CIV REV LAW 2 - Extinguishment of Obligations Full

Table of Contents
4.1 Causes of Extinguishment of Obligations .................................................................................. 2

4.2 Payment / Performance ................................................................................................................... 6
4.3 Application of Payments ..................................................................................................................... 150
4.4 Payment by cession ........................................................................................................................ 153
4.5 Tender of Payment and consignation ................................................................................................. 161
4.6 Loss of the thing due .......................................................................................................................... 222
4.7 Condonation or remission of debts ................................................................................................... 253
4.8 Confusion or merger of rights ............................................................................................................ 263

4.1 Causes of Extinguishment of Obligations
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.

MAKALINTAL, J .:p
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was rendered on June 28, 1965 sentencing defendant
Development Bank of the Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import and Export Co., Inc. in the
amount of P383,343.68, plus interest at the legal rate from the date the complaint was filed and attorney's fees in the amount of P5,000.00.
The present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the Rehabilitation Finance Corporation (RFC), before its conversion
into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the
manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00
as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been purchased by Saura on the strength of a letter of credit
extended by the Prudential Bank and Trust Co., and arrived in Davao City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on
the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. Among the other terms spelled
out in the resolution were the following:
1. That the proceeds of the loan shall be utilized exclusively for the following purposes:
For construction of factory building P250,000.00
For payment of the balance of purchase
price of machinery and equipment 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the
promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the Rehabilitation Finance Corporation, subject to availability of funds, and as the
construction of the factory buildings progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before, however, evidently having otherwise been informed of
its approval, Saura, Inc. wrote a letter to RFC, requesting a modification of the terms laid down by it, namely: that in lieu of having China
Engineers, Ltd. (which was willing to assume liability only to the extent of its stock subscription with Saura, Inc.) sign as co-maker on the
corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an amount equivalent to such subscription; and that
Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954, designating of the members of its Board of Governors, for
certain reasons stated in the resolution, "to reexamine all the aspects of this approved loan ... with special reference as to the advisability of
financing this particular project based on present conditions obtaining in the operations of jute mills, and to submit his findings thereon at the
next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the loan, and asked that the
necessary documents be prepared in accordance with the terms and conditions specified in Resolution No. 145. In connection with the
reexamination of the project to be financed with the loan applied for, as stated in Resolution No. 736, the parties named their respective
committees of engineers and technical men to meet with each other and undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same "should not be taken as an acquiescence on (its) part to novate, or accept new
conditions to, the agreement already) entered into," referring to its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing China Engineers, Ltd., as one of
the co-signers; and the corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the reexamination contemplated in Resolution No. 736
proceeded. In a meeting of the RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of Saura, Inc., was present, it
was decided to reduce the loan from P500,000.00 to P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the loan granted the Saura
Import & Export Co. under Resolution No. 145, c.s., for the purpose of financing the manufacture of jute sacks in Davao, with special
reference as to the advisability of financing this particular project based on present conditions obtaining in the operation of jute mills, and
after having heard Ramon E. Saura and after extensive discussion on the subject the Board, upon recommendation of the Chairman,
RESOLVED that the loan granted the Saura Import & Export Co. be REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to time to place the factory in actual operation: PROVIDED that all terms and
conditions of Resolution No. 145, c.s., not inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally
with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. A
follow-up letter dated July 2 requested RFC that the registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 be granted. The request was denied by RFC, which
added in its letter-reply that it was "constrained to consider as cancelled the loan of P300,000.00 ... in view of a notification ... from the China
Engineers Ltd., expressing their desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and informed RFC that China Engineers, Ltd. "will at any time
reinstate their signature as co-signer of the note if RFC releases to us the P500,000.00 originally approved by you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China
Engineers, Ltd. is now willing to sign the promissory notes jointly with the borrower-corporation," but with the following proviso:
That in view of observations made of the shortage and high cost of imported raw materials, the Department of
Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate
vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the
certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to
develop the manufacture of sacks on the basis of locally available raw materials." This point is important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw
materials. The cover page of its brochure (Exh. M) describes the project as a "Joint venture by and between the Mindanao Industry
Corporation and the Saura Import and Export Co., Inc. to finance, manage and operate a Kenaf mill plant, to manufacture copra and corn
bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf." The explanatory note on page 1 of the
same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf
which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place, and to require, in its Resolution
No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of local raw materials to provide
adequately for the requirements of the factory. Saura, Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955: (1)
stating that according to a special study made by the Bureau of Forestry "kenaf will not be available in sufficient quantity this year or probably
even next year;" (2) requesting "assurances (from RFC) that my company and associates will be able to bring in sufficient jute materials as
may be necessary for the full operation of the jute mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955, regarding the release of your loan under
consideration of P500,000. As stated in our letter of December 22, 1954, the releases of the loan,
if revived, are proposed to be made from time to time, subject to availability of funds towards the
end that the sack factory shall be placed in actual operating status. We shall be able to act on
your request for revised purpose and manner of releases upon re-appraisal of the securities
offered for the loan.
With respect to our requirement that the Department of Agriculture and Natural Resources certify
that the raw materials needed are available in the immediate vicinity and that there is prospect of
increased production thereof to provide adequately the requirements of the factory, we wish to
reiterate that the basis of the original approval is to develop the manufacture of sacks on the
basis of the locally available raw materials. Your statement that you will have to rely on the
importation of jute and your request that we give you assurance that your company will be able to
bring in sufficient jute materials as may be necessary for the operation of your factory, would not
be in line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation and delivered it to Ramon F. Saura
himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed on August 6, 1954, over the
same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to December 31 of the same year
within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation the
Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the
present suit for damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the proceeds
of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into,
in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected contract between the parties and that the defendant was
guilty of breach thereof. The defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of action had prescribed, or
that its claim had been waived or abandoned; (2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did
not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the
parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by
resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the
basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize
locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by
Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to
wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2)
that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those
conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. There was nothing in said
conditions that contradicted the terms laid down in RFC Resolution No. 145, passed on January 7, 1954, namely "that the proceeds of the
loan shall be utilized exclusively for the following purposes: for construction of factory building P250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity
this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and
labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a
diversion of part of the proceeds of the loan to purposes other than those agreed upon.
When RFC turned down the request in its letter of January 25, 1955 the negotiations which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo disenso"
1
which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.
2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged
breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for
cancellation of the mortgage carried no reservation of whatever rights it believed it might have against
RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years after the loan
agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All
these circumstances demonstrate beyond doubt that the said agreement had been extinguished by
mutual desistance and that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to consider and resolve the other issues raised
in the respective briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against
the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.

Footnotes
1 8 Manresa, p. 294.
2 2 Castan, p. 560.

4.2 Payment / Performance
G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.

TEEHANKEE, J .:1wph1.t
The Court, in affirming the decision under review of the Court of Appeals, which holds that the respondent buyer of two small
residential lots on installment contracts on a ten-year basis who has faithfully paid for eight continuous years on the principal
alone already more than the value of one lot, besides the larger stipulated interests on both lots, is entitled to the conveyance of
one fully paid lot of his choice, rules that the judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for execution of the corresponding
deed of conveyance after payment of the balance still due on their purchase price. Private respondent as plaintiff had entered into
two written contracts with petitioner Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him
Lots Nos. 7 and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum of P1,500.00 per lot,
payable over the span of ten years divided into 120 equal monthly installments of P19.83 with 10% interest per annum, to
commence on May 26, 1948, date of execution of the contracts. Subsequently, Legarda Hermanos partitioned the subdivision
among the brothers and sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was then included
as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the stipulated 120) monthly installments
totalling P3,582.06 up to the month of February, 1956, which as per petitioners' own statement of account, Exhibit "1", was applied
to respondent's account (without distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.06
1

It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the
Manila court of first instance in 1961, respondent did not make further payments. The account
thus shows that he owed petitioners the sum of P1,317.72 on account of the balance of the
purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had paid
more than the stipulated purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote
petitioners stating that his desire to build a house on the lots was prevented by their failure to
introduce improvements on the subdivision as "there is still no road to these lots," and requesting
information of the amount owing to update his account as "I intend to continue paying the
balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete
total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant
to the provisions of both contracts all the amounts paid in accordance with the agreement
together with the improvements on the premises have been considered as rents paid and as
payment for damages suffered by your failure,"
2
and "Said cancellation being in order, is hereby
confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of
the contracts and dismissing respondent's complaint, respondent appellate court on appeal
rendered its judgment of July 27, 1966 reversing the lower court's judgment and ordering
petitioners "to deliver to the plaintiff possession of one of the two lots, at the choice of
defendants, and to execute the corresponding deed of conveyance to the plaintiff for the said lot,"

