, be affirmed, with the costs of the instance against the appellant. So ordered.

G.R. No. L-19638

June 20, 1966

FILIPINAS COMPAIA DE SEGUROS, ET AL., petitioners and appellees, vs. HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent and appellant. AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors and appellees. Jalandoni and Jamir for petitioner and appellees. Office of the Solicitor General Arturo A. Alafriz, 1st Assistant Solicitor General Esmeraldo Umali and Solicitor Comrade T. Limcaoco for intervenors and appellees. CONCEPCION, C.J.: This is a special civil action for a declaratory relief Thirty-nine (39) non-life insurance companies instituted it, in the Court of First Instance of Manila, to secure a declaration of legality of Article 22 of the Constitution of the Philippine Rating Bureau, of which they are members, inasmuch as respondent Insurance Commissioner assails its validity upon the ground that it constitutes an illegal or undue restraint of trade. Subsequently to the filing of the petition, twenty (20) other non-life insurance companies, likewise, members of said Bureau, were allowed to intervene in support of the petition. After appropriate proceedings, said court rendered judgment declaring that the aforementioned Article 22 is neither contrary to law nor against public policy, and that, accordingly, petitioners herein, as well as the intervenors and other members of the aforementioned Bureau, may lawfully observe and enforce said Article, and are bound to comply with the provisions thereof, without special pronouncement as to costs. Hence this appeal by respondent Insurance Commissioner, who insists that the Article in question constitutes an illegal or undue restraint of trade and, hence, null and void. The record discloses that on March 11, 1960, respondent wrote to said Bureau, a communication expressing his doubts of the validity of said Article 22, reading: xxx xxx xxx

In respect to the classes of insurance specified in the Objects of the Bureau1 and for Philippine business only, the members of this Bureau agree not to represent nor to effect reinsurance with, nor to accept reinsurance from, any Company, Body, or Underwriter licensed to do business in the Philippines not a Member in good standing of this Bureau. and requesting that said provision, be, accordingly, repealed. On April 11, 1960, respondent wrote another letter to the Bureau inquiring on the action taken on the subject-matter of his previous communication. In reply thereto, the Bureau advised respondent that the suggestion to delete said Article 22 was still under consideration by a committee of said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised by respondent that, being an illegal agreement or combination in restraint of trade, said Article should not be given force and effect; that failure to comply with this requirement would compel respondent to suspend the license issued to the Bureau; and that the latter should circularize all of its members on this matter and advise them that "violation of this requirement by any member of the Bureau" would also compel respondent "to suspend the certificate of authority of the company concerned to do business in the Philippines". Thereupon, or on May 16, 1961, the present action was commenced. Briefly, appellant maintains that, since, in the aforementioned Article 22, members of the Bureau "agree not to represent nor to effect reinsurance with, nor to accept reinsurance from any company, body, or underwriter, licensed to do business in the Philippines not a member in good standing of the Bureau", said provision is

illegal as a combination in restraint of trade. As early as August 10, 1916, this Court had had occasion to declare that the test on whether a given agreement constitutes an unlawful machination or a combination in restraint of trade ... is, whether, under the particular circumstances of the case and the nature of the particular contract involved in it, the contract is, or is not, unreasonable. (Ferrazini vs. Gsell, 34 Phil. 697, 712-13.) This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585) and Red Line Transportation Co. vs. Bachrach Motor Co. (67 Phil. 77), in the following language: ...The general tendency, we believe, of modern authority, is to make the test whether the restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to protect the interest of the parties, it will be upheld. xxx xxx xxx

...we adopt the modern rule that the validity of restraints upon trade or employment is to be determined by theintrinsic reasonableness of the restriction in each case, rather than by any fixed rule, and that such restrictions may be upheld when not contrary to the public welfare and not greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is imposed. (Ollendorf vs. Abrahamson, 38 Phil. 585.) ...The test of validity is whether under the particular circumstances of the case and considering the nature of the particular contract involved, public interest and welfare are not involved and the restraint is not only reasonably necessary for the protection of the contracting parties but will not affect the public interest or service. (Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil. 77.) (See also, Del Castillo vs. Richmond, 45 Phil. 483.) The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed provision. The only evidence on this point is the uncontradicted testimony of Salvador Estrada, Chairman of the Bureau when it was first organized and when he took the witness stand. Briefly stated, he declared that the purpose of Article 22 is to maintain a high degree or standard of ethical practice, so that insurance companies may earn and maintain the respect of the public, because the intense competition between the great number of non-life insurance companies operating in the Philippines is conducive to unethical practices, oftentimes taking the form of underrating; that to achieve this purpose it is highly desirable to have cooperative action between said companies in the compilation of their total experience in the business, so that the Bureau could determine more accurately the proper rate of premium to be charged from the insured; that, several years ago, the very Insurance Commissioner had indicated to the Bureau the necessity of doing something to combat underrating, for, otherwise, he would urge the amendment of the law so that appropriate measures could be taken therefor by his office; that much of the work of the Bureau has to do with rate-making and policy-wording; that ratemaking is actually dependent very much on statistics; that, unlike life insurance companies, which have tables of mortality to guide them in the fixing of rates, non-life insurance companies have, as yet, no such guides; that, accordingly, non-life insurance companies need an adequate record of losses and premium collections that will enable them to determine the amount of risk involved in each type of risk and, hence, to determine the rates or premiums that should be charged in insuring every type of risk; that this information cannot be compiled without full cooperation on the part of the companies concerned, which cannot be expected from nonmembers of the Bureau, over which the latter has no control; and that, in addition to submitting information about their respective experience, said Bureau members must, likewise, share in the rather appreciable expenses entailed in compiling the aforementioned data and in analyzing the same.1wph1.t We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy either in the objectives thus sought to be attained by the Bureau, or in the means availed of to achieve said objectives, or in the consequences of the accomplishment thereof. The purpose of said Article 22 is not to eliminate competition, but to promote ethical practicesamong non-life insurance companies, although, incidentally it may discourage, and hence, eliminate unfair competition, through underrating, which in itself is eventually injurious to the public. Indeed, in the words of Mr. Justice Brandeis:

... the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and promotes competition, or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint, and its effect, actual or probable. (Board of Trade of Chicago vs. U.S., 246 U.S. 231, 62 L. ed. 683 [1918].) Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme Court added: The restrictions imposed by the Sherman Act are not mechanical or artificial. We have repeatedly said that they set up the essential standard of reasonableness. Standard Oil Co. vs. United States, 221 U.S. 1, 55 L. ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States vs. American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They are aimed at contracts and combinations which "by reason of intent or the inherent nature of the contemplated acts, prejudice the public interests by unduly restraining competition or undulyobstructing the course of trade." Nash vs. United States, 229 U.S. 373, 376, 57 L. ed. 1232, 1235, 33 S. Ct. 780;United States vs. American Linseed Oil Co., 262 U.S. 371, 388, 389, 67 L. ed. 1035, 1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they do not prevent the adoption of reasonable means to protect interstate commerce from destructive or injurious practices and to promote competition upon a sound basis. Voluntary action to end abuses and to foster fair competitive opportunities in the public interest may be more effective than legal processes. And cooperative endeavor may appropriately have wider objectives than merely the removal of evils which are infractions of positive law. Hence, the City Fiscal of Manila refused to prosecute criminally in Manila Fire Insurance Association for following a policy analogous to that incorporated in the provision disputed in this case and the action of said official was sustained by the Secretary of Justice, upon the ground that: ... combinations among insurance companies or their agents to fix and control rates of insurance do not constitute indictable conspiracies, provided no unlawful means are used in accomplishing their purpose (41 C.J. 161; Aetna Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 SW 624; Queen Ins. Co. vs. State, 86 Tex. 250, 24 SW 397; I Joyce on Insurance, par. 329-a). Indeed, Mr. Estrada's testimony shows that the limitation upon reinsurance contained in the aforementioned Article 22 does not affect the public at all, for, whether there is reinsurance or not, the liability of the insurer in favor of the insured is the same. Besides, there are sufficient foreign reinsurance companies operating in the Philippines from which non-members of the Bureau may secure reinsurance. What is more, whatever the Bureau may do in the matter of rate-fixing is not decisive insofar as the public is concerned, for no insurance company in the Philippines may charge a rate of premium that has not been approved by the Insurance Commissioner. In fact, respondent's Circular No. 54, dated February 261 1954, provides: II. Non-life Insurance company or Group Association of such companies. Every non-life insurance company or group or association of such companies doing business in the Philippinesshall file with the Insurance Commissioner for approval general basic schedules showing the premium rates on all classes of risk except marine, as distinguished from inland marine insurable by such insurance company or association of insurance companies in this country. xxx xxx xxx

An insurance company or group of such companies may satisfy its obligation to make such filings by becoming a member of or subscriber to a rating organization which makes such filing and by

authorizing the insurance commissioner to accept such filings of the rating organization on such company's or group's behalf. III. Requiring Previous Application to and Approval by the Insurance Commissioner before any Change in the Rates Schedules filed with Him Shall Take Effect. No change in the schedules filed in compliance with the requirements of the next preceding paragraph shall be made except upon application duly filed with and approved by the Insurance Commissioner. Said application shall state the changes proposed and the date of their effectivity; all changes finally approved by the Insurance Commissioner shall be incorporated in the old schedules or otherwise indicated as new in the new schedules. IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates. The Insurance Commissioner shall have power to examine any or all rates established by non-life insurance companies or group or association of such insurance companies in the country. Should any rate appear, in the opinion of the Insurance Commissioner, unreasonably high or not adequate to the financial safety or soundness to the company charging the same, or pre-judicial to policy-holders, the Commissioner shall, in such case, hold a hearing and/or conduct an investigation. Should the result of such hearing and/or investigation show that the rate is unreasonably high or low that it is not adequate to the financial safety and soundness of the company charging the same, or is prejudicial to policyholders, the Insurance Commissioner shall direct a revision of the said rate in accordance with his findings. Any insurance company or group or association of insurance companies may be required to publish the schedule of rates which may have been revised in accordance herewith. The decision of the Insurance Commissioner shall be appealable within thirty days after it has been rendered to the Secretary of Finance. V. Prohibiting Non-life Insurance Companies and their Agents from Insuring Any Property in this Country at a Rate Different from that in the Schedules; Unethical Practices. No insurance company shall engage or participate in the insurance of any property located in the Philippines ... unless the schedule of rates under which such property is insured has been filed and approved in accordance with the provisions of this Circular. ... . (Emphasis ours.) On the same date, the Constitution of the Bureau, containing a provision substantially identical to the one now under consideration, was approved. Article 2 of said Constitution reads: 2. OBJECTS The objects of the Bureau shall be: a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion, Automobile and Workmen's Compensation, and whenever applicable, Marine Insurance business. xxx xxx xxx

c. To file the rates referred to above, tariff rules, and all other conditions or data which may in any way affect premium rates with the Office of the Insurance Commissioner on behalf of members for approval. (Emphasis ours.) In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau applied for the license required therein, and submitted with its application a copy of said Constitution. On April 28, 1954, respondent's office issued to the Bureau the license applied for, certifying not only that it had complied with the requirements of Circular No. 54, but, also, that the license empowered it "to engage in the making of rates or policy