3
ruling as follows:
During the hearing, plaintiff testified that he suspended payments because the lots
were not actually delivered to him, or could not be, due to the fact that they were
completely under water; and also because the defendants-owners failed to make
improvements on the premises, such as roads, filling of the submerged areas, etc.,
despite repeated promises of their representative, the said Mr. Cenon. As regards
the supposed cancellation of the contracts, plaintiff averred that no demand has
been made upon him regarding the unpaid installments, and for this reason he
could not be declared in default so as to entitle the defendants to cancel the said
contracts.
The issue, therefore, is: Under the above facts, may defendants be compelled, or
not, to allow plaintiff to complete payment of the purchase price of the two lots in
dispute and thereafter to execute the final deeds of conveyance thereof in his
favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the remaining
installments is true, considering the circumstances obtaining in this case, we elect
to apply the broad principles of equity and justice. In the case at bar, we find that
the plaintiff has paid the total sum of P3,582.06 including interests, which is even
more than the value of the two lots. And even if the sum applied to the principal
alone were to be considered, which was of the total of P1,682.28, the same was
already more than the value of one lot, which is P1,500.00. The only balance due on
both lots was P1,317.72, which was even less than the value of one lot. We will
consider as fully paid by the plaintiff at least one of the two lots, at the choice of
the defendants. This is more in line with good conscience than a total denial to the
plaintiff of a little token of what he has paid the defendant Legarda Hermanos.
4

Hence, the present petition for review, wherein petitioners insist on their right of cancellation
under the "plainly valid written agreements which constitute the law between the parties" as
against "the broad principles of equity and justice" applied by the appellate court. Respondent on
the other hand while adhering to the validity of the doctrine of the Caridad Estates cases
5
which
recognizes the right of a vendor of land under a contract to sell to cancel the contract upon
default, with forfeiture of the installments paid as rentals, disputes its applicability herein
contending that here petitioners-sellers were equally in default as the lots were "completely under
water" and "there is neither evidence nor a finding that the petitioners in fact cancelled the
contracts previous to receipt of respondent's letter."
6

The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06
(including interests of P1,889.78) already paid by respondent (which was more than the value of
two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was
already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by
respondent would be considered as fully paid, is fair and just and in accordance with law and
equity.
As already stated, the monthly payments for eight years made by respondent were applied to his
account without specifying or distinguishing between the two lots subject of the two agreements
under petitioners' own statement of account, Exhibit "1".
7
Even considering respondent as having
defaulted after February 1956, when he suspended payments after the 95th installment, he had as
of the already paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00).
The judgment recognizing this fact and ordering the conveyance to him of one lot of his choice
while also recognizing petitioners' right to retain the interests of P1,889.78 paid by him for eight
years on both lots, besides the cancellation of the contract for one lot which thus reverts to
petitioners, cannot be deemed to deny substantial justice to petitioners nor to defeat their rights
under the letter and spirit of the contracts in question.
The Court's doctrine in the analogous case of J .M. Tuason & Co. Inc. vs. J avier
8
is fully applicable
to the present case, with the respondent at bar being granted lesser benefits, since no rescission
of contract was therein permitted. There, where the therein buyer-appellee identically situated as
herein respondent buyer had likewise defaulted in completing the payments after having
religiously paid the stipulated monthly installments for almost eight years and notwithstanding
that the seller-appellant had duly notified the buyer of the rescission of the contract to sell, the
Court upheld the lower court's judgment denying judicial confirmation of the rescission and
instead granting the buyer an additional grace period of sixty days from notice of judgment to pay
all the installment payments in arrears together with the stipulated 10% interest per annum from
the date of default, apart from reasonable attorney's fees and costs, which payments, the Court
observed, would have the plaintiff-seller "recover everything due thereto, pursuant to its contract
with the defendant, including such damages as the former may have suffered in consequence of
the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592
thereto, We find that plaintiff herein has not been denied substantial justice, for, according to Art.
1234 of said Code: 'If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages suffered by
the obligee,'" and "that in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Article 1234 of the Civil Code."
9

ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without
pronouncement as to costs.
Makalintal, C.J ., Castro, Makasiar, Esguerra and Muoz Palma, J J ., concur.1wph1.t

Footnotes
* Composed of Julio Villamor, Jesus Y. Perez and Ramon O. Nolasco, JJ.
1 Petitioners' brief, p.3.
2 Decision, Court of Appeals, Rollo at p. 36.
3 Idem. at p. 40.
4 Idem, at pp. 36-40, emphasis supplied.
5 Caridad Estates vs. Santero, 71 Phil. 114; Miranda vs. Caridad Estates, L-2077, Oct. 3, 1950.
6 Respondent's brief, pp. 16-17.
7 Supra, see fn. 1.
8 31 SCRA 829 (Feb. 27, 1970), per Concepcion, C.J., cit. Sevilla vs. CA, 27 SCRA 1170 (Apr. 28, 1969).
9 Idem, at pp. 832-833, emphasis supplied.
___________
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 121989 January 31, 2006
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,
vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING & DEVELOPMENT
CORPORATION, Respondents.
D E C I S I O N
TINGA, J .:
In this Petition for Review on Certiorari, Philippine Commercial International Bank (PCIB)
impugns the Decision
1
of the Court of Appeals dated 21 June 1995 finding it liable to Atlas
Consolidated Mining and Development Corporation (Atlas), as well as the Resolution
2
dated 12
September 1995 denying its Motion for Reconsideration.
3

The antecedents follow.
PCIB and, Manila Banking Corporation (MBC) were joint bidders in a foreclosure sale held on
20 December 1975 of assorted mining machinery and equipment previously mortgaged to them
by the Philippine Iron Mines, Inc. (PIM).
Four (4) years later, Atlas agreed to purchase some of these properties owned jointly at that time
by PCIB and MBC. The sale was evidenced by a Deed of Sale dated 8 February 1979, with the
parties agreeing therein to an initial downpayment of P12,000,000.00 and the balance of
P18,000,000.00 payable in six (6) monthly installments. It was also stipulated that the total
purchase price would be finally adjusted to exclude items to be retained by the Bureau of Mines.
The contract contained provisions expressly warranting the following: (1) full and sufficient title
to the properties, (2) freeing the properties from all liens and encumbrances, (3) freeing Atlas
from all claims and incidental actions of the National Mines and Allied Workers Union
(NAMAWU), and (4) full rights and capacity of the seller to convey title to and effect peaceful
delivery of the properties to Atlas.
4

The NAMAWU claim stemmed from a labor dispute docketed as RB-VI-3322-75 of the
National Labor Relations Commission (NLRC), where it obtained a favorable judgment against
PIM in the amount of P4,298,307.77. This award was affirmed by the Court.
5
After the judgment
became final and executory, a writ of execution was duly issued.
In compliance with the contract, on 12 February 1979, Atlas issued Hongkong and Shanghai
Bank Check No. 003842 in the amount of P12,000,000.00 as downpayment, payable to both
PCIB and MBC.
In a letter-agreement
6
dated 7 March 1979 between PCIB and MBC bearing the conformity of
Atlas that was made a supplement to the Deed of Sale, the final purchase price was adjusted to
P29,630,000.00.
On the following day, PCIB and MBC wrote Atlas requesting that subsequent installment
payments of the balance be made in the following proportions: PCIB 63.1579% and MBC -
36.8421%. The request was expressed through a letter
7
signed by Ruben G. Asedillo and Porfirio
Q. Cabalu, Vice Presidents respectively of MBC and PCIB.
On 18 April 1979, Atlas paid to NAMAWU the amount of P4,298,307.77. This payment was
made in compliance with the writ of garnishment issued on the same date against Atlas to satisfy
the final judgment in favor of NAMAWU and against PIM.
PCIB and MBC filed on 23 April 1979 a petition for certiorari with this Court, seeking to annul
and set aside the order of garnishment and to enjoin Atlas from complying with it. The Court, in
G.R. No. L-50402, dismissed the petition and sustained Atlass rights as follows:
. . . Atlas had the right to receive the properties free from any lien and encumbrance, and when
the garnishment was served on it, it was perfectly in the right in slashing the P4,298,307.77 from
the P30M it had to pay petitioners (PCIB, MBC) in order to satisfy the long existing and vested
right of the laborers of financially moribund PIM, without any liability to petitioners for
reimbursement thereof."
8

In the meantime, Atlas had made six (6) monthly payments in 1979 totaling P13,696,692.22, of
which P8,650,543.18 or 63.1579% was received by PCIB.
According to Atlas, apart from the downpayment of P12,000,000.00 and installment payments of
P13,696,692.22, it should be credited with its payment of P4,298,307.77 to NAMAWU as a
consequence of the garnishment with which the latter had secured together with corresponding
P5,000.00 sheriffs fee. Thus, Atlas claims to have paid a total of P30,000,000.00, of which
P370,000.00 was an overpayment. Following the payment allocations between PCIB and MBI,
Atlas claimed that PCIB should reimburse it to the tune of P233,684.23. When PCIB refused to
pay, Atlas sued PCIB to obtain reimbursement of the alleged overpayment.
On the other hand, PCIB contended that Atlas still owed it a total of P908,398.75. It also alleged
that even before the writ of garnishment was served on Atlas, the judgment in favor of
NAMAWU had already been partially satisfied in the amount of P601,260.00. On account of this
earlier payment, PCIB argued that the total payments NAMAWU had received exceeded what it
was entitled to by reason of the final judgment and, therefore, Atlas could not credit the full
amount received by NAMAWU in satisfaction of the Atlas obligation to PCIB.
The trial court, in a Decision
9
dated 29 November 1990, upheld PCIBs position and ordered
Atlas to pay P908,398.75, plus interest at the legal rate from the time of demand until payment of
said amount.
10
It ruled:
After a thorough analysis and evaluation of the evidence thus far adduced and remaining
unrebutted, the Court is convinced that defendant only received the amount of P6,819,766.10, as
its share out of the P12,000,000.00 downpayment, provided in the Deed of Sale, not
P7,578,948.00 as claimed by plaintiff. The Court is furthermore convinced that plaintiff
erroneously paid the amount of P4,298,307.77 to NAMAWU which payment was made pursuant
to the writ of garnishment in NLRC Case No. RB-VI-3322-75. Before the service of the writ of
garnishment on April 18, 1979, the judgment in NLRC Case had already been satisfied in the
amount of P601,260.00 on account of several execution sales held on February 28, 1976 and
October 20, 1976 and the remaining balance thereto at the time of the service of the writ of
garnishment on plaintiff was only P3,697,[047].77. Certainly, this is the only amount which can
be credited to plaintiff by defendant because 63.1579% of P3,697,047.77 is P2,334,977.74,
according to letter-request of defendant PCIB and MBC to plaintiff dated March 8, 1979. Instead
of paying NAMAWU the amount of P3,697,047.77 which is the correct amount, plaintiff paid
the amount of P4,298,307.77.
The Court of Appeals reversed the lower court by ordering PCIB to pay Atlas the sum of
P233,654.23, plus interest at the legal rate from the date of the first demand on 3 September
1984, until fully paid, as well as the sum of P20,000.00 as attorneys fees and costs of suit. The
appellate court disposed of the case as follows:
A careful examination of the evidences presented in the case, though, evidently show that
appellee PCIB has no cause to blame appellant Atlas for its failure to receive what it maintains
was a shortchange in the share of P12 Million downpayment. It must be emphasized that at the
time the downpayment check was paid, the Deed of Sale did not mention any proportionate
sharing of the proceeds thereof between PCIB and MBC implying a 50-50 sharing between the
two (2) sellers. The 63.1579% for PCIB and 36.8421% was only made known and relayed to
Atlas in a letter dated March 8, 1979 after the downpayment check of P12 Million had already
been paid on February 12, 1979. Furthermore, the initial check was paid and received by Porfirio
O. Cabalu, Jr., Vice-President of defendant-appellee PCIB. Apparently, after the check was
deposited in the account of MBC, the latter issued its MBC Check No. 1652661 in the amount of
P6,819,766.10 to PCIB, properly receipted under Official Receipt No. 466652 of PCIB. In other
words, what the appellee herein receipted was the share given to it by Manilabank. Whether the
same was short of what is legally entitled becomes an internal matter between MBC and PCIB,
with Atlas having nothing to do with it. Legally, Atlas had effectively paid the P12 Million
downpayment to both PCIB and MBC.
As regard the second item, the propriety of the P4,298,307.77 paid by Atlas to NAMAWU and
incidental amount of P5,000.00 to the Sheriff by virtue of the Notice of Garnishment in the labor
dispute NLRC Case No. RB-VI-331-75, had already been judicially settled in the case of "PCIB
and MBC versus NAMAWU-IMF, L-50402, August 1982, 115 SCRA 873." Said case is a
Petition for Certiorari praying, inter-alia that the High Court orders [sic] the NLRC to stop
delivery of the check of P4,298,307.77 (same check in this case) of private respondent Atlas
and/or to stop payment to NAMAWU.
. . . .
Rightfully so, with the above discussion and the conceded fact that Atlas made a P370,000.00
overpayment to PCIB and MBC, said amount should be ordered returned. And since
mathematically, 63.1579% of P370,000.00 is P233,684.23, appellee PCIB should be ordered to
pay back Atlas said amount with interest at the legal rate, being a forbearance of money, from
the first demand until fully paid. Reasonable attorneys [fees] of P20,000.00 is likewise
award[ed] to appellant Atlas for having been forced to litigate after its several prior lawful
demands to collect from PCIB the overpayment, were obstinately and unjustly refused.
11

(Emphasis not ours.)
PCIB moved for a reconsideration of the decision but the same was denied by the Court of
Appeals in a Resolution dated 12 September 1995.
PCIB is now before us. The instant petition is anchored on two grounds, namely: (1) the Court of
Appeals erred in reversing the trial court by disturbing the latters factual findings and
conclusions despite the absence of strong and cogent reasons: and (2) the Court of Appeals erred
in finding that Atlas had complied with its obligation to PCIB.
12

Prefatorily, findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court.
13
A deviation from this rule, however, is justified where the
findings of fact of the Court of Appeals contradict those of the trial court.
14
In the case at bar, the
contradictory findings of the courts below necessitate our review of the factual issues.
The controversy boils down into whether Atlas overpaid or underpaid PCIB. To resolve the
conflicting claims, we must dispose of two issues: whether PCIB should settle for only
P6,819,766.10 which it received out of the P12,000,000.00 downpayment or it is entitled to more
than that, specifically 63.1579% of the downpayment; and whether Atlas should be fully credited
for the amount of P4,298,307.77 it had paid to NAMAWU.
Let us briefly recall the pertinent antecedents to appreciate the issues in a better light. There is no
dispute that the total purchase price of the properties bought by Atlas was P29,630,000.00. Of
this amount, PCIB claims that it is entitled to receive from Atlas the total of P18,713,685.77 or
63.1579% of the purchase price, pursuant to the letter dated 7 March 1979 of the P12,000,000.00
down payment made by Atlas to PCIB and MBC, and PCIB acknowledged that it had received
P6,819,766.10. PCIB also admitted having received P8,650,543.18 as its share from the
subsequent installment payments made by Atlas.
On the first issue, the Court of Appeals rejected PCIBs claim that it should received 63.1579%
of the downpayment. It ruled in essence that PCIB cannot demand from Atlas more than what it
got from MBC out of the downpayment remitted by Atlas to both PCIB and MBC.
We uphold the appellate court on this issue.
This case concerns a joint obligation, which is defined as an obligation where there is a
concurrence of several creditors, or of several debtors, or of several debtors, or of several
creditors and debtors, by virtue of which each of the creditors has a right to demand, and each of
the debtors is bound to render, compliance with his proportionate part of the prestation which
constitutes the object of the
obligation.
15
Article 1208
16
of the Civil Code mandates the equal sharing of creditors in the
payment of debt in the absence of any law or stipulation to the contrary.
PCIB is adamant in claiming that it only received P6,819,766.10 as its share in the
downpayment. To prove its allegation, PCIB presented its own receipt
17
wherein it was clearly
stated that PCIB received from Atlas the amount of P6,819,766.10.
It is beyond dispute that Atlas issued Hongkong Shanghai Bank Check No. 003842 in the sum of
P12,000,000.00 with PCIB and MBC as joint payees as downpayment of the purchase price on
12 February 1979. The check was received by Porfirio Cabalu, Jr., a PCIB Vice-President. As
admitted by the parties during trial, the check was afterwards deposited in the account of MBC.
18

Therefore, it is reasonable to conclude that the amount received by PCIB, as evidenced by the
receipt, was given to it by MBC. The appellate court arrived at the same conclusion, to wit:
Apparently, after the check was deposited in the account of MBC, the latter issued its MBC
Check No. 1652661 in the amount of P6,819,766.10 to PCIB, properly receipted under Official
Receipt No. 466652 of PCIB. In other words, what the appellee herein receipted was the share
given to it by Manilabank.
Undeniably, there was yet no agreement as of that date concerning the corresponding share of
each creditor. It was only on 8 March 1979 when PCIB communicated to Atlas the percentage of
payments to be remitted to PCIB and MBC. Before said date, Atlas could be secure in the
thought that the matter of sharing was best left to the creditors to decide.
Thus, we agree with the appellate courts conclusion that whatever deficiency PCIB is entitled
from the P12,000,000.00 down payment had become an internal matter between it and MBC.
19

The obligation was deemed fulfilled to the extent of P12,000,000.00 on the part of Atlas when
the check was received by a representative of PCIB and eventually deposited in the account of
MBC.
On the second issue, PCIB posits that Atlas cannot be credited with the payment of the full
amount of P4,298,307.77 because the remaining outstanding balance with respect to the
NAMAWU judgment claim at the time of the service of the writ of garnishment on Atlas was
only P3,697,047.77. Atlas, on the other hand, insists that the creditable payment to NAMAWU
was P4,298,307.77, as upheld by the Supreme Court in NAMAWU v. PCIB. Accordingly, it is
this amount which should be the basis in extracting the 63.1579% share of PCIB, which amounts
to P2,714,720.92 and not P2,334,977.74 as erroneously asserted by PCIB.
20