conditions to be used by insurance companies in the Philippines". Subsequently, thereafter, the Bureau applied for and was granted yearly the requisite license to operate in accordance with the provisions of its Constitution. During all this time, respondent's office did not question, but impliedly acknowledged, the legality of Article 22. It was not until March 11, 1960, that it assailed its validity. Respondent's contention is anchored mainly on Paramount Famous Lasky Corp. vs. U.S., 282 U.S. 30, but the same is not in point, not only because it refers to the conditions under which movie film producers and distributors determine the terms under which theaters or exhibitors may be allowed to run movie films thereby placing the exhibitors under the control of the producers or distributors and giving the exhibitors, in effect, no choice as to what films and whose films they will show but, also, because there is, in the film industry, no agency or officer with powers or functions comparable to those in the Insurance Commissioner, as regards the regulation of the business concerned and of the transactions involved therein. Wherefore, the decision appealed from should be, as it is hereby affirmed, without costs. It is so ordered. [G. R. No. 126800. November 29, 1999] NATALIA P. BUSTAMANTE, petitioner vs. SPOUSES RODITO F. ROSEL and NORMA A. ROSEL, Respondents. RESOLUTION PARDO, J.: The case before the Court is a petition for review on certiorari[1 to annul the decision of the Court of Appeals,[2 reversing and setting aside the decision of the Regional Trial Court,[3, dated November 10, 1992, Judge Teodoro P. Regino. 3 Quezon City, Branch 84, in an action for specific performance with consignation. On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement with petitioner Natalia Bustamante and her late husband Ismael C. Bustamante, under the following terms and conditions: 1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER CERTIFICATE OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423) SQUARE Meters, more or less, situated along Congressional Avenue. 2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a collateral SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the aforestated parcel of land, however, in the event the borrowers fail to pay, the lender has the option to buy or purchase the collateral for a total consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed amount and interest therein; 3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while the borrowers do hereby confess receipt of the borrowed amount.[4 When the loan was about to mature on March 1, 1989, respondents proposed to buy at the preset price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. 80667, given as collateral to guarantee payment of the loan. Petitioner, however, refused to sell and requested for extension of time to pay the loan and offered to sell to respondents another

residential lot located at Road 20, Project 8, Quezon City, with the principal loan plus interest to be used as down payment. Respondents refused to extend the payment of the loan and to accept the lot in Road 20 as it was occupied by squatters and petitioner and her husband were not the owners thereof but were mere land developers entitled to subdivision shares or commission if and when they developed at least one half of the subdivision area.[5 Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the latter refused to accept, insisting on petitioners signing a prepared deed of absolute sale of the collateral. On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch 84, a complaint for specific performance with consignation against petitioner and her spouse.[6 Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the collateral pursuant to the option to buy embodied in the loan agreement. On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a petition for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon City on August 10, 1990.[7 When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned the amount of P47,500.00 with the trial court.[8 In arriving at the amount deposited, respondents considered the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00.[9 The principal loan and the interest taken together amounted toP152,500.00, leaving a balance of P 47,500.00.[10 After due trial, on November 10, 1992, the trial court rendered decision holding: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Denying the plaintiffs prayer for the defendants execution of the Deed of Sale to Convey the collateral in plaintiffs favor; 2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at 18% per annum commencing on March 2, 1989, up to and until August 10, 1990, when defendants deposited the amount with the Office of the City Treasurer under Official Receipt No. 0116548 (Exhibit 2); and 3. To pay Attorneys Fees in the amount of P 5,000.00, plus costs of suit. SO ORDERED. Quezon City, Philippines, November 10, 1992. TEODORO P. REGINO Judge[11 On November 16, 1992, respondents appealed from the decision to the Court of Appeals.[12 On July 8, 1996, the Court of Appeals rendered decision reversing the ruling of the Regional Trial Court. The dispositive portion of the Court of Appeals decision reads:

IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED and SET ASIDE and a new one entered in favor of the plaintiffs ordering the defendants to accept the amount of P 47,000.00 deposited with the Clerk of Court of Regional Trial Court of Quezon City under Official Receipt No. 0719847, and for defendants to execute the necessary Deed of Sale in favor of the plaintiffs over the 70 SQUARE METER portion and the apartment standing thereon being occupied by the plaintiffs and covered by TCT No. 80667 within fifteen (15) days from finality hereof. Defendants, in turn, are allowed to withdraw the amount of P153,000.00 deposited by them under Official Receipt No. 0116548 of the City Treasurers Office of Quezon City. All other claims and counterclaims are DISMISSED, for lack of sufficient basis. No costs. SO ORDERED.[13 Hence, this petition.[14 On January 20, 1997, we required respondents to comment on the petition within ten (10) days from notice.[15 On February 27, 1997, respondents filed their comment.[16 On February 9, 1998, we resolved to deny the petition on the ground that there was no reversible error on the part of respondent court in ordering the execution of the necessary deed of sale in conformity the with the parties stipulated agreement. The contract is the law between the parties thereof (Syjuco v. Court of Appeals, 172 SCRA 111, 118, citingPhil. American General Insurance v. Mutuc, 61 SCRA 22; Herrera v. Petrophil Corporation, 146 SCRA 360).[17 On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial alleging that the real intention of the parties to the loan was to put up the collateral as guarantee similar to an equitable mortgage according to Article 1602 of the Civil Code.[18 On April 21, 1998, respondents filed an opposition to petitioners motion for reconsideration. They contend that the agreement between the parties was not a sale with right of re-purchase, but a loan with interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent was given the right to purchase the property or apartment for P200,000.00, which is not contrary to law, morals, good customs, public order or public policy. [19 Upon due consideration of petitioners motion, we now resolve to grant the motion for reconsideration. The questions presented are whether petitioner failed to pay the loan at its maturity date and whether the stipulation in the loan contract was valid and enforceable. We rule that petitioner did not fail to pay the loan. The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment to settle the loan which respondents refused to accept, insisting that petitioner sell to them the collateral of the loan. When respondents refused to accept payment, petitioner consigned the amount with the trial court.

We note the eagerness of respondents to acquire the property given as collateral to guarantee the loan. The sale of the collateral is an obligation with a suspensive condition.[20 It is dependent upon the happening of an event, without which the obligation to sell does not arise. Since the event did not occur, respondents do not have the right to demand fulfillment of petitioners obligation, especially where the same would not only be disadvantageous to petitioner but would also unjustly enrich respondents considering the inadequate consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City. Respondents argue that contracts have the force of law between the contracting parties and must be complied with in good faith.[21 There are, however, certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides: Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the property given as security for the loan. This is embraced in the concept of pactum commissorium, which is proscribed by law.[22 The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.[23 In Nakpil vs. Intermediate Appellate Court,[24 we said: The arrangement entered into between the parties, whereby Pulong Maulap was to be considered sold to him (respondent) xxx in case petitioner fails to reimburse Valdes, must then be construed as tantamount to pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the advances. Thus, contrary to respondents manifestation, all the elements of a pactum commissorium were present: there was a creditor-debtor relationship between the parties; the property was used as security for the loan; and there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner. A significant task in contract interpretation is the ascertainment of the intention of the parties and looking into the words used by the parties to project that intention. In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of the collateral at the preagreed consideration amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in the event of non payment of the loan. This is within the concept of pactum commissorium. Such stipulation is void.[25 All persons in need of money are liable to enter into contractual relationships whatever the condition if only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their prey.

WHEREFORE, we GRANT petitioners motion for reconsideration and SET ASIDE the Courts resolution of February 9, 1998. We REVERSE the decision of the Court of Appeals in CA-G. R. CV No. 40193. In lieu thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813. No costs. SO ORDERED. G.R. No. L-36821 June 22, 1978 JOSE P. DIZON, petitioner, vs. ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of the Estate of Alfredo G. Gaborro) and the DEVELOPMENT BANK OF THE PHILIPPINES, respondents. Leonardo Abola for petitioner. Carlos J. Antiporda for respondents.

GUERRERO, J.: Petition for review on certiorari of the decision of the Court Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P. Dizon, Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial Administratrix of the Estate of Alfredo G, Gaborro) trial the Development Bank of the Philippines, DefendantsAppellees," affirming with modification the decision of the Court of First Instance of Pampanga, Branch II in Civil Case No. 2184. The dispositive portion of the decision sought to be reviewed reads: IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed with modification that the plaintiff-appellant has the right to refund or reimburse the defendantappellees he sum of P131,831.91 with interest at 8% per annum from October 6, 1959 until full payment, said right to be exercised within one year from the date this judgment becomes final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his right over the lands forever. With costs against the appellant. 2 MODIFIED. The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage', trial Option to Purchase Real Estate". two instruments executed by trial between Petitioner Jose P. Dizon trial Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959 constitute in truth trial in fact an absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance thereof by way of security for reimbursement, refund or repayment by petitioner Jose P. Dizon of any trial all sums which may have been paid to the Development Bank of the Philippines trial the Philippine National Bank by Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman Gaborro as administratrix of the estate of Alfredo G. Gaborro) who had died during the pendency of the case. A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate should account for all the fruits produced trial income received by them from the lands mentioned trial described in the aforesaid "Deed of Sale with Assumption of Mortgage."

The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner of the three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, Pampanga with an aggregate area of 130.58 hectares, as evidenced by Transfer Certificate of Title No. 15679. He constituted a first mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a loan in the sum of P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his indebtedness to said bank in the amount of P93,831.91. Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135. On May 26, 1959, the hinds were sold to the DBP for- P31,459.21, which amount covered the loan, interest trial expenses, trial the corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On November 12, 1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the DBP which deed was recorded in the Office of the Register of Deeds on October 6, 1960. Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became interested in the lands of Dizon. Dizon originally intended to lease to Gaborro the property which had been lying idle for some time. But as the mortgage was already foreclosed by the DPB trial the bank in fact purchased the lands at the foreclosure sale on May 26, 1959, they abandoned the projected lease. They then entered into the following contract on October 6, 1959 captioned trial quoted, to wit: DEED OF SALE WITH ASSUMPTION OF MORTGAGE KNOW ALL MEN BY THESE PRESENTS: This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at the City of Manila, Philippines, on this 6th day of October, 1959 by trial between JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial postal address at Mabalacat, Pampanga, hereinafter referred to as the VENDOR. ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at 46, 7th St., Gilmore Avenue, Quezon City, hereinafter referred to as the VENDEE, W I T N E S S E T H: That WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered by Transfer Certificate of Title No. 15679 of the land records of Pampanga. situated in the Municipality of Mabalacat, Province of Pampanga, trial more particularly described trial bounded as follows: 1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE by Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot No. 192 trial on the NW by the unimproved provincial road to Magalang. Containing an area of TWO HUNDRED AND TWENTY ONE THOUSAND ONE HUNDRED SEVENTY TWO SQUARE METERS (221,172), more or less. 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the unimproved road to Magalang, on the SW by a road; trial on the NE., by a road trial the Sapang Pritil Containing an area of NINE