The appellate court upheld the position of Atlas on the second issue. We reverse the appellate
court.
While the original amount sought to be garnished was P4,298,307.77, the partial payment of
P601,260.00 naturally reduced it to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will
be recalled that upon receipt of the writ of garnishment, Atlas immediately paid NAMAWU,
without making any investigation or consultation with PCIB.
Article 1236 of the Civil Code applies in this instance. It provides that whoever pays for another
may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
PCIB is the debtor in this case, it having purchased along with MBC legally garnished
properties, while Atlas is the third person who paid the obligation of the debtor without the
latters knowledge and consent. Since Atlas readily paid NAMAWU without the knowledge and
consent of PCIB, Atlas may only recover from PCIB or, more precisely charge to PCIB, only the
amount of payment which has benefited the latter.
Generally, the third person who paid anothers debt is entitled to recover the full amount he had
paid. The law, however, limits his recovery to the amount by which the debtor has been
benefited, if the debtor has no knowledge of, or has expressed his opposition to such payment.
Where the defenses that could have been set up by the debtor against the creditor were existing
and perfected, a payment by a third person without the knowledge of the debtor cannot obligate
the
debtor to such third person to an amount more than what he could have been compelled by the
creditor to pay. Thus, if the debt has been remitted, paid, compensated or prescribed, a payment
by a third person would constitute a payment of what is not due; his remedy would be against the
person who received the payment under such conditions, and not against the debtor who did not
benefit from the payment.
21

The trial court correctly ruled that the overpayment amounting to P601,260.00 should be
recovered from NAMAWU. The remedy of Atlas in this case would be to proceed, not against
PCIB, but against NAMAWU who was paid in excess, applying the principle that no person can
unjustly enrich himself at the expense of another.
22

Having established that there has been partial satisfaction of the judgment in the amount of
P601,260.00, the remaining obligation of PCIB in the judgment account stood at P2,334,977.74.
Consequently, this is the only amount which must be credited to Atlas.
As it stands, the total payments by Atlas amounted to only P29,398,739.99. Therefore, Atlas
must settle P231,260.00, the balance of the purchase price, of which PCIB is entitled to receive
P146,058.96 as its proportionate share.
WHEREFORE, based on the foregoing, the petition is GRANTED in PART. The Decision of the
Court of Appeals is REVERSED and SET ASIDE and in lieu thereof Atlas is ORDERED to pay
PCIB the sum of P146,058.96, with legal interest commencing from the time of first demand on
22 August 1985.
No costs.
SO ORDERED.
DANTE O. TINGA
Associate Justice
_____________
G.R. No. 125862 April 15, 2004
FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and
style "Culaba Store", petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

D E C I S I O N

CALLEJO, SR., J .:
This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the
Decision
1
of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision
2
of
the Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for collection of sum of
money, and the Resolution
3
denying the motion for reconsideration of the said decision.
The Undisputed Facts
The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store
and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer products.
SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00, as
evidenced by Temporary Credit Invoice No. 42943.
4
Thereafter, the Culaba spouses made a
partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As they failed to pay
despite repeated demands, SMC filed an action for collection of a sum of money against them
before the RTC of Makati, Branch 138.
The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in
full on four separate occasions. To substantiate this claim, the defendants presented four (4)
Temporary Charge Sales (TCS) Liquidation Receipts, as follows:
April 19, 1983 Receipt No. 27331 for P8,000
5

6

7

8

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor
who came in an SMC van. He was then showed a list of customers accountabilities which
included his account. The defendant, in good faith, then paid to the said supervisor, and he was,
in turn, issued genuine SMC liquidation receipts.
For its part, SMC submitted a publishers affidavit
9
to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication of
the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:
NOTICE OF LOSS
OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE
SALES LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN
LOST.
ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE
ABOVE RECEIPTS WILL NOT BE HONORED.
SAN MIGUEL CORPORATION
BEER DIVISION
Makati Beer Region
10

The Trial Courts Ruling
After trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba
spouses liable on the balance of its obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:
1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per
annum from April 12, 1983 until the whole amount is fully paid;
2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorneys
fees plus costs.
SO ORDERED.
11

According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of
the collector to whom he made the payments and that he did not require the said collector to print
his name on the receipts. The court also noted that although they were part of a single booklet,
the TCS Liquidation Receipts submitted by the defendants did not appear to have been issued in
their natural sequence. Furthermore, they were part of the lost booklet receipts, which the public
was duly warned of through the Notice of Loss the plaintiff caused to be published in a daily
newspaper. This confirmed the plaintiffs claim that the receipts presented by the defendants
were spurious ones.
The Case on Appeal
On appeal, the appellants interposed the following assignment of errors:
I
THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY
DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL
CORPORATION, ARE SPURIOUS.
II
THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE
HAS SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE
DEFENDANTS.
III
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE
AMOUNT DUE TO PLAINTIFF AS ATTORNEYS FEES.
12

The appellants asserted that while the trial courts observations were true, it was the usual
business practice in previous transactions between them and SMC. The SMC previously honored
receipts not bearing the salesmans name. According to appellant Francisco Culaba, he even lost
some of the receipts, but did not encounter any problems.
According to appellant Francisco, he could not be faulted for paying the SMC collector who
came in a van and was in uniform, and that any regular customer would, without any
apprehension, transact with such an SMC employee. Furthermore, the respective receipts issued
to him at the time he paid on the four occasions mentioned had not yet then been declared lost.
Thus, the subsequent publication in a daily newspaper declaring the booklets lost did not affect
the validity and legality of the payments made. Accordingly, by its actuations, the SMC was
estopped from questioning the legality of the payments and had no cause of action against the
appellants.
Anent the issue of attorneys fees, the order of the trial court for payment thereof is without
basis. According to the appellant, the provision for attorneys fees is a contingent fee, already
provided for in the SMCs contract with the law firm. To further order them to pay 20% of the
amount due as attorneys fees is double payment, tantamount to undue enrichment and therefore
improper.
13

The appellee, for its part, contended that the primary issue in the case at bar revolved around the
basic and fundamental principles of agency.
14
It was incumbent upon the defendants-appellants
to exercise ordinary prudence and reasonable diligence to verify and identify the extent of the
alleged agents authority. It was their burden to establish the true identity of the assumed agent,
and this could not be established by mere representation, rumor or general reputation. As they
utterly failed in this regard, the appellants must suffer the consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the appellants, we cannot
fault the lower court for giving more weight to appellees testimonial and documentary
evidence, all of which establish with some degree of preponderance the existence of the
account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the factual findings of
the lower court to which we must accord respect, for which reason, the judgment
appealed from is hereby AFFIRMED in all respects.
SO ORDERED.
15

Hence, the instant petition.
The petitioners pose the following issues for the Courts resolution:
I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT
EVIDENCE THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF
LOST BOOKLET OF RECEIPTS
II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT
EVIDENCE THAT PETITIONER WAS REMISS IN THE PAYMENT OF HIS
ACCOUNTS TO ITS AGENT.
16

According to the petitioners, receiving receipts from the private respondents agents instead of its
salesmen was a usual occurrence, as they had been operating the store since 1979. Thus, on four
occasions in April 1983, when an agent of the respondent came to the store wearing an SMC
uniform and driving an SMC van, petitioner Francisco Culaba, without question, paid his
accounts. He received the receipts without fear, as they were similar to what he used to receive
before. Furthermore, the petitioners assert that, common experience will attest that unless the
attention of the customers is called for, they would not take note of the serial number of the
receipts.
The petitioners contend that the private respondent advertised its warning to the public only after
the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of interest or
concern for its customers welfare, and, in sum, its negligence.
Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts
were paid had all the physical and material attributes or indications of a representative of the
private respondent, leaving no doubt that he was duly authorized by the latter. Petitioner
Francisco Culabas testimony that "he does not necessarily check the contents of the receipts
issued to him except for the amount indicated if [the] same accurately reflects his actual
payment" is a common attitude of customers. He could, thus, not be faulted for paying the
private respondents agent on four occasions. Petitioner Francisco Culaba asserts that he made
the payment in good faith, to an agent who issued SMC receipts which appeared to be genuine.
Thus, according to the petitioners, they had duly paid their obligation in accordance with Articles
1240 and 1242 of the New Civil Code.
The private respondent, for its part, avers that the burden of proving payment is with the debtor,
in consonance with the express provision of Article 1233 of the New Civil Code. The petitioners
miserably failed to prove the self-serving allegation that they already paid their liability to the
private respondent. Furthermore, under normal circumstances, an obligor would not just pay a
substantial amount to someone whom he saw for the first time, without even asking for the
latters name.
The Ruling of the Court
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to whether the payment of the
petitioners obligation to the private respondent was properly made, thus, extinguishing the
same. This is clearly a factual issue, and beyond the purview of the Court to delve into. This is in
consonance with the well-settled rule that findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will
not be disturbed on appeal. Such findings are binding and conclusive on the Court.
17

Furthermore, it is not the Courts function under Rule 45 of the Rules of Court, as amended, to
review, examine and evaluate or weigh the probative value of the evidence presented.
18

To reiterate, the issue being raised by the petitioners does not involve a question of law, but a
question of fact, not cognizable by this Court in a petition for review under Rule 45. The
jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.
19