HUNDRED SEVENTY EIGHT THOUSAND SEVEN HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or less. 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE., by Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE HUNDRED FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE METERS (105,921), more or less, WHEREAS, the above-described properties are presently mortgaged (first mortgage) to the Development Bank of the Philippines (,formerly Rehabilitation Finance Corporation) to secure the payment of a loan, plus interest, of THIRTY EIGHT THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as evidenced by a deed of mortgage for- P... dated ... which deed was ratified trial acknowledged before Notary Public of Manila, Mr. ... as Doc. No. Page No. Reg. No. Series of 196 ... ; WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the Philippine National Bank to secure the payment of a loan of NINETY THREE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91), Philippine Currency, plus interest up to August 13, 1957, as evidenced by deed of Mortgage for P............. dated................... which deed was ratified trial acknowledged before Notary Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No. Series of 196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE is willing to purchase the above-described properties for ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91 /100 (P131,831.91), Philippine Currency, under the terms trial conditions herein below set forth; NOW, THEREFORE, for- trial in consideration of the above premises trial the amount of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the VENDEE unto the VENDOR, receipt whereof is hereby acknowledged by the VENDOR to his entire trial full satisfaction, trial the assumption by the VENDEE of the entire mortgage indebtedness, both with the Development Bank of the Philippines trial the Philippine National Bank above mentioned, the VENDOR does by these presents, sell, transfer trial convey, as he had sold, transferred, trial conveyed, by way of absolute sale, perpetually trial forever, unto the VENDEE, his heirs, successors trial assigns. above-described properties, with all the improvements thereon, free from all liens trial encumbrances of whatever nature. except the pre- existing mortgage obligations with the Development Bank of the Philippines trial the Philippine National Bank aforementioned. The VENDOR does hereby warrant title, ownership trial possession over the properties herein sold trial conveyed, trial binds himself to defend the same from any trial all claimants. That the VENDEE, does by these presents, assume as he has assumed, under the same terms trial conditions of the mortgage contracts dated ... and ... of the mortgage indebtedness of the VENDOR in favor of the Development Bank of the Philippines trial the Philippine National Bank, respectively, as if the aforesaid documents were personally executed by the VENDEE trial states trial reiterates all the terms trial conditions stipulated in said both documents, making them to all intent trial purposes, parts hereof by reference. IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their instrumental witnesses, have signed this deed of the place, date, month trial year first above written. (Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO Vendor Vendee Signed in the Presence of:

(Sgd.) (Illegible) (Sgd.) (Illegible) (Acknowledgment Omitted) The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate, trial is in the following wise trial manner: OPTION TO PURCHASE REAL ESTATE KNOW ALL MEN BY THESE PRESENTS: That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman, with residence trial postal address at 46, 7th St., Gilmore Ave., Quezon City, for- valuable consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors and assigns, the option of repurchasing the following described properties: TRANSFER CERTIFICATE OF TITLE NO. 15679, PROVINCE OF PAMPANGA 1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga containing an area of (211,172) more or less. 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga), containing an area of (978,172) more or less. 3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga containing an area of (105,921), more or less. which I acquired from the said Jose P. Dizon by purchase by virtue of that document entitled "Deed of Sale with Assumption of Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public of Manila GREGORIO SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series of 1959. Said option shall be valid trial effective within the period comprises from January, 1965 to December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (?131,831.91), Philippine Currency, plus an interest of eight per centum (8%) thereof, per annum. This is without prejudice at any time to the payment by Mr. Dizon of any partial amount to be applied to the principal obligation, without any way disturbing the possession and/or ownership of the above properties since only full payment can effect the necessary change. In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing properties on or the fifth year from the date the execution of this document, the GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount which was Paid to Development Bank of the Philippines trial to the Philippine National Bank together with the interests thereon at the rate of 8% shall be refunded to the undersigned. Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said properties, it shall be his duty to first notify the undersigned of the contemplated sale, naming the price trial the purchaser therefor, trial awarding the first preference in the sale hereof to the undersigned. IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila, on this 6th day of October, 1959. (Sgd.) ALFREDO G. GABORRO

CONFORME: (Sgd.) JOSE P. DIZON SIGNED IN THE PRESENCE OF: (Acknowledgment Omit) The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by Alfredo G. Gaborro to the petitioner. The said amount represents the aggregate debts of the petitioner with the Development Bank of the Philippines trial the Philippine National Bank. After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in question. On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows: Sir: This is with reference to your mortgage lien of P38,000.00 more or less over the properties more particularly described in TCT No. 15679 of the land records of Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to inform you that pursuant to a Deed of Sale with Assumption of Mortgage executed on October 6, 1959 by Jose P. Dizon in my favor, copy of which is hereto attached, the ownership of the same has been transferred to me subject of course to your conformity to the assumption of mortgage. As a consequence of the foregoing document, the obligation therefore of paying your goodselves the total amount of indebtedness has shifted to me Considering that these agricultural properties have not been under cultivation for- quite a long time, I would therefore request that, on the premise that the assumption of mortgage would be agreeable to you, that I be allowed to pay the outstanding obligation, under the same terms trial conditions as embodied in the original contract of mortgage within ten (10) years to be divided in 10 equal annual amortizations. I am enclosing herewith a check in the amount of P3,609.95 representing 10% of the indebtedness of Jose P. Dizon to show my honest intention in assuming the mortgage obligation to you ... The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the offer of Gaborro but said Board required him to pay 20% of the purchase price as initial payment, (Exh. D) Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional sale of the properties in consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the yearly amortization plan at 8% per annum. On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled: ASSIGNMENT OF RIGHT OF REDEMPTION AND ASSUMPTION OF OBLIGATION KNOW ALL MEN BY THESE PRESENTS: This instrument, made trial executed by trial between JOSE P. DIZON, married to Norberta P. Torres, Filipino, of legal age, with residence trial postal address at Mabalacat, Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G. GABORRO, married to Pacita de Guzman, likewise of legal age, Filipino, with residence trial postal address at 46, 7th Street, Gilmore Ave., Quezon City, hereinafter referred to as the ASSIGNEE,

WITNESSETH: WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural land together with all the improvements existing thereon trial more particularly described trial bounded as follows: TRANSFER CERTIFICATE OF TITLE NO. 1567 PROVINCE OF PAMPANGA 1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE by Lot No. 187: on the SE. by Lots Nos. 183, 189, 191 trial 192; on the SW. by Lot No. 192; trial on the NW by the unimproved provincial road to Magalan. Containing an area of two hundred twenty-one thousand one hundred trial seventy two square meters (221,172), more or less. 2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE. by a road trial Lots Nos. 569, 570 trial 571; on the SE. by Lot No. 571 trial the unimproved road to Magalan-, on the SW. by a road; trial on the NW by a road trial the Sapang Pritil Containing an area of nine hundred seventy eight thousand seven hundred and seven hundred square meters (978,717), more or less. 3. A parcel of Land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE. by Lot No. 570; and on the SE., SW. and NW. by roads. Containing an area of one hundred five thousand nine hundred and twenty-one square meters (105,921), more or less. WHEREAS, the above described properties were mortgaged with the Rehabilitation Finance Corporation, now Development Bank of the Philippines, which mortgage has been foreclosed on May 26, 1959; AND WHEREAS, the herein Assignor has still the right to redeem the said properties from the said Development Bank of the Philippines within a period of one (1) year counted from the date of foreclosure of the said mortgage. NOW, THEREFORE, for ......................................... trial other valuable considerations, receipt whereof is hereby acknowledged by the Assignor from the Assignee, The herein Assignor does hereby transfer trial assign to the herein Assignee, his heirs, successors trial assigns the aforesaid right to redeem the aforementioned properties above described. That with this document the herein Assignor relinquishes any and all rights to the said properties including the improvements existing thereon. That the Assignee, by these presents, hereby assumes the obligation in favor of the d Development Bank of the Philippines, as Paying whatever legal indebtedness the Assignor has with the d B in connection with the transaction regarding the hove mentioned Properties subject to the file and conditions that the said Bank may require and further recognizes the second mortgage in favor Of the Philippine National Bank. IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of Manila, Philippines this --------- day of - - - - - -1959.

(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO Assignor (Assignee) (Acknowledgment Omitted) After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He introduced improvements, cultivated the kinds raised sugarcane and other crops and appropriated the produce to himself. He will paid the land taxes thereon. On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing him that he is formally offering reimburse Gaborro Of what he paid to the banks but without, however, tendering any cash, and demanding an accounting of the income and of the pro contending that the transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the petitioner, whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First Instance of Pampanga, Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate did not express the true intention and agreement bet. between the parties. Petitioner Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single transaction that their real agreement was not an absolute e of the d of land but merely an equitable mortgage or conveyance by way of security for the reimbursement or refund by Dizon to Gaborro of any and all sums which the latter may have paid on account of the mortgage debts in favor of the DBP and the PNB. Plaintiff prayed that defendant Gaborro be ordered to accept plaintiff's offer to reimburse him of what he paid to the banks; to surrender the possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest and other income which he had received from the three (3) parcels of land; and to pay the plaintiff for the loss of two barns and for damages. In its answer, the DBP specifically denied the material averments of the complaint and stated that on October 6, 1959, the plaintiff Dizon was no longer the owner of the land in question because the DBP acquired them at the extrajudicial foreclosure sale held on May 26, 1959, and that the only right which plaintiff possessed was a mere right to redeem the lands under Act 3135 as amended. Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that the "Deed of Sale with Assumption of Mortgage" expresses the true agreement of the parties "fully, truthfully and religiously" but the Option to Purchase Real Estate" does not express the true intention of the parties because it was made only to protect the reputation of the plaintiff among his townmates, and even in the supposition that said option is valid, the action is premature. He also filed a counterclaim for damages, which plaintiff denied. The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the parties was approved by the Court in the following order dated February 22, 1963: ORDER At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff; Mr. Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgillo Fugoso, for the Development Bank of the Philippines: The parties brave stipulated on the following facts: 1. That Annex A attached to the complaint is marked Exhibit A- Stipulation. The parties have admitted the due execution, authenticity and genuineness of said Exhibit A-Stipulation. This fact has been admitted by all the three parties. 2. That the defendant Gaborro executed Annex B, which is marked Exhibit B-Stipulation. This fact has been admitted only between plaintiff and defendant Gaborro.

3. That the three parcels of land referred to in paragraph 3 of the complaint, on or before October 6, 1959, were subject to a first mortgage lien in favor of the Development Bank of the Philippines, formerly Rehabilitation Finance Corporation, to secure payment of a loan obtained by the plaintiff Jose P. Dizon in the original sum of P38,000.00 plus interest, which has been assumed by defendant Gaborro by virtue of a document, Exhibit A-Stipulation, and also subject to a second mortgage lien in favor of the Philippine National Bank to secure the payment of a loan in the sum of P93,831.91 plus interest up to August 30, 1951, which mortgage liens were duly annotated on TCT 15679. This fact has been admitted by the plaintiff and defendant Gaborro. 4. In respect to the foreclosure of the first mortgage referred to above, it was admit that the same was foreclosed on May 26, 1959, the second mortgage has not been admitted nor foreclosed. 5. That the Development Bank of the Philippines admits that the first mortgage referred to above was foreclosed on May 26, 1959 under the provision,,; of Public Act No- 3135, as amended. 6. That subsequently the Development Bank and the defendant Gaborro executed a document entitled Conditional Sale over the same parcels of land referred to in paragraph 3 of the complaint, and copy thereof will be furnished by the Development Bank of the Philippines and marked Exhibit C-Stipulation. 7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of Pampanga in the name of Jose P. Dizon covering the three parcels of land referred to in the complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of Deeds of Pampanga was issued in the name of the Development Bank of the Philippines. This fact has been admitted by all the parties. 8. That after the execution of the deed of conditional sale, certain payments were made by the defendant Gaborro to the Development Bank, the exact amount to be determined later and receipts of payments to be also exhibited later. This fact has been admitted by all the three parties. 9. That since October 6, 1959, the defendant Gaborro has made several payments to the PNB in the amounts appearing on the receipts which will be shown later, such payments being made on account of the sum of P38,831.91. The payment was assumed by said - defendant Gaborro. This fact has been admitted by plaintiff and defendant Gaborro only. 10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has been and still is in the actual possession f the three parcels of land in question and he is actually cultivating the same and that the land taxes thereon have been paid by said defendant Gaborro, the amounts of said taxes appearing on the official receipts to be shown later. This fact has been admitted by plaintiff and defendant Gaborro only. 11. That since defendant Gaborro took possession of the lands in question, he has been appropriating all the fruits produced and income of said lands without giving to the plaintiff any share hereof. This fact has been admitted by plaintiff and defendant Gaborro only. Let a copy of this order be served upon the plaintiff, defendant Gaborro and the Development Bank of the Philippines with the understanding that, if, within fifteen (15) days, none of the parties questions the correctness of The facts set forth above. this stipulation of facts shall be conclusive upon the parties interested in this case. Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning.

Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963. The records disclose that during the pendency of the case in the trial court, motions were filed by the plaintiff for the appointment of a receiver of the properties but all were denied. plaintiff also reiterated the same motion before the appellate court which, however, dismissed the same, reserving to him the right to file in the trial court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the Court of Appeals in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al." which the respondent court denied. After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the defendant Alfredo G. Gaborro is that the defendant would assume and pay the indebtedness of the plaintiff to the Development Bank of the Philippines and the Philippine National Bank, and in consideration therefor, the defendant was given the possession and enjoyment of the properties in question until the plaintiff shall have reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum. Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads: IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption of Mortgage'(Exhibit A-Stipulation) and 'Option to Purchase Real Estate' (Exhibit B-Stipulation) are hereby reformed to the extent indicated above. However, since this action was filed before the period allowed the plaintiff to redeem his property, the prematurity of this action aside from not being principally alleged in the complaint, deters this Court from ordering further reliefs and remedies. The counterclaim of the defendant is dismissed. The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental complaint having been denied for lack of merit, on June 6, 1970, plaintiff appealed to the Court of Appeals, which. however, affirmed the decision with the modification that the plaintiff-appellant has the right to refund or reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per annum from October 6, 1959 until full payment, said right to be exercised within one (1) year from the date the judgment becomes final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his right over the lands forever. Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals, hence the present petition for review on certiorari. The petitioner assigns the following errors, to wit: I. The Court of Appeals, like the lower court, erred in not holding that upon established facts and undisputed documentary evidence, the deed of sale with assumption of mortgage (Exhibit AStipulation) constitutes an equitable mortgage or conveyance to secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any and all sums to the extent of P131,831.91, paid by said defendant in total or partial satisfaction of petitioner's mortgage debts to the DBP and the PNB. In this connection, the Court of Appeals erred: (A) In not finding that the petitioner was the lawful owner of the lands in question: (B) In not finding that the deed of sale in question is not a real and unconditional sale; and (C) In not holding that the option to purchase real estate (Exhibit B-Stipulation is conclusive evidence that the transaction in question is in fact an equitable mortgage. II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of Right of Redemption and Assumption of Obligation' is conclusive evidence that the real transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage' is not an equitable mortgage. In this connection the said court also erred or at least committed a grave abuse of discretion:

(A) In not finding that the said deed of assignment is in fact a mere reiteration of the terms and condition of the deed of sale; (B) In finding that the price or consideration of The aforesaid assignment. of right of redemption consisted of 300 cavans of palay delivered by Mrs. Gaborro to the petitioner; and (C) In finding that defendant Gaborro purchased the lands in question by virtue of the aforementioned deed of assignment. III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of Alfredo G. Gaborro is under obligation to render an accounting of all the produce, fruits and other income of the lands in question from October 6, 1959, and to reconvey the said lands to the herein petitioner. In to connection, the said court also erred: (A) In not holding that as a mortgagee in possession the Gaborro estate has the obligation to either render an accounting of the produce or fruits of the lands, or to pay rentals for the occupation of said lands; (B) In not finding that the Gaborro estate has the obligations to reconvey the lands in controversy to the herein petitioner, upon payment of the balance due from him after deducting either the net value of the produce or fruits of the Said lands or the rentals thereof, (C) In not finding that further reliefs or remedies may be granted the herein petitioner; and (D) In not ordering the admission of herein petitioners 'Supplemental Complaint' dated April 30, 1970. IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and in not rendering judgment declaring that the deed of sale with assumption of mortgage (Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro estate either to render an accounting of all the produce or fruits of the lands in question or to pay rentals for the occupation thereof, from October 6, 1959; and in not ordering the estate of Alfredo G. Gaborro to reconvey, transfer and assign unto the petitioner the aforementioned lands. The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations between the parties thereto Pertaining to and involving parcels of land that had already beer foreclosed and sold extrajudicially, and purchased by the mortgage creditor, a degree party. It becomes, therefore, necessary to determine the legality of said rights and obligation arising from the foreclosure and e pro. proceedings only between the two contracting parties to the instruments executed between them but also in the so far a agreement affects the rights of the degree panty, the purchase Bank. Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed and sold, provides that: Sec. 6. In all cases in which an extrajudicial rule is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of e debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term or one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not consistent with the provisions of this Act.

Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the property foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the property sold, he is entitled to retain it and receive the fruits, the purchaser not being entitled to such possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43 Phil. 572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959). A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one whom he may desire. The right to redeem land sold under execution within 12 months is a property right and may be sold voluntarily by its owner and may also be attached and sold under execution (Magno v. Viola and Sotto, 61 Phil. 80). Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27, Revised Rules of Court) After the termination of the period of redemption and no redemption having been made, the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35, Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at public auction under a writ of execution only has an inchoate right in the property, subject to be defeated and terminated within the period of 12 months from the date of sale, by a redemption on the part of the owner. Therefore, the judgment debtor in possession of the property is entitled to remain therein during the period allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.) In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained the right to redeem the lands, the possession, use and enjoyment of the same during the period of redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto respondent Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation), likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and assume the loan of petitioner Dizon with DBP and PNB. Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly, because there was absolutely no money consideration therefor, as admittedly stipulated the sum of P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was not actually paid; and secondly, because the properties had already been previously sold by the sheriff at the foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands. In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or interests under Exh. A-Stipulation, cannot grant to petitioner Dizon more that said rights, such ac the option Co purchase the lands as stipulated in the document called Option to Purchase Real Estate (Exhibit B-Stipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or acquire the full title and ownership of the properties by virtue of the Deed of Sale With Assumption of Mortgage (Exh. A Stipulation), earlier executed between them which We have ruled out as an absolute sale. The only legal effect of this Option Deed is the grant to petitioner the right to recover the properties upon reimbursing respondent Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of the mortgage debts, the said right to be exercised within the stipulated 5 years period. In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance here, as well as other relevant facts and circumstances, We agree with the findings of the trial and appellate courts that the true intention of the parties is that respondent Gaborro would assume and pay the indebtedness of petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro was given the possession, the enjoyment and use of the lands until petitioner can reimburse fully the respondent the amounts paid by the latter to DBP and PNB, to accomplish the following ends: (a) payment of the bank obligations; (b) make the lands productive for the benefit of the possessor, respondent Gaborro, (c) assure the return of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all parties concerned. In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the agreement between petitioner Dizon and respondent Gaborro is one of those inanimate contracts under Art. 1307 of the New Civil Code whereby petitioner and respondent agreed "to give and to do" certain rights and obligations respecting the lands and the mortgage debts of petitioner which would be acceptable to the bank.

but partaking of the nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent Gaborro, are concerned. Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds of The parties o a contract, their true intention is not expressed in the instrument purporting to embody the agreement, and one of the parries may ask for such reformation to the end that such true intention may be expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil Code.) It was a mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the Option to Purchase Real Estate and stand on the literal meaning of the file and stipulations used therein. The instruments must, therefore, be reformed in accordance with the intention and legal rights and obligations of the parties the petitioner, the respondent and the Banks. We agree with the reformation decreed by the trial and appellate courts, but in the sense that petitioner Jose P. Dizon has the right to reacquire the three parcels of land within the one-year period indicated below by refunding or reimbursing to respondent Alfredo G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter has actually paid on account of the principal only, of the loans of Dizon with the DBP and PNB, excluding the interests and land taxes that may have been paid or may have accrued, on duly certified financial statements issued by the said banks. On the issue of the accounting of the fruits, harvests and other income received from the three parcels of land from October 6, 1959 up to the present, prayed and demanded by Dizon of Gaborro or the Judicial Administratrix of the latter's estate, We hold that in fairness and equity and in the interests of justice that since We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any interests and land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and PNB, petitioner Dizon in turn is not entitled to an accounting of the fruits, harvests and other income received by respondent Gaborro from the lands, for certainly, petitioner cannot have both benefits and the two may be said to offset each other. By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the option to purchase the properties which must be exercise within the period from January, 1960 to December 31, 1965 but which We held to be simply the grant of the right to petitioner Dizon to recover his properties within the said period, although already expired by reasons and circumstances beyond his control, petitioner is entitled to a reconveyance of the properties within a reasonable period The period of one year from the date of the finality of this judgment as laid down by the Court of Appeals for the exercise of such right by petitioner Dizon appears fair and reasonable and We approve the same. Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank which appears to be on a subsisting basis, it is proper to indicate here how petitioner Dizon may exercise the right to a reconveyance of the properties as herein affirmed, as follows: (a) Dizon is granted the right to a reconveyance of the properties by reimbursing Gaborro (or his estate) whatever amounts) the latter has actually paid on account of the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP and PNB, respectively, exclusive of the interests that may have accrued thereon or may have been paid by Gaborro, on the basis of duly certified statements issued by said banks; (b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with the Development Bank of the Philippines assumed by Gaborro and on Dizon's original principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said mortgage loans directly to the said banks, in accordance with file mutually agreed upon with them by Dizon; (c) In other words, the maximum reconveyance price that Dizon is obligated to pay is the total sum of ?131,831.91 (the sum total of the principals of his two original loans with the DBP and PNB), and should the amounts due to the said banks exceed this total of P131,831.91 (because of delinquent interests and other charges), nothing shall be due Gaborro by way of reimbursement and Dizon will thereupon step into the shoes of Gaborro as owner-mortgagor of

the properties and directly arrange with the banks for the settlement of the amounts still due and payable to them, subject to the right of Dizon to recover such amounts in excess of P131,831.91 from Gaborro by writ of execution in this case; and (d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and other income received by Gaborro from the land while Gaborro in turn is not entitled to the payment of any interests on any amounts paid by him on account of the principal loans to the banks nor reimbursement of any interests paid by him to the banks. WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon is granted the right within one year from finality of this decision to a reconveyance of the properties in litigation upon payment and reimbursement to respondent estate of o G. Gaborro of the amounts actually paid by Gaborro or his estate on account of the principal only of Dizon's original loans with the Development Bank of the Philippines and Philippine National Bank in and up to the total amount of P131,831.91, under the terms and conditions set forth in the preceding paragraph with subparagraphs (a) to (d), which are hereby incorporated by reference as an integral part of this judgment, and upon the exercise of such right, respondent estate shall forthwith execute the corresponding deed of reconveyance in favor of petitioner Dizon and deliver possession of the properties to him. Without pronouncement as to costs. G.R. No. L-27696 September 30, 1977 MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and SEVERINA ENCARNACION, petitioners-appellants, vs. SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL ENCARNACION, oppositors to encumbrance-petitioners-appelles. Jose F. Singson and Miguel Florentino for appellants. Pedro Singson for appellees.