A careful study of the records of the case reveal that the appellate court affirmed the trial courts
factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondents
lost booklet, which loss was duly advertised in a newspaper of general circulation; thus, the
private respondent could not have officially issued them to the petitioners to cover the alleged
payments on the dates appearing thereon.
Second. There was something amiss in the way the receipts were issued to the petitioners, as one
receipt bearing a higher serial number was issued ahead of another receipt bearing a lower serial
number, supposedly covering a later payment. The petitioners failed to explain the apparent mix-
up in these receipts, and no attempt was made in this regard.
Third. The fact that the salesmans name was invariably left blank in the four receipts and that
the petitioners could not even remember the name of the supposed impostor who received the
said payments strongly argue against the veracity of the petitioners claim.
We find no cogent reason to reverse the said findings.
The dismissal of the petition is inevitable even upon close perusal of the merits of the case.
Payment is a mode of extinguishing an obligation.
20
Article 1240 of the Civil Code provides that
payment shall be made to the person in whose favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to receive it.
21
In this case, the payments were
purportedly made to a "supervisor" of the private respondent, who was clad in an SMC uniform
and drove an SMC van. He appeared to be authorized to accept payments as he showed a list of
customers accountabilities and even issued SMC liquidation receipts which looked genuine.
Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of
the said supervisor, nor did he ask to be shown any identification to prove that the latter was,
indeed, an SMC supervisor. The petitioners relied solely on the mans representation that he was
collecting payments for SMC. Thus, the payments the petitioners claimed they made were not
the payments that discharged their obligation to the private respondent.
The basis of agency is representation.
22
A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.
23
In the instant case, the petitioners loss
could have been avoided if they had simply exercised due diligence in ascertaining the identity
of the person to whom they allegedly made the payments. The fact that they were parting with
valuable consideration should have made them more circumspect in handling their business
transactions. Persons dealing with an assumed agent are bound at their peril to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it.
24
The petitioners in this case failed to discharge
this burden, considering that the private respondent vehemently denied that the payments were
accepted by it and were made to its authorized representative.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something, which a prudent and reasonable man would not do.
25
In the case at bar, the most
prudent thing the petitioners should have done was to ascertain the identity and authority of the
person who collected their payments. Failing this, the petitioners cannot claim that they acted in
good faith when they made such payments. Their claim therefor is negated by their negligence,
and they are bound by its consequences. Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.
26

WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16,
1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.
SO ORDERED.
___________
G.R. No. 149420 October 8, 2003
SONNY LO, petitioner,
vs.
KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent.
D E C I S I O N
YNARES-SANTIAGO, J .:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of
steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans
Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding
equipments from respondent worth P540,425.80.
1
He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner.
2
Petitioner was able to pay the first two
monthly installments.1a\^/phi1.net His business, however, encountered financial difficulties and
he was unable to settle his obligation to respondent despite oral and written demands made
against him.
3

On October 11, 1990, petitioner and respondent executed a Deed of Assignment,
4
whereby
petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero
Realty Corporation. Pertinent portions of the Deed provide:
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located
at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR
purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;
WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the
purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14);
NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five
Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which
represents part of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR
hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said
amount of P335, 462.14;
And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full
power and authority to demand, collect, receive, compound, compromise and give acquittance
for the same or any part thereof, and in the name and stead of the said ASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors
and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty
Corporation and that said ASSIGNOR has not done and will not cause anything to be done to
diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns,
from collecting the same;
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents. xxx
5
(Italics supplied)
However, when respondent tried to collect the said credit from Jomero Realty Corporation, the
latter refused to honor the Deed of Assignment because it claimed that petitioner was also
indebted to it.
6
On November 26, 1990, respondent sent a letter
7
to petitioner demanding
payment of his obligation, but petitioner refused to pay claiming that his obligation had been
extinguished when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money
against the petitioner before the Regional Trial Court of Makati, Branch 147, which was
docketed as Civil Case No. 91-074.
8

During the trial, petitioner argued that his obligation was extinguished with the execution of the
Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee,
Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit
because it claimed that petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision
9
dismissing the complaint on the ground
that the assignment of credit extinguished the obligation. The decretal portion thereof provides:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the
defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the
defendant attorneys fees in the amount of P25,000.00.1a\^/phi1.net
Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court
rendered a decision,
10
the dispositive portion of which reads:
WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and
enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiff-appellant KJS ECO-
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four
Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January
10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the
amount due and costs of the suit.
SO ORDERED.
11

In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the
respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty
under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it
void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed
of Assignment when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles.
12

Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court
of Appeals.
13

In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN
DECLARING THE DEED OF ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK
OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ASSIGNMENT (EXH. "4") DID NOT EXTINGUISH PETITIONERS OBLIGATION ON
THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS
WARRANTY THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS
FEES.
14

The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee,
who acquires the power to enforce it to the same extent as the assignor could enforce it against
the debtor.
15

Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding debt.
16
In order
that there be a valid dation in payment, the following are the requisites: (1) There must be the
performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be
some difference between the prestation due and that which is given in substitution (aliud pro
alio); (3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that due.
17

The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the
debtors debt. As such, the vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of the debtor, in specified
circumstances.
18

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal
property,
19
produced the effects of a dation in payment which may extinguish the obligation.
20

However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.
More specifically, the first paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the credit at the
time of the sale, unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence
and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was
no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially
meant that its obligation to petitioner has been extinguished by compensation.
21
In other words,
respondent alleged the non-existence of the credit and asserted its claim to petitioners warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid
the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to
wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his
heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said
ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further
acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover
whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of
these presents.
22
(underscoring ours)
Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured
the performance thereof in case the same is later found to be inexistent. He should be held liable
to pay to respondent the amount of his indebtedness.
Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the
sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of
Appeals of attorneys fees is without factual basis. No evidence or testimony was presented to
substantiate this claim. Attorneys fees, being in the nature of actual damages, must be duly
substantiated by competent proof.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19,
2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14
with legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with
MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per
annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of
credit.
23
The award of attorneys fees is DELETED for lack of evidentiary basis.
SO ORDERED.
____________

G.R. No. L-46658 May 13, 1991
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI and TAYABAS
CEMENT COMPANY, INC., respondents.
The Chief Legal Counsel for petitioner.
Ortille Law Office for private respondent.

FERNAN, C.J .:p
In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders dated March 4, 1977 and May
31, 1977 rendered in Civil Case No. 24422
1
of the Court of First Instance of Rizal, Branch XXI, respectively granting
private respondent Tayabas Cement Company, Inc.'s application for a writ of preliminary injunction to
enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and denying
petitioner's motion for reconsideration thereof.
In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of
P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire
the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC).
2
As security for said
loan, the spouses Arroyo executed a real estate mortgage over a parcel of land covered by Transfer
Certificate of Title No. 55323 of the Register of Deeds of Quezon City known as the La Vista property.
Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight
(8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo,
Japan, to cover the importation of a cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for
the account of TCC, the Arroyo spouses executed the following documents to secure this loan
accommodation: Surety Agreement dated August 5, 1964
3
and Covenant dated August 6, 1964.
4

The imported cement plant machinery and equipment arrived from Japan and were released to TCC
under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding
drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement, PNB
notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure
of TCC to settle its obligations under the L/C.
5

In the meantime, the personal accounts of the spouses Arroyo, which included another loan of
P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda
Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses Arroyo having
failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages
executed by the spouses Arroyo in its favor.
On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial foreclosure
under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate
mortgage over the properties known as the La Vista property covered by TCT No. 55323.
6
PNB likewise
filed a similar petition with the City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged
properties located at Isabela, Negros Occidental and covered by OCT No. RT 1615.
The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale,
PNB was the highest bidder with a bid price of P1,000,001.00. However, when said property was about to
be awarded to PNB, the representative of the mortgagor-spouses objected and demanded from the PNB
the difference between the bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo
spouses on their personal account. It was the contention of the spouses Arroyo's representative that the
foreclosure proceedings referred only to the personal account of the mortgagor spouses without
reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's
Office to proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25
owed by the spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive
of interest, commission charges and other expenses owed by said spouses as sureties of TCC.
7
Said
petition was opposed by the spouses Arroyo and the other bidder, Jose L. Araneta.
On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution
finding that the questions raised by the parties required the reception and evaluation of evidence, hence,
proper for adjudication by the courts of law. Since said questions were prejudicial to the holding of the
foreclosure sale, she ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale
unless and until there be a court ruling on the aforementioned issues."
8

Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition for
mandamus
9
against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to
proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to
satisfy both the personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC.
10

On September 6, 1976, the petition was granted and Dungca was directed to proceed with the
foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to
issue the corresponding Sheriff's Certificate of Sale.
11

Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First
Instance of Rizal, Pasig, Branch XXI a
complaint
12
against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio Sheriff
of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain the
foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that
its obligation with PNB had been fully paid by reason of the latter's repossession of the imported
machinery and equipment.
13

On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order
14
and
on March 4, 1977, granted a writ of preliminary injunction.
15
PNB's motion for reconsideration was
denied, hence this petition.
Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a)
that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government
financial institution in any action taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 thereof; b) that the writ countermands a final decision of a co-equal and coordinate
court; c) that the writ seeks to prohibit the performance of acts beyond the court's territorial jurisdiction;
and, d) private respondent TCC has not shown any clear legal right or necessity to the relief of
preliminary injunction.
Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar,
firstly because no foreclosure proceedings have been instituted against it by PNB and secondly, because
its account under the L/C has been fully satisfied with the repossession of the imported machinery and
equipment by PNB.
The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has
been extinguished by the repossession of PNB of the imported cement plant machinery and equipment.
We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement
plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB
and TCC giving the former the unqualified right to the possession and disposal of all property shipped
under the Letter of Credit until such time as all the liabilities and obligations under said letter had been
discharged.
16
In the case of Vintola vs. Insular Bank of Asia and America
17
wherein the same argument
was advanced by the Vintolas as entrustees of imported seashells under a trust receipt transaction, we
said:
Further, the VINTOLAS take the position that their obligation to IBAA has been
extinguished inasmuch as, through no fault of their own, they were unable to dispose of
the seashells, and that they have relinquished possession thereof to the IBAA, as owner
of the goods, by depositing them with the Court.
The foregoing submission overlooks the nature and mercantile usage of the transaction
involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive
features and characteristics. Under that set-up, a bank extends a loan covered by the
Letter of Credit, with the trust receipt as a security for the loan. In other words, the
transaction involves a loan feature represented by the letter of credit, and a security
feature which is in the covering trust receipt.
xxx xxx xxx
A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a
"security interest" in the goods. It secures an indebtedness and there can be no such
thing as security interest that secures no obligation. As defined in our laws:
(h) "Security interest" means a property interest in goods, documents or
instruments to secure performance of some obligations of the entrustee
or of some third persons to the entruster and includes title, whether or
not expressed to be absolute, whenever such title is in substance taken
or retained for security only.
xxx xxx xxx
Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the
goods. It was merely the holder of a security title for the advances it had made to the
VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain
their own property and they hold it at their own risk. The trust receipt arrangement did not
convert the IBAA into an investor; the latter remained a lender and creditor.
xxx xxx xxx
Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably
claim that because they have surrendered the goods to IBAA and subsequently
deposited them in the custody of the court, they are absolutely relieved of their obligation
to pay their loan because of their inability to dispose of the goods. The fact that they were
unable to sell the seashells in question does not affect IBAA's right to recover the
advances it had made under the Letter of Credit.
PNB's possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said
securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession
does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to
terminate the rights of the mortgagor on the property and includes the sale itself.
18

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property
is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales.
19
Dation
in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.
20
As aforesaid, the repossession of the
machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not
for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en
pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses
Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation
to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.
21
As sureties, the Arroyo spouses are primarily liable as original promissors and are bound
immediately to pay the creditor the amount outstanding.
22

Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for any
loan, credit or accommodation whenever the arrearages on such account amount to at least twenty
percent (20%) of the total outstanding obligations, including interests and charges, as appearing in the
books of account of the financial institution concerned.
23
It is further provided therein that "no restraining
order, temporary or permanent injunction shall be issued by the court against any government financial
institution in any action taken by such institution in compliance with the mandatory foreclosure provided in
Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the
borrower(s) or any third party or parties . . ."
24

It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in
compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of
his jurisdiction in issuing the injunction specifically proscribed under said decree.
Another reason for striking down the writ of preliminary injunction complained of is that it interfered with
the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired
jurisdiction over the question of foreclosure of mortgage over the La Vista property and rendered
judgment in relation thereto, then it retained jurisdiction to the exclusion of all other coordinate courts over
its judgment, including all incidents relative to the control and conduct of its ministerial officers, namely
the sheriff thereof.
25
The foreclosure sale having been ordered by Branch V of the CFI of Rizal, TCC
should not have filed injunction proceedings with Branch XXI of the same CFI, but instead should have
first sought relief by proper motion and application from the former court which had exclusive jurisdiction
over the foreclosure proceeding.
26

This doctrine of non-interference is premised on the principle that a judgment of a court of competent
jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction.
27

Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of
Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First
Instance, now Regional Trial Courts, can only enforce their writs of injunction within their respective
designated territories.
28

WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs
against private respondent.
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.
_____________
G.R. No. 125862 April 15, 2004
FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and
style "Culaba Store", petitioners,
vs.
COURT OF APPEALS and SAN MIGUEL CORPORATION, respondents.

D E C I S I O N

CALLEJO, SR., J .:
This is a petition for review under Rule 45 of the Revised Rules of Civil Procedure of the
Decision
1
of the Court of Appeals in CA-G.R. CV No. 19836 affirming in toto the Decision
2
of
the Regional Trial Court of Makati, Branch 138, in Civil Case No. 1033 for collection of sum of
money, and the Resolution
3
denying the motion for reconsideration of the said decision.
The Undisputed Facts
The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store
and were engaged in the sale and distribution of San Miguel Corporations (SMC) beer products.
SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00, as
evidenced by Temporary Credit Invoice No. 42943.
4
Thereafter, the Culaba spouses made a
partial payment of P3,740.00, leaving an unpaid balance of P24,910.00. As they failed to pay
despite repeated demands, SMC filed an action for collection of a sum of money against them
before the RTC of Makati, Branch 138.
The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in
full on four separate occasions. To substantiate this claim, the defendants presented four (4)
Temporary Charge Sales (TCS) Liquidation Receipts, as follows:
5

6

7

8

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor
who came in an SMC van. He was then showed a list of customers accountabilities which
included his account. The defendant, in good faith, then paid to the said supervisor, and he was,
in turn, issued genuine SMC liquidation receipts.
For its part, SMC submitted a publishers affidavit
9
to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost by it, and that it caused the publication of
the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:
NOTICE OF LOSS
OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE
SALES LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN
LOST.
ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE
ABOVE RECEIPTS WILL NOT BE HONORED.
SAN MIGUEL CORPORATION
BEER DIVISION
Makati Beer Region
10

The Trial Courts Ruling
After trial on the merits, the trial court rendered judgment in favor of SMC, and held the Culaba
spouses liable on the balance of its obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff, as follows:
1. Ordering defendants to pay the amount of P24,910.00 plus legal interest of 6% per
annum from April 12, 1983 until the whole amount is fully paid;
2. Ordering defendants to pay 20% of the amount due to plaintiff as and for attorneys
fees plus costs.
SO ORDERED.
11

According to the trial court, it was unusual that defendant Francisco Culaba forgot the name of
the collector to whom he made the payments and that he did not require the said collector to print
his name on the receipts. The court also noted that although they were part of a single booklet,
the TCS Liquidation Receipts submitted by the defendants did not appear to have been issued in
their natural sequence. Furthermore, they were part of the lost booklet receipts, which the public
was duly warned of through the Notice of Loss the plaintiff caused to be published in a daily
newspaper. This confirmed the plaintiffs claim that the receipts presented by the defendants
were spurious ones.
The Case on Appeal
On appeal, the appellants interposed the following assignment of errors:
I
THE TRIAL COURT ERRED IN FINDING THAT THE RECEIPTS PRESENTED BY
DEFENDANTS EVIDENCING HIS PAYMENTS TO PLAINTIFF SAN MIGUEL
CORPORATION, ARE SPURIOUS.
II
THE TRIAL COURT ERRED IN CONCLUDING THAT PLAINTIFF-APPELLEE
HAS SUFFICIENTLY PROVED ITS CAUSE OF ACTION AGAINST THE
DEFENDANTS.
III
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS TO PAY 20% OF THE
AMOUNT DUE TO PLAINTIFF AS ATTORNEYS FEES.
12

The appellants asserted that while the trial courts observations were true, it was the usual
business practice in previous transactions between them and SMC. The SMC previously honored
receipts not bearing the salesmans name. According to appellant Francisco Culaba, he even lost
some of the receipts, but did not encounter any problems.
According to appellant Francisco, he could not be faulted for paying the SMC collector who
came in a van and was in uniform, and that any regular customer would, without any
apprehension, transact with such an SMC employee. Furthermore, the respective receipts issued
to him at the time he paid on the four occasions mentioned had not yet then been declared lost.
Thus, the subsequent publication in a daily newspaper declaring the booklets lost did not affect
the validity and legality of the payments made. Accordingly, by its actuations, the SMC was
estopped from questioning the legality of the payments and had no cause of action against the
appellants.
Anent the issue of attorneys fees, the order of the trial court for payment thereof is without
basis. According to the appellant, the provision for attorneys fees is a contingent fee, already
provided for in the SMCs contract with the law firm. To further order them to pay 20% of the
amount due as attorneys fees is double payment, tantamount to undue enrichment and therefore
improper.
13

The appellee, for its part, contended that the primary issue in the case at bar revolved around the
basic and fundamental principles of agency.
14
It was incumbent upon the defendants-appellants
to exercise ordinary prudence and reasonable diligence to verify and identify the extent of the
alleged agents authority. It was their burden to establish the true identity of the assumed agent,
and this could not be established by mere representation, rumor or general reputation. As they
utterly failed in this regard, the appellants must suffer the consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the appellants, we cannot
fault the lower court for giving more weight to appellees testimonial and documentary
evidence, all of which establish with some degree of preponderance the existence of the
account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the factual findings of
the lower court to which we must accord respect, for which reason, the judgment
appealed from is hereby AFFIRMED in all respects.
SO ORDERED.
15

Hence, the instant petition.
The petitioners pose the following issues for the Courts resolution:
I. WHETHER OR NOT THE RESPONDENT HAD PROVEN BY PREPONDERANT
EVIDENCE THAT IT HAD PROPERLY AND TIMELY NOTIFIED PETITIONER OF
LOST BOOKLET OF RECEIPTS
II. WHETHER OR NOT RESPONDENT HAD PROVEN BY PREPONDERANT
EVIDENCE THAT PETITIONER WAS REMISS IN THE PAYMENT OF HIS
ACCOUNTS TO ITS AGENT.
16