GUERRERO, J.: Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration court, in Land Registration case No. N-310. On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedior, Encarnacion and Severina Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and Angel Encarnacion filed with the Court of First Instance of ilocos Sur an application for the registration under Act 496 of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao Ilocos Sur. The application alleged among other things that the applicants are the common and pro-indiviso owners in fee simple of the said land with the improvements existing thereon; that to the best of their knowledge and belief, there is no mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person having any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, lately from their aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective shares of the land thru purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one hand and from Asuncion Florentino on the other.

After due notice and publication, the Court set the application for hearing. No Opposition whatsoever was filed except that of the Director of Lands which was later withdrawn, thereby leaving the option unopposed. Thereupon, an order of general default was withdrawn against the whole world. Upon application of the asets the Clerk Of court was commission will and to have the evidence of the agents and or to submit the for the Court's for resolution. The crucial point in controversy in this registration case is centered in the stipulation marked Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947 which states: Los productos de esta parcela de terreno situada en el Barrio Lubong Dacquel Cabugao Ilocos Sur, se destination para costear los tos de procesio de la Tercera Caida celebration y sermon de Siete Palbras Seis Estaciones de Cuaresma, procesion del Nino Jesus, tilaracion y conservacion de los mismos, construction le union camarin en conde se depositan los carros mesas y otras cosas que seven para lot leiracion de Siete Palabras y otras cosas mas Lo que sobra de lihos productos despues de descontados todos los gastos se repartira nosotros los herederos. In his testimony during the trial, applicant Miguel Florentino asked the court to include the said stipulation (Exhibit O-1) as an encumbrance on the land sought to be registered, and cause the entry of the same on the face of the title that will finally be issued. Opposing its entry on the title as an encumbrance, petitionersappellee Salvador Encamacion, Sr., Salvador Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966 a manifestation seeking to withdraw their application on their respective shares of the land sought to be registered. The withdrawal was opposed by the petitioners-appellants. The Court after hearing the motion for withdrawal and the opposition thereto issued on November 17, 1966 an order and for the purpose of ascertaining and implifying the issues therein stated that all the applicants admit the truth of the following; (1) That just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the case since time immomorial the products of the land made subiect matter of this land has been used in answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated August 24, 1947: (2) That this arrangement about the products answering for the comment of experisence for religions functions as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or and, other system of registration; (3) That all the herein applicants know of the existence of his arrangement as specified in the Deed of Extra judicial Partition of A adjust 24, 1947; (4) That the Deed of Extrajudicial Partition of August 24, 194-, not signed by Angel Encarnacion or Salvador Encarnacion, Jr,. The court denied the petitioners-appellee motion to withdraw for lack of merit, and rendered a decision under date of November 29, 1966 confirming the title of the property in favor of the f appoints with their respective shares as follows: Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, and residents of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions, respectively; Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297 portion;

Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar and resident of Vigan, Ilocos Sur, consisting of an undivided 66/297; Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and resident of 16 South Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion; Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz, Manila, consisting of an undivided 33/297 portion; Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297 portion; Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 17.5/297; Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an undivided 8.25/297; Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided 8.25/297 portion; and Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of 8.25/297 undivided portion. The court, after ruling "that the contention of the proponents of encumbrance is without merit bemuse, taking the self-imposed arrangement in favor of the Church as a pure and simple donation, the same is void for the that the donee here has riot accepted the donation (Art. 745, Civil Code) and for the further that, in the case of Salvador Encarnacion, Jr. and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact they are even opposed to it," 1 held in the Positive portion, as follows: In view of all these, therefore, and insofar as the question of encumbrance is concerned, let the religious expenses as herein specified be made and entered on the undivided shares, interests and participations of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion. On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their previous arguments, and also attacking the junction of the registration court to pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such is specified only in an ordinary action and not proper in a land registration proceeding. The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of merit, but the court modified its earlier decision of November 29, 1966, to wit: This Court believes, and so holds, that the contention of the movants (proponents of the encumbrance) is without merit because the arrangement, stipulation or grant as embodied in Exhibit O (Escritura de Particion Extrajudicial), by whatever name it may be (called, whether donation, usufruct or ellemosynary gift, can be revoked as in fact the oppositors Salvador Encarnacion, Sr., who is the only one of the three oppositors who is a party to said Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) did revoke it as shown by acts accompanying his refusal to have the same appear as an encumbrance on the title to be issued. In fact, legally, the same can also be ignored or discararded by will the three oppositors. The reasons are: First, if the said stipulation is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour autrui the same cannot now be enforced because the Church in whose favor it was made has not communicated its acceptance to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of the New Civil Code:

"If a contract should contain some stipulation in favor of a third person he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." No evide nee has ever been submitted by the Church to show its clear acceptance of the grant before its revocation by the oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador Encarnacion, Jr. and Angel Encarnacion, who didn't even make any giant, in the first place), and so not even the movants who have officiously taken into themselves the right to enforce the grant cannot now maintain any action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Church in whose favor the stipulation or grant had apparently been made ought to be the proper party to compel the herein three oppositors to abide with the stipulation. But it has not made any appearance nor registered its opposition to the application even before Oct. 18, 1965 when an order of general default was issued. Third, the movants are not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real party in interest to raise the present issue; and Fourth, the movants having once alleged in their application for registration that the land is without encumbrance (par. 3 thereof), cannot now be alloted by the rules of pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248) SO ORDERED. 2 After Motions for Reconsideration were denied by the court, the petitioners- appellants appealed directly to this Court pursuant to Rule 4 1, Rules of Court, raising the following assign of error: I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just an arrangement stipulation, or grant revocable at the unilateral option of the coowners. II. The lower court erred in finding and concluding that the encumbrance or religious expenses embodied in Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the appoints Miguel Florentino, Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino, Remedios Encarnacion and Severina Encarnacion. III. The lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1) as the sanie was never put to issue and as the question involved is an adjudication of rights of the parties. We find the first and second assignments of error impressed with merit and, therefore, tenable. The stipulation embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral option of the co-owners and neither is it binding only on the petitioners-appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce, Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and Severina E It is also binding on the oppositors-appellees Angel Encarnacion, The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly agreed and signed by the parties, hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect between the parties, their assign and heirs. The article provides: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere

incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. Consent the nature and purpose of the motion (Exh. O-1), We hold that said stipulation is a station pour autrui. A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of the third person, and such third person and demand its fulfillment provoked that he communicates his to the obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third person should be a part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or authorization of third person. To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promisee to the third person. That no such obsorption exists may in some degree assist in determining whether the parties intended to benefit a third person.4 In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their extrajudicial partition of several parcels of land inherited by them from Doa Encarnacion Florendo they agreed that with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof shall serve to defray the religious expenses specified in Exhibit O-1. The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the Holy Week, an annual Church function. Suffice it to say that were it not for Exhibit O-1, the Church would have necessarily expended for this religious occasion, the annual relisgious procession during the Holy Wock and also for the repair and preservation of all the statutes, for the celebration of the Seven Last Word. We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation. The acceptance does not have to be in any particular form, even when the stipulation is for the third person an act of liberality or generosity on the part of the promisor or promise. 5 It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the making of demand, is unnecessary. 6 A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donation of real property. The beneficiary of a trust may demand performance of the obligation without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. 7 Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own option. This must be so because of Article 1257, Civil Code and the cardinal rule of contracts that it has the force of law

between the parties. 8Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual reproduction of Article 1256 of the Civil Code, so phrased to emphasize that the contract must bind both parties, based on the principles (1) that obligation arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their principle equality, to which is repugnant to have one party bound by the contract leaving the other free therefrom." Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the Deed of Extrajudicial Partition embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and Angel Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they are privies or successors in interest; it is axiomatic that contracts are enforceable against the parties and their privies. 10 Furthermore, they are shown to have given their conformity to such agreement when they kept their peace in 1962 and 1963, having already bought their respective shares of the subject land but did not question the enforcement of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving their shares of the subject land that, "This parcel of land is encumbered as evidenced by the document No. 420, page 94, Book 1, series 1947, executed by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M. Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said document of partition, and also by other documents." The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the continued enforcement and fulfillment of the beneficial stipulation. It is error for the lower court to rule that the petitioners-appellants are not the real parties in interest, but the Church. That one of the parties to a contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered into may also demand its fulfillment provoked he had communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked. 11 Petitioners-appellants' third assignment of error is not well-taken. Firstly, the otherwise rigid rule that the jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon summary in nature, does not extend to cases involving issues properly litigable in other independent suits or ordinary civil actions, has time and again been relaxed in special and exceptional circumstances. (See Government of the Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From these cases, it may be gleaned and gathered that the peculiarity of the exceptions is based not only on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also the following premises (1) Mutual consent of the parties or their acquired in submitting the at aforesaid determination by the court in the registration; (2) Full opportunity given to the parties in the presentation of their respective skies of the issues and of the evidence in support thereto; (3) Consideration by the court that the evidence already of record is sufficient and adequate for rendering a decision upon these issues. 12 In the case at bar, the records clearly show that the second and third premism enumerated abow are fully mt. With regards to first premise, the petioners-appellants cannot claim that the issues anent Exhibit O-1 were not put in issue because this is contrary to their stand before the lower court where they took the initial step in praying for the court's determination of the merits of Exhibit O-1 as an encumbrance to be annotated on the title to be issued by such court. On the other hand, the petitioners-appellees who had the right to invoke the limited jurisdiction of the registration court failed to do so but met the issues head-on. Secondly, for this very special reason, We win uphold the actuation of the lower court in determining the conflicting interests of the parties in the registration proceedings before it. This case has been languishing in our courts for thirteen tong years. To require that it be remanded to the lower court for another proceeding under its general jurisdiction is not in consonance with our avowed policy of speedy justice. It would not be amiss to note that if this case be remanded to the lower court, and should appeal again be made, the name issues will once more be raised before us hence, Our decision to resolve at once the issues in the instant petition.

IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as an encumbrance on the face of the title to be finally issued in favor of all the applications (herein appellants and herein appellees) in the registration proceedings below. No pronouncement as to cost. SO ORDERED. G.R. No. L-23276 November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees, vs. FIELDMEN'S INSURANCE CO., INC., defendant-appellant. Antonio de Venecia for plaintiffs-appellees. Rufino Javier for defendant-appellant. CONCEPCION, C.J.: This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated and/or, admitted by the parties at the hearing of the case in the trial court, to dispense with the presentation of evidence therein. It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. hereinafter referred to as the Company issued, in favor of the Manila Yellow Taxicab Co., Inc. hereinafter referred to as the Insured a common carrier accident insurance policy, covering the period from December 1, 1961 to December 1, 1962. It was stipulated in said policy that: The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any farepaying passenger including the Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or injury. 1 While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio Coquia and Maria Espanueva hereinafter referred to as the Coquias filed a complaint against the Company to collect the proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof, but pleaded lack of cause of action on the part of the plaintiffs. After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and 2) the Insured has not complied with the provisions of the policy concerning arbitration. As regards the first defense, it should be noted that, although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.2 This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. Does the policy in question belong to such class of contracts pour autrui? In this connection, said policy provides, inter alia: Section I Liability to Passengers. 1. The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passenger including the Driver ... who is riding in the Motor Vehicle insured at the time of accident or injury. Section II Liability to the Public xxx xxx xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company will indemnify any authorized Driver who is driving the Motor Vehicle.... Conditions xxx xxx xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred by such person, indemnify his personal representatives in terms of and subject to the limitations of this Policy, provided, that such representatives shall, as though they were the Insured, observe, fulfill and be subject to the Terms of this Policy insofar as they can apply. 8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, with or without securing the consent of or prior notification to the Insured, it being the true intention of this Policy to protect, to the extent herein specified and subject always to the Terms Of this Policy, the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public. Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the Insured towards the passengers of the Motor Vehicle and the Public" in other words, third parties. Thus, the policy under consideration is typical of contracts pour autrui, this character being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the deceased have a direct cause of action against the Company,3 and, since they could have maintained this action by themselves, without the assistance of the Insured, it goes without saying that they could and did properly join the latter in filing the complaint herein.4 The second defense set up by the Company is based upon Section 17 of the policy reading:

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained. The record shows, however, that none of the parties to the contract invoked this section, or made any reference to arbitration, during the negotiations preceding the institution of the present case. In fact, counsel for both parties stipulated, in the trial court, that none of them had, at any time during said negotiations, even suggested the settlement of the issue between them by arbitration, as provided in said section. Their aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration. Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn,5 it was held: Another well-settled rule for interpretation of all contracts is that the court will lean to that interpretation of a contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause of this policy, its proper interpretation seems quite clear. When there is a difference between the company and the insured as to the amount of the loss the policy declares: "The same shall then be submitted to competent and impartial arbitrators, one to be selected by each party ...". It will be observed that the obligation to procure or demand an arbitration is not, by this clause, in terms imposed on either party. It is not said that either the company or the insured shall take the initiative in setting the arbitration on foot. The company has no more right to say the insured must do it than the insured has to say the company must do it. The contract in this respect is neither unilateral nor self-executing. To procure a reference to arbitrators, the joint and concurrent action of both parties to the contract is indispensable. The right it gives and the obligation it creates to refer the differences between the parties to arbitrators are mutual. One party to the contract cannot bring about an arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither has the right to insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it, and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if the insured demands an arbitration, and the company refuses to accede to the demand, the insured may maintain a suit on the policy, notwithstanding the language of the twelfth section of the policy, and, where neither party demands an arbitration, both parties thereby waive it.6 To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No. 35, St. Louis County vs. A. Hedenberg & Co., Inc.7 from which we quote: This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893, this court held that the parties to a construction contract, having proceeded throughout the entire course of their dealings with each other in entire disregard of the provision of the contract regarding the mode of determining by arbitration the value of the extras, thereby waived such provision. xxx xxx xxx

The test for determining whether there has been a waiver in a particular case is stated by the author of an exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and estop the party charged with such conduct from claiming its benefits". xxx xxx xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in entire disregard of the provisions of the contract relating to arbitration and that neither at any stage of such dispute, either before or after commencement of the action, demanded arbitration, either by oral or written demand, pleading, or otherwise. Their conduct was as effective a rejection of the right to arbitrate as if, in the best Coolidge tradition, they had said, "We do not choose to arbitrate". As arbitration under the express provisions of article 40 was "at the choice of either party," and was chosen by neither, a waiver by both of the right to arbitration followed as a matter of law. WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against the herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.

G.R. No. L-22404 May 31, 1971 PASTOR B. CONSTANTINO, plaintiff-appellant, vs. HERMINIA ESPIRITU, defendant-appellee. David Guevara for plaintiff-appellant.

DIZON, J.: This is a direct appeal on a question of law taken by Pastor B. Constantino from an order of the Court of First Instance of Rizal denying his motion for the admission of his amended complaint in Civil Case No. 5924, entitled "Pastor B. Constantine vs. Herminia Espiritu." Appellant's complaint alleged, inter alia, that he had, by a fictitious deed of absolute sale annexed thereto, conveyed to appellee on October 30, 1953, for a consideration of P8,000.00, the two-storey house and four (4) subdivision lots covered by Transfer Certificate of Title No. 20174 issued by the Register of Deeds of Rizal, on October 25, 1950 in the name of Pastor B. Constantino, married to Honorata Geukeko with the understanding that appellee would hold the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn at the time of the conveyance; that thereafter appellee mortgaged said properties to the Republic Savings Bank of Manila twice to secure payment of two loans, one of P3,000.00 and the other of P2,000.00, and that thereafter she offered them for sale. The complaint then prayed for the issuance of a writ of preliminary injunction restraining appellee and her agents or representatives from further alienating or disposing of the properties, and for judgment ordering her to execute a deed of absolute sale of said properties in favor of Pastor B. Constantino, Jr., the beneficiary (who, at the filing of said complaint, was about five years of age), and to pay attorney's fees in the sum of P2,000.00. As a result of the conveyance mentioned heretofore, TCT No. 20714 in the name of plaintiff was partially cancelled and in lieu thereof, TCT No. 32744 was issued by the Register of Deeds of Rizal in the name of appellee Herminia Espiritu. On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated no cause of action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not included as party-plaintiff, and on the further ground that appellant's cause of action was unenforceable under the Statute of Frauds. In his opposition to said motion to dismiss, appellant argued that the Statute of Frauds does not apply to trustee and cestui que trust as in the case of appellee and her illegitimate child, and that for this reason appellant would not be barred from proving by parol evidence an implied trust existing under Article 1453 of the Civil Code. On the other hand, in her rejoinder to appellant's opposition, appellee argued that what the former was invoking in his complaint (Paragraph V, Complaint) was an implied trust under Article 1453 of the Civil

Code and not an express trust under Section 3, Rule 3 of the Revised Rules of Court. Finding the grounds alleged in the motion to dismiss to be meritorious, the trial court dismissed the complaint, with costs. Immediately after receiving notice of said order of dismissal, appellant filed a motion for the admission of an amended complaint, attaching thereto a copy hereof, the amendment consisting mainly of the inclusion of the minor, Pastor Constantino, Jr. as co-plaintiff. The amended complaint further prayed for the appointment of appellant as said minor's guardian ad litem. An opposition thereto was filed on the ground that the amendment aforesaid was not an inclusion but a substitution of the party plaintiff. As the latter had no interest whatsoever in the subject matter of the case, it was argued that the substitution was not allowed in this jurisdiction. Appellant's answer to appellee's opposition alleged that, as the ground relied upon in the said opposition was purely technical, even the substitution of the party plaintiff should be allowed under Section 2, Rule 17 of the Rules of Court. Thereafter the lower court issued the appealed order denying appellant's motion for the admission of his amended complaint. Hence, the instant direct appeal. The original as well as the amended complaint mentioned above allege that the sale made by appellant Constantino in favor of appellee of the properties described in said pleadings was subject to the agreement that the vendee would hold them in trust for their at that time already conceived but unborn illegitimate child; that the vendee violated this agreement, firstly, by subjecting them to two different contracts of mortgage, and later by trying to sell them, this being not only in violation of the aforesaid agreement but prejudicial to the cestui que trust; that the action was commenced to compel the vendee to comply with their agreement by executing the corresponding deed of conveyance in favor of their minor son, and to desist from further doing any act prejudicial to the interests of the latter. It appears then that, upon the facts alleged by appellant, the contract between him and appellee was a contract pour autrui, although couched in the form of a deed of absolute sale, and that appellant's action was, in effect, one for specific performance. That one of the parties to a contract is entitled to bring an action for its enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered into may also demand its fulfillment provided he had communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked. It appearing that the amended complaint submitted by appellant to the lower court impleaded the beneficiary under the contract as a party co-plaintiff, it seems clear that the three parties concerned therewith would, as a result, be before the court and the latter's adjudication would be complete and binding upon them. The ruling in the case of Echaus vs. Gan, 55 Phil. 527 involving facts similar to the ones before us is of obvious application to the latter. We quote the following pertinent portions of our decision in said case: This action was instituted in the Court of First Instance of Occidental Negros by Adoracion Rosales de Echaus, assisted by her husband Enrique Echaus, for the purpose of obtaining a judicial order requiring the defendant Maria Gan, as administratrix of the estate of her deceased husband, Manuel Gay Yulingco, as well as the heirs of said decedent, to execute in due form a contract, with appropriate description of the real property involved, in conformity with the terms of an agreement dated September 3, 1927, executed by the deceased Manuel Gay Yulingco, in life, and Enrique Echaus, one of the plaintiffs in the case (Exhibit A). To this action the defendants interposed a general answer and cross-complaint, in the latter of which they sought a decree annulling the contract Exhibit A as excessively onerous and illegal. Upon hearing the cause the trial court absolved the plaintiffs from the cross-complaint and gave judgment in favor of the plaintiffs upon the complaint, requiring the defendants, within thirty days from the date of the finality of the decision, to execute before a notary public and deliver to the plaintiffs a contract similar in terms to that indicated in the Exhibit A but containing, in addition, a description of the real property involved, in such form as would enable the plaintiffs to procure said contract to be inscribed on the certificate of title corresponding to said property, with costs against the defendants. From this judgment the defendants appealed. xxx xxx xxx

The contract in question, Exhibit A, on which this action is based, was executed by Manuel Gay Yulingco and Enrique Echaus, and although the contract binds Yulingco to pay to Adoracion Rosales de Echaus, the wife of Enrique Echaus, the sum of fifty centavos for each picul of sugar that may be produced upon the two haciendas covered by the contract during the fourteen years beginning with the crop for 1927-1928, nevertheless this action is not instituted by the nominal beneficiary, Adoracion Rosales de Echaus, directly for the purpose of obtaining the benefit which said contract purports to confer upon her. The purpose of the action is to compel the defendants to execute a contract pursuant to the tenor of the contract Exhibit A, but containing an adequate description of the property contained in the two haciendas, for the purpose of enabling Echaus to procure the annotation of said contract on the Torrens certificates of title. It is therefore evident that, technically speaking, the proper person to bring this action is Enrique Echaus, the person with whom the contract was made by Yulingco. It is, nevertheless, equally obvious that the wife of Enrique Echaus is a party in interest, and she is certainly a proper, if not an entirely necessary party to the action. It results that there is really no improper joinder of parties plaintiff. Whether the contract of sale entered into between appellant and appellee was as claimed and the amended complaint subject to the agreement that appellee would hold the properties in trust for their unborn child is a question of fact that appellee may raise in her answer for the lower court to determine after trial. On the other hand, the contention that the contract in question is not enforceable by action by reason of the provisions of the Statute of Frauds does not appear to be indubitable, it being clear upon the facts alleged in the amended complaint that the contract between the parties had already been partially performed by the execution of the deed of sale, the action brought below being only for the enforcement of another phase thereof, namely, the execution by appellee of a deed of conveyance in favor of beneficiary thereunder. WHEREFORE, the appealed order is hereby set aside and the case is remanded to the lower court for further proceedings in accordance with law.