According to the petitioners, receiving receipts from the private respondents agents instead of its
salesmen was a usual occurrence, as they had been operating the store since 1979. Thus, on four
occasions in April 1983, when an agent of the respondent came to the store wearing an SMC
uniform and driving an SMC van, petitioner Francisco Culaba, without question, paid his
accounts. He received the receipts without fear, as they were similar to what he used to receive
before. Furthermore, the petitioners assert that, common experience will attest that unless the
attention of the customers is called for, they would not take note of the serial number of the
receipts.
The petitioners contend that the private respondent advertised its warning to the public only after
the damage was done, or on July 9, 1993. Its belated notice showed its glaring lack of interest or
concern for its customers welfare, and, in sum, its negligence.
Anent the second issue, petitioner Francisco Culaba avers that the agent to whom the accounts
were paid had all the physical and material attributes or indications of a representative of the
private respondent, leaving no doubt that he was duly authorized by the latter. Petitioner
Francisco Culabas testimony that "he does not necessarily check the contents of the receipts
issued to him except for the amount indicated if [the] same accurately reflects his actual
payment" is a common attitude of customers. He could, thus, not be faulted for paying the
private respondents agent on four occasions. Petitioner Francisco Culaba asserts that he made
the payment in good faith, to an agent who issued SMC receipts which appeared to be genuine.
Thus, according to the petitioners, they had duly paid their obligation in accordance with Articles
1240 and 1242 of the New Civil Code.
The private respondent, for its part, avers that the burden of proving payment is with the debtor,
in consonance with the express provision of Article 1233 of the New Civil Code. The petitioners
miserably failed to prove the self-serving allegation that they already paid their liability to the
private respondent. Furthermore, under normal circumstances, an obligor would not just pay a
substantial amount to someone whom he saw for the first time, without even asking for the
latters name.
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to whether the payment of the
petitioners obligation to the private respondent was properly made, thus, extinguishing the
same. This is clearly a factual issue, and beyond the purview of the Court to delve into. This is in
consonance with the well-settled rule that findings of fact of the trial court, especially when
affirmed by the Court of Appeals, are accorded the highest degree of respect, and generally will
not be disturbed on appeal. Such findings are binding and conclusive on the Court.
17

Furthermore, it is not the Courts function under Rule 45 of the Rules of Court, as amended, to
review, examine and evaluate or weigh the probative value of the evidence presented.
18

To reiterate, the issue being raised by the petitioners does not involve a question of law, but a
question of fact, not cognizable by this Court in a petition for review under Rule 45. The
jurisdiction of the Court in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on record or the impugned
judgment is based on a misapprehension of facts.
19

A careful study of the records of the case reveal that the appellate court affirmed the trial courts
factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondents
lost booklet, which loss was duly advertised in a newspaper of general circulation; thus, the
private respondent could not have officially issued them to the petitioners to cover the alleged
payments on the dates appearing thereon.
Second. There was something amiss in the way the receipts were issued to the petitioners, as one
receipt bearing a higher serial number was issued ahead of another receipt bearing a lower serial
number, supposedly covering a later payment. The petitioners failed to explain the apparent mix-
up in these receipts, and no attempt was made in this regard.
Third. The fact that the salesmans name was invariably left blank in the four receipts and that
the petitioners could not even remember the name of the supposed impostor who received the
said payments strongly argue against the veracity of the petitioners claim.
We find no cogent reason to reverse the said findings.
The dismissal of the petition is inevitable even upon close perusal of the merits of the case.
Payment is a mode of extinguishing an obligation.
20
Article 1240 of the Civil Code provides that
payment shall be made to the person in whose favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to receive it.
21
In this case, the payments were
purportedly made to a "supervisor" of the private respondent, who was clad in an SMC uniform
and drove an SMC van. He appeared to be authorized to accept payments as he showed a list of
customers accountabilities and even issued SMC liquidation receipts which looked genuine.
Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of
the said supervisor, nor did he ask to be shown any identification to prove that the latter was,
indeed, an SMC supervisor. The petitioners relied solely on the mans representation that he was
collecting payments for SMC. Thus, the payments the petitioners claimed they made were not
the payments that discharged their obligation to the private respondent.
The basis of agency is representation.
22
A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.
23
In the instant case, the petitioners loss
could have been avoided if they had simply exercised due diligence in ascertaining the identity
of the person to whom they allegedly made the payments. The fact that they were parting with
valuable consideration should have made them more circumspect in handling their business
transactions. Persons dealing with an assumed agent are bound at their peril to ascertain not only
the fact of agency but also the nature and extent of authority, and in case either is controverted,
the burden of proof is upon them to establish it.
24
The petitioners in this case failed to discharge
this burden, considering that the private respondent vehemently denied that the payments were
accepted by it and were made to its authorized representative.
Negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something, which a prudent and reasonable man would not do.
25
In the case at bar, the most
prudent thing the petitioners should have done was to ascertain the identity and authority of the
person who collected their payments. Failing this, the petitioners cannot claim that they acted in
good faith when they made such payments. Their claim therefor is negated by their negligence,
and they are bound by its consequences. Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.
26

WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16,
1996, and the Resolution dated July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.
SO ORDERED.
___________________

G.R. No. 126891 August 5, 1998
LIM TAY, petitioner,
vs.
COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF ALFONSO LIM, respondents.

PANGANIBAN, J .:
The duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled to do so when the
transferee's title to said shares has no prima facie validity or is uncertain. More specifically, a pledgor, prior to foreclosure and sale, does not
acquire ownership rights over the pledged shares and thus cannot compel the corporate secretary to record his alleged ownership of such
shares on the basis merely of the contract of pledge. Similarly, the SEC does not acquire jurisdiction over a dispute when a party's claim to
being a shareholder is, on the face of the complaint, invalid or inadequate or is otherwise negated by the very allegations of such complaint.
Mandamus will not issue to establish a right, but only to enforce one that is already established.
Statement of the Case
There are the principles, used by this Court in resolving this Petition for Review on Certiorari before us, assailing the October 24, 1996
Decision
1
of the Court of Appeals
2
in CA-GR SP No. 40832, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE COURSE and is hereby
DISMISSED. With costs against the [p]etitioner.
3

By the foregoing disposition, the Court of Appeals effectively affirmed the March 7, 1996 Decision
4
of the
Securities and Exchange Commission (SEC) en banc:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the appeal on the ground that
mandamus will only issue upon a clear showing of ownership over the assailed shares of stock, [t]he determination of
which, on the basis of the foregoing facts, is within the jurisdiction of the regular courts and not with the SEC.
5

The SEC en banc upheld the August 16, 1993 Decision
6
of SEC Hearing Officer Rolando C. Malabonga,
which dismissed the action for mandamus filed by petitioner.
The Facts
As found by the Court of Appeals, the facts of the case are as follows:
. . . On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the [p]etitioner in the amount of P40,000
payable within six (6) months. To secure the payment of the aforesaid loan and interest thereon, Respondent Guiok
executed a Contract of Pledge in favor of the [p]etitioner whereby he pledged his three hundred (300) shares of stock in
the Go Fay & Company Inc., Respondent Corporation, for brevity's sake. Respondent Guiok obliged himself to pay
interest on said loan at the rate of 10% per annum from the date of said contract of pledge. On the same date, Alfonso
Sy Lim secured a loan from the [p]etitioner in the amount of P40,000 payable in six (6) months. To secure the payment
of his loan, Sy Lim executed a "Contract of Pledge" covering his three hundred (300) shares of stock in Respondent
Corporation. Under said contract, Sy Lim obliged himself to pay interest on his loan at the rate of 10% per annum from
the date of the execution of said contract.
Under said "Contracts of Pledge," Respondent[s] Guiok and Sy Lim covenanted, inter alia, that:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months
from the date hereof, the PLEDGEE is hereby authorized to foreclose the pledge upon the said
shares of stock hereby created by selling the same at public or private sale with or without notice
to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the
PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock
on the books of the corporation to his own name and to hold the certificate issued in lieu thereof
under the terms of this pledge, and to sell the said shares to issue to him and to apply the
proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove
provided;
4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus
remaining in the hands of the PLEDGEE after the payment of the said sum and interest, and the
expenses, if any, connected with the foreclosure sale, shall be paid by the PLEDGEE to the
PLEDGOR;
5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the
PLEDGOR, redeliver to him the said shares of stock by surrendering the certificate delivered to
him by the PLEDGOR or by retransferring each share to the PLEDGOR, in the event that the
PLEDGEE, under the option hereby granted, shall have caused such shares to be transferred to
him upon the books of the issuing company."(idem, supra)
Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to the
[p]etitioner.
7