G.R. No. L-13505

February 4, 1919

GEO. W. DAYWALT, plaintiff-appellant, vs. LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees. C. C. Cohn and Thos. D. Aitken for appellant. Crossfield & O'Brien for appellee. STREET, J.: In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later. The parties, however, met immediately upon the entering of this decree and made a new contract with a view to carrying their original agreement into effect. This new contract was executed in the form of a deed of conveyance and bears date of August 16, 1906. The stipulated price was fixed at P4,000, and the area of the land enclosed in the boundaries defined in the contract was stated to be 452 hectares and a fraction. The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the

contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement, superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100. The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so large an amount of land and that she had been misinformed as to its area. This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and effect. This decree appears to have become finally effective in the early part of the year 1914.1 The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on the island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same corporation was at this time also the owner of another estate on the same island immediately adjacent to the land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had maintained large herds of cattle on the farms referred to. Their representative, charged with management of these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well acquainted with Teodorica Endencia and exerted over her an influence and ascendency due to his religious character as well as to the personal friendship which existed between them. Teodorica appears to be a woman of little personal force, easily subject to influence, and upon all the important matters of business was accustomed to seek, and was given, the advice of father Sanz and other members of his order with whom she came in contact. Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to sell her land to the plaintiff as well as of the later important developments connected with the history of that contract and the contract substituted successively for it; and in particular Father Sanz, as well as other members of the defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we have already seen finally fixed the rights of the parties to the property in question. When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff was made compulsory by reason of the decree of the Supreme Court in 1914. When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica still retained possession of said property Father Sanz entered into an arrangement with her whereby large numbers of cattle belonging to the defendant corporation were pastured upon said land during a period extending from June 1, 1909, to May 1, 1914. Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the defendant corporation the sum of P24,000, as damages for the use and occupation of the land in question by reason of the pasturing of cattle thereon during the period stated. The trial court came to the conclusion that the defendant corporation was liable for damages by reason of the use and occupation of the premises in the manner stated; and fixed the amount to be recovered at P2,497. The plaintiff appealed and has assigned error to this part of the judgment of the court below, insisting that damages should have been awarded in a much larger sum and at least to the full extent of P24,000, the amount claimed in the complaint.

As the defendant did not appeal, the property of allowing damages for the use and occupation of the land to the extent o P2,497, the amount awarded, is not now in question an the only thing here to be considered, in connection with this branch of the case, is whether the damages allowed under this head should be increased. The trial court rightly ignored the fact that the defendant corporation had paid Teodorica Endencia of ruse and occupation of the same land during the period in question at the rate of P425 per annum, inasmuch as the final decree of this court in the action for specific performance is conclusive against her right, and as the defendant corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be permitted that the corporation should escape liability in this action by proving payment of rent to a person other than the true owner. With reference to the rate of which compensation should be estimated the trial court came to the following conclusion: As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at leas one thousand head of cattle on the land and that the pasturage was of the value of forty centavos per head monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is rather improbable that 1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one thousand head of cattle during the entire year, and, considering the locality, the rate of forty centavos per head monthly seems too high. The evidence shows that after having recovered possession of the land the plaintiff rented it to the defendant corporation for fifty centavos per hectares annually, the tenant to pay the taxes on the land, and this appears to be a reasonable rent. There is no reason to suppose that the land was worth more for grazing purposes during the period from 1909 to 1913, than it was at the later period. Upon this basis the plaintiff is entitled to damages in the sum of p2,497, and is under no obligation to reimburse the defendants for the land taxes paid by either of them during the period the land was occupied by the defendant corporation. It may be mentioned in this connection that the Lontok tract adjoining the land in question and containing over three thousand hectares appears to have been leased for only P1,000 a year, plus the taxes. From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at 50 centavos per hectare per annum, and roughly adopted the period of four years as the time for which compensation at that rate should be made. As the court had already found that the defendant was liable for these damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months, there seems some ground for the contention made in the appellant's first assignment of error that the court's computation was erroneous, even accepting the rule upon which the damages were assessed, as it is manifest that at the rate of 50 centavos per hectare per annum, the damages for four years and eleven months would be P3,090. Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to compensate the plaintiff for the use and occupation of the land during the whole time it was used. There is evidence in the record strongly tending to show that the wrongful use of the land by the defendant was not continuous throughout the year but was confined mostly to the reason when the forage obtainable on the land of the defendant corporation was not sufficient to maintain its cattle, for which reason it became necessary to allow them to go over to pasture on the land in question; and it is not clear that the whole of the land was used for pasturage at any time. Considerations of this character probably led the trial court to adopt four years as roughly being the period during which compensation should be allowed. But whether this was advertently done or not, we see no sufficient reason, in the uncertainty of the record with reference to the number of the cattle grazed and the period when the land was used, for substituting our guess for the estimate made by the trial court. In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained her in her defense to the action of specific performance which was finally decided in favor of the plaintiff in this court. The cause of action here stated is based on liability derived from the wrongful interference of the defendant in the performance of the contract between the plaintiff and Teodorica Endencia; and the large damages laid in the complaint were, according to the proof submitted by the

plaintiff, incurred as a result of a combination of circumstances of the following nature: In 1911, it appears, the plaintiff, as the owner of the land which he had bought from Teodorica Endencia entered into a contract (Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to have yielded her consent to the consummation of her contract, but the Torrens title was then in the possession of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract with the plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into effect, must inevitably have proved a great success. The determination of the issue presented in this second cause of action requires a consideration of two points. The first is whether a person who is not a party to a contract for the sale of land makes himself liable for damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and maintaining him in the effort to resist an action for specific performance. The second is whether the damages which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of recovery. As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention that the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply with the contract of sale, were actuated by improper and malicious motives. The trial court found that this contention was not sustained, observing that while it was true that the circumstances pointed to an entire sympathy on the part of the defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to the land, the fact that its officials may have advised her not to carry the contract into effect would not constitute actionable interference with such contract. It may be added that when one considers the hardship that the ultimate performance of that contract entailed on the vendor, and the doubt in which the issue was involved to the extent that the decision of the Court of the First Instance was unfavorable to the plaintiff and the Supreme Court itself was divided the attitude of the defendant corporation, as exhibited in the conduct of its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his associates believed in good faith that the contract cold not be enforced and that Teodorica would be wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore, prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have surrendered the documents of title and given possession of the land but for the influence and promptings of members of the defendants corporation. But we do not credit the idea that they were in any degree influenced to the giving of such advice by the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in question to the prejudice of the just rights of the plaintiff. The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the existence of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined in said contract. In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is held that a person who is a stranger to contract may, by an unjustifiable interference in the performance thereof, render himself liable for the damages consequent upon non-performance. It is said that the doctrine of these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to extend the rule there enunciated to the situation here presente.

Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit an action for damages to be maintained against a stranger to a contract wrongfully interfering in its performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and nowhere else. The defendant, knowing of the existence of this contract, and, as the declaration alleged, "maliciously intending to injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that the plaintiff was entitled to recover damages. The right which was here recognized had its origin in a rule, long familiar to the courts of the common law, to the effect that any person who entices a servant from his employment is liable in damages to the master. The master's interest in the service rendered by his employee is here considered as a distinct subject of juridical right. It being thus accepted that it is a legal wrong to break up a relation of personal service, the question now arose whether it is illegal for one person to interfere with any contract relation subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed that the liability here under consideration was limited to the cases of the enticement of menial servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But in the case cited the majority of the judges concurred in the opinion that the principle extended to all cases of hiring. This doctrine was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Tempertonvs. Russell ([1893], Q. B., 715), it was held that the right of action for maliciously procuring a breach of contract is not confined to contracts for personal services, but extends to contracts in general. In that case the contract which the defendant had procured to be breached was a contract for the supply of building material. Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential. Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third person, with a bona fidepurpose of benefiting the one who is under contract to go, dissuades him from the step, no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract broken. The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations of modern industry, as a means of restraining the activities of labor unions and industrial societies when improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only object of the order in question was that the price of coal might thereby be kept up, a factor which affected the miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable. In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138 Mo., 439.) It should be observed in this connection that, according to the English and American authorities, no question can be made as to the liability to one who interferes with a contract existing between others by means which, under known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using such unlawful means is, under all the authorities, liable for the damage which ensues. And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome and

malicious interference with a contract relation unless some such unlawful means as those just indicated are used. (See cases last above cited.) This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the plaintiff Gilchrist for a specified period of time. In violation of the terms of this agreement, Cuddy proceeded to turn over the film also under a rental contract, to the defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of First Instance and produced an injunction restraining the defendants from exhibiting the film in question in their theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this court it was in effect held that the injunction was not improperly granted, although the defendants did not, at the time their contract was made, know the identity of the plaintiff as the person holding the prior contract but did know of the existence of a contract in favor of someone. It was also said arguendo, that the defendants would have been liable in damages under article 1902 of the Civil Code, if the action had been brought by the plaintiff to recover damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the concurring opinion, where it is said that the question of breach of contract by inducement was not really involved in the case. Taking the decision upon the point which was rally decided, it is authority for the proposition that one who buys something which he knows has been sold to some other person can be restrained from using that thing to the prejudice of the person having the prior and better right. Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might have been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant corporation is also liable in this action for the damage resulting to the plaintiff from the wrongful use and occupation of the property has also been already determined. But it will be observed that in order to sustain this liability it is not necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract for unlawful interference in the performance thereof. It is enough that defendant use the property with notice that the plaintiff had a prior and better right. Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article as relates to liability for negligence, we take the rule to be that a person is liable for damage done to another by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted legal standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of liability for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the doctrine of Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil law. Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof. Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compaia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain parties, determines not only the character and extent of the liability of the contracting parties but also the person or entity by whom the obligation is exigible. The same idea should apparently be applicable with respect to the person against whom the obligation of the contract may be enforced; for it is evident that there must be a certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot consistently be held liable upon it. If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the process must be accomplished by distinguishing clearly between the right of action arising from the improper interference with the contract by a stranger thereto, considered as an independent act generate of civil liability, and the right of action ex contractu against a party to the contract resulting from the breach thereof. However, we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are of the opinion that neither the doctrine of Lumleyvs. Gye [supra] nor the application made of it by this court in

Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract. Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession. It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this court, but without obtaining any special adjudication with reference to damages. Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action to recover damages for the breach of the contract in question was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages without refernce to this point. The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. Now, what is the measure of damages for the wrongful detention of real property by the vender after the time has come for him to place the purchaser in possession? The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he has contracted to deliver is the value of the use and occupation of the land for the time during which it is wrongfully withheld. And of course where the purchaser has not paid the purchaser money, a deduction may be made in respect to the interest on the money which constitutes the purchase price. Substantially the same rule holds with respect to the liability of a landlord who fails to put his tenant in possession pursuant to contract of lease. The measure of damages is the value of the leasehold interest, or use and occupation, less the stipulated rent, where this has not been paid. The rule that the measure of damages for the wrongful detention of land is normally to be found in the value of use and occupation is, we believe, one of the things that may be considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) almost as wellsettled, indeed, as the rule that the measure of damages for the wrongful detention of money is to be found in the interest. We recognize the possibility that more extensive damages may be recovered where, at the time of the creation of the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser or lessee desires to put the property which is the subject of the contract, and the contract is made with the eyes of the vendor or lessor open to the possibility of the damage which may result to the other party from his own failure to give possession. The case before us is not this character, inasmuch as at the time when the rights of the parties under the contract were determined, nothing was known to any to them about the San Francisco capitalist who would be willing to back the project portrayed in Exhibit C. The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to

such as might be reasonable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties. Where the purchaser desires to protect himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other damages than such as the incident to the normal value of the use and occupation, he should cause to be inserted in the contract a clause providing for stipulated amount to the paid upon failure of the vendor to give possession; and not case has been called to our attention where, in the absence of such a stipulation, damages have been held to be recoverable by the purchaser in excess of the normal value of use and occupation. On the contrary, the most fundamental conceptions of the law relative to the assessment of damages are inconsistent with such idea. The principles governing this branch of the law were profoundly considered in the case Hadley vs. Baxendale (9 Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to the principles governing will here be found instructive. The decision in that case is considered a leading authority in the jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in Gloucester, which was propelled by steam, and which was engaged in grinding and supplying meal and flour to customers. The shaft of the engine got broken, and it became necessarily that the broken shaft be sent to an engineer or foundry man at Greenwich, to serve as a model for casting or manufacturing another that would fit into the machinery. The broken shaft could be delivered at Greenwich on the second day after its receipts by the carrier it. It was delivered to the defendants, who were common carriers engaged in that business between these points, and who had told plaintiffs it would be delivered at Greenwich on the second day after its delivery to them, if delivered at a given hour. The carriers were informed that the mill was stopped, but were not informed of the special purpose for which the broken shaft was desired to forwarded, They were not told the mill would remain idle until the new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until the broken one arrived to serve as a model. There was delay beyond the two days in delivering the broken shaft at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay was offered by the carriers. The suit was brought to recover damages for the lost profits of the mill, cause by the delay in delivering the broken shaft. It was held that the plaintiff could not recover. The discussion contained in the opinion of the court in that case leads to the conclusion that the damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense necessary damage; and (2) special damages. Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish the case specially from other contracts. The consideration paid for an unperformed promise is an instance of this sort of damage. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, "according to the usual course of things." In case involving only ordinary damage no discussion is ever indulged as to whether that damage was contemplated or not. This is conclusively presumed from the immediateness and inevitableness of the damage, and the recovery of such damage follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to be within the contemplation of the parties. Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is only found in case where some external condition, apart from the actual terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual notice of that external condition, could not reasonably be expected to foresee. Concerning this sort of damage, Hadley vs. Baxendale (1854) [supra] lays down the definite and just rule that before such damage can be recovered the plaintiff must show that the particular condition which made the damage a possible and likely consequence of the breach was known to the defendant at the time the contract was made. The statement that special damages may be recovered where the likelihood of such damages flowing from the breach of the contract is contemplated and foreseen by the parties needs to be supplemented by a proposition which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from subsequent cases. This is that where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in contemplation of law remote, notification of the special conditions which make that damage possible cannot render the defendant liable therefor. To bring damages which would ordinarily be treated as remote within the category of recoverable special damages, it is necessary that the condition should be made the subject of

contract in such sense as to become an express or implied term of the engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131) is a case where the damage which was sought to be recovered as special damage was really remote, and some of the judges rightly places the disallowance of the damage on the ground that to make such damage recoverable, it must so far have been within the contemplation of the parties as to form at least an implied term of the contract. But others proceeded on the idea that the notice given to the defendant was not sufficiently full and definite. The result was the same in either view. The facts in that case were as follows: The plaintiffs, shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm in London for the French government. They delivered the shoes to a carrier in sufficient time for the goods to reach London at the time stipulated in the contract and informed the railroad agent that the shoes would be thrown back upon their hands if they did not reach the destination in time. The defendants negligently failed to forward the good in due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to sell at a loss. In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages in question are special damages which were not within contemplation of the parties when the contract was made, and secondly, because said damages are too remote to be the subject of recovery. This conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation, for, as already suggested, by advising Teodorica not to perform the contract, said corporation could in no event render itself more extensively liable than the principle in the contract. Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against the appellant. G.R. No. 120554 September 21, 1999 SO PING BUN, petitioner, vs. COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG, respondents.

QUISUMBING, J.: This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10, 1994, and the Resolution 2dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court affirmed the decision of the Regional Trial Court of Manila, Branch 35, except for the award of attorney's fees, as follows: WHEREFORE, foregoing considered, the appeal of respondent-appellant So Ping Bun for lack of merit is DISMISSED. The appealed decision dated April 20, 1992 of the court a quo is modified by reducing the attorney's fees awarded to plaintiff Tek Hua Enterprising Corporation from P500,000.00 to P200,000.00. 3 The facts are as follows: In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. The contracts each had a one-year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month-to-month basis.

When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation. So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing. On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees' demand. Again on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessee's part, and agreement to the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded. On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows: March 1, 1991 Mr. So Ping Bun 930 Soler Street Binondo, Manila Dear Mr. So, Due to my closed (sic) business associate (sic) for three decades with your late grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed you temporarily to use the warehouse of Tek Hua Enterprising Corp. for several years to generate your personal business. Since I decided to go back into textile business, I need a warehouse immediately for my stocks. Therefore, please be advised to vacate all your stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given 14 days to vacate the premises unless you have good reasons that you have the right to stay. Otherwise, I will be constrained to take measure to protect my interest. Please give this urgent matter your preferential attention to avoid inconvenience on your part. Very truly yours, (Sgd) Manuel C. Tiong MANUEL C. TIONG President 4 Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's request. The lease contracts in favor of Trendsetter were executed. In the suit for injunction, private respondents pressed for the nullification of the lease contracts between DCCSI and petitioner. They also claimed damages.

After trial, the trial court ruled: WHEREFORE, judgment is rendered: 1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3, inclusive) all dated March 11, 1991, between defendant So Ping Bun, doing business under the name and style of "Trendsetter Marketing", and defendant Dee C. Chuan & Sons, Inc. over the premises located at Nos. 924-B, 924-C, 930 and 930, Int., respectively, Soler Street, Binondo Manila; 2. Making permanent the writ of preliminary injunction issued by this Court on June 21, 1991; 3. Ordering defendant So Ping Bun to pay the aggrieved party, plaintiff Tek Hua Enterprising Corporation, the sum of P500,000.00, for attorney's fees; 4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is concerned, and the respective counterclaims of the defendant; 5. Ordering defendant So Ping Bun to pay the costs of this lawsuit; This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising Corporation and defendant Dee C. Chuan & Sons, Inc. to negotiate for the renewal of their lease contracts over the premises located at Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila, under such terms and conditions as they agree upon, provided they are not contrary to law, public policy, public order, and morals. SO ORDERED. 5 Petitioner's motion for reconsideration of the above decision was denied. On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for reconsideration, the appellate court modified the decision by reducing the award of attorney's fees from five hundred thousand (P500,000.00) pesos to two hundred thousand (P200,000.00) pesos. Petitioner is now before the Court raising the following issues: I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S DECISION FINDING SO PING BUN GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT? II. WHETHER THE APPELLATE COURT ERRED IN AWARDING ATTORNEY'S FEES OF P200,000.00 IN FAVOR OF PRIVATE RESPONDENTS. The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous conduct, particularly unlawful interference with contract. We have to begin, obviously, with certain fundamental principles on torts and damages. Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or compensation awarded for the damage suffered. 6 One becomes liable in an action for damages for a nontrespassory invasion of another's interest in the private use and enjoyment of asset if (a) the other has property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is

substantial, (c) the defendant's conduct is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and actionable under general negligence rules. 7 The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract; and (3) interference of the third person is without legal justification or excuse. 8 A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property. 9 This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. 10 One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor's motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer's interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection.11 Moreover justification for protecting one's financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. 12 It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. 13 As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of a contract, and the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. 15 In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces another to violate his contract shall be liable for damages to the other contracting party." Petitioner argues that damage is an essential element of tort interference, and since the trial court and the appellate court ruled that private respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved of any liability, including attorney's fees. It is true that the lower courts did not award damages, but this was only because the extent of damages was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or impossible to determine the extent of damage and there was nothing on record to serve as basis thereof. In that case we refrained from awarding damages. We believe the same conclusion applies in this case. While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not transcend the limits forbidding an obligatory award for damages in the absence of any malice. The business desire is there to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the respondents from further damage or injury caused by petitioner's interference.

Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is allowed under the circumstances provided for in Article 2208 of the Civil Code. 16 One such occasion is when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. 17 But we have consistently held that the award of considerable damages should have clear factual and legal bases. 18 In connection with attorney's fees, the award should be commensurate to the benefits that would have been derived from a favorable judgment. Settled is the rule that fairness of the award of damages by the trial court calls for appellate review such that the award if far too excessive can be reduced. 19 This ruling applies with equal force on the award of attorney's fees. In a long line of cases we said, "It is not sound policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions." 20 Considering that the respondent corporation's lease contract, at the time when the cause of action accrued, ran only on a month-to-month basis whence before it was on a yearly basis, we find even the reduced amount of attorney's fees ordered by the Court of Appeals still exorbitant in the light of prevailing jurisprudence. 21 Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award or attorney's fees in favor of private respondent corporation. WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award of attorney's fees is reduced from two hundred thousand (P200,000.00) to one hundred thousand (P100,000.00) pesos. No pronouncement as to costs.1wphi1.nt SO ORDERED.