However, Respondent Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon to the
[p]etitioner. In October, 1990, the [p]etitioner filed a "Petition for Mandamus" against Respondent Corporation, with the
SEC entitled "Lim Tay versus Go Fay & Company. Inc., SEC Case No. 03894", praying that:
PRAYER
WHEREFORE, premises considered, it is respectfully prayed that an order be issued directing
the corporate secretary of [R]espondent Go Fay & Co., Inc. to register the stock transfers and
issue new certificates in favor of Lim Tay. It is likewise prayed that [R]espondent Go Fay & Co.,
Inc[.] be ordered to pay all dividends due and unclaimed on the said certificates to [P]laintiff Lim
Tay.
Plaintiff further prays for such other relief just and equitable in the premises. ( page 34, Rollo)
The [p]etitioner alleged, inter alia, in his Petition that the controversy between him as stockholder and the Respondent
Corporation was intra-corporate in view of the obstinate refusal of the corporate secretary of Respondent Corporation
to record the transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and under the name of the
[p]etitioner and to issue new certificates of stock to the [p]etitioner.
The Respondent Corporation filed its Answer to the Complaint and alleged, as Affirmative Defense, that:
AFFIRMATIVE DEFENSE
7. Respondent repleads and incorporates herein by reference the foregoing allegations.
8. The Complaint states no cause of action against [r]espondent.
9. Complainant is not a stockholder of [r]espondent. Hence, the Honorable Commission has no
jurisdiction to enter the present controversy since their [sic] is no intracorporate relationship
between complainant and respondent.
10. Granting arguendo that a pledge was constituted over the shareholdings of Sy Guiok in favor
of the complainant and that the former defaulted in the payment of his obligations to the latter, the
same did not automatically vest [i]n complainant ownership of the pledged shares. ( pace 37,
Rollo)
In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita
Lim, filed their Answer-In-Intervention with the SEC alleging, inter alia, that:
xxx xxx xxx
3. Deny specifically the allegation under paragraph 5 of the Complaint that, failure to pay the loan
within the contract period automatically foreclosed the pledged shares of stocks and that the
share of stocks are automatically purchased by the plaintiff, for being false and distorted, the truth
being that pursuant to the [sic] paragraph 3 of the contract of pledges, Annexes "A" and "B", it is
clear that upon failure to pay the amount within the stipulated period, the pledgee is authorized to
foreclose the pledge and thereafter, to sell the same to satisfy the loan. [H]owever, to this point in
time, plaintiff has not performed any operative act of foreclosing the shares of stocks of
[i]ntervenors in accordance with the Chattel Mortgage law, [n]either was there any sale of stocks
by way of public or private auction made after foreclosure in favor of the plaintiff to speak
about, and therefore, the respondent company could not be force[d] to [sic] by way of mandamus,
to transfer the subject shares of stocks from the name of your [i]ntervenors to that of the plaintiff
in the absence of clear and legal basis for such;
4. DENY specifically the allegations under paragraphs 6, 7 and 8 of the complaint as to the
existence of the alleged intracorporate dispute between plaintiff and company for being without
proper and legal basis. In the first place, plaintiff is not a stockholder of the respondent
corporation; there was no foreclosure of shares executed in accordance with the Chattel
Mortgage Law whatsoever; there were no sales consummated that would transfer to the plaintiff
the subject shares of stocks and therefore, any demand to transfer the shares of stocks to the
name of the plaintiff has no legal basis. In the second place, [i]ntervenors had been in the past
negotiating possible compromise and at the same time, had tendered payment of the loan
secured by the subject pledges but plaintiff refused unjustifiably to oblige and accept payment o[r]
even agree on the computation of the principal amount of the loan and interest on top of a
substantial amount offered just to settle and compromise the indebtedness of [i]ntervenors;
II. SPECIAL AFFIRMATIVE DEFENSES
Intervenors replead by way of reference all the foregoing allegations to form part of the special
affirmative defenses;
5. This Honorable Commission has no jurisdiction over the person of the respondent and nature
of the action, plaintiff having no personality at all to compel respondent by way of mandamus to
perform certain corporate function[s];
6. The complaint states no cause of action;
7. That respondent is not [a] real party in interest;
8. The appropriation of the subject shares of stocks by plaintiff, without compliance with the
formality of law, amounted to "[p]actum commis[s]orium" therefore, null and void;
9. Granting for the sake of argument only that there was a valid foreclosure and sale of the
subject st[o]cks in favor of the plaintiff which [i]ntervenors deny still paragraph 5 of the
contract allows redemption, for which intervenors are willing to redeem the share of stocks
pledged;
10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed;
11. As a matter of fact, on several occasions, [i]ntervenors had made representations with the
plaintiff for the compromise and settlement of all the obligations secured by the subject pledges
even offering to pay compensation over and above the value of the obligations, interest[s] and
dividends accruing to the share of stocks but, plaintiff unjustly refused to accept the offer of
payment; ( pages 39-42, Rollo)
The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in their favor, as follows:
IV. PRAYER
It is respectfully prayed to this Honorable Commission after due hearing, to dismiss the case for
lack of merit, ordering plaintiff to accept payment for the loans secured by the subject shares of
stocks and to pay plaintiff:
1. The sum of P50,000.00, as moral damages;
2. the sum of P50,000.00, as attorneys fees; and,
3. costs of suit.
Other reliefs just and equitable [are] likewise prayed for.
( pages 42-43, Rollo)
After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing [p]etitioner's Complaint on the ground
that although the SEC had jurisdiction over the action, pursuant to the Decision of the Supreme Court in the case of
"Rural Bank of Salinas, et al. vs. Court of Appeals, et al., 210 SCRA 510", he failed to prove the legal basis for the
secretary of the Respondent Corporation to be compelled to register stock transfers in favor of the [p]etitioner and to
issue new certificates of stock under his name ( pages 67-77, Rollo). The [p]etitioner appealed the Decision of the
[h]earing [o]fficer to the SEC, but, on March 7, 1996, the SEC promulgated a Decision, dismissing [p]etitioner's appeal
on the grounds that: (a) the issue between the [p]etitioner and the [r]espondents being one involving the ownership of
the shares of stock pledged by Respondent Guiok and Sy Lim, the SEC had no jurisdiction over the action filed by the
[p]etitioner; (b) the latter had no cause of action for mandamus against the Respondent Corporation, the right of
ownership of the [p]etitioner over the 300 shares of stock pledged by Respondent Guiok and Sy Lim not having been
as yet, established, preparatory to the institution of said Petition for Mandamus with the SEC.
Ruling of the Court of Appeals
On the issue of jurisdiction, the Court of Appeals ruled:
In ascertaining whether or not the SEC had exclusive jurisdiction over [p]etitioner's action, the [a]ppellate [c]ourt must
delve into and ascertain: (a) whether or not there is a need to enlist the expertise and technical know-how of the SEC in
resolving the issue of the ownership of the shares of stock; (b) the status of the relationships of the parties; [and] (c) the
nature of the question that is the subject of the controversy. Where the controversy is purely a civil matter resoluble by
civil law principles and there is no need for the application of the expertise and technical know-how of the SEC, then
the regular courts have jurisdiction over the action.
8
[citations omitted]
On the issue of whether mandamus can be availed of by the petitioner, the Court of Appeals agreed with the SEC, viz.:
. . . [T]he [p]etitioner failed to establish a clear and legal right to the writ of mandamus prayed for by him. . . .
Mandamus will not issue to enforce a right which is in substantial dispute or to which a substantial doubt exists . . . .
The principal function of the writ of mandamus is to command and expedite, and not to inquire and adjudicate and,
therefore it is not the purpose of the writ to establish a legal right, but to enforce one which has already been
established.
9
[citations omitted]
The Court of Appeals debunked petitioner's claim that he had acquired ownership over the shares by virtue of novation, holding that
respondents' indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and that petitioner's receipt
of dividends was in compliance with Article 2102 of the same Code. Petitioner's claim that he had acquired ownership of the shares by virtue
of prescription was likewise dismissed by Respondent Court in this wise:
The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover the shares of stock from the
[p]etitioner accrued only from the time they paid their loans and the interests thereon and [made] a demand for their
return.
10

Hence, the petitioner brought before us this Petition for Review on Certiorari in accordance with Rule 45
of the Rules of Court.
11

Assignment of Errors
Petitioner submits, for the consideration of this Court, these issues:
12

(a) Whether the Securities and Exchange Commission had jurisdiction over the complaint filed by the petitioner; and
(b) Whether the petitioner is entitled to the relief of mandamus as against the respondent Go Fay & Co., Inc.
In addition, petitioner contends that it has acquired ownership of the shares "through extraordinary prescription," pursuant to Article 1132 of
the Civil Code, and through respondents' subsequent acts, which amounted to a novation of the contracts of pledge. Petitioner also claims
that there was dacion en pago, in which the shares of stock were deemed sold to petitioner, the consideration for which was the
extinguishment of the loans and the interests thereon. Petitioner likewise claims that laches bars respondents from recovering the subject
shares.
The Court's Ruling
The petition has no merit.
First Issue: Jurisdiction of the SEC
Claiming that the present controversy is intra-corporate and falls within the exclusive jurisdiction of the SEC, petitioner relies heavily on Abejo
v. De la Cruz,
13
which upheld the jurisdiction of the SEC over a suit filed by an unregistered stockholder
seeking to enforce his rights. He also seeks support from Rural Bank of Salinas, Inc. v. Court of Appeals,
14
which ruled that the right of a transferee or an assignee to have stocks transferred to his name was an
inherent right flowing from his ownership of the said stocks.
The registration of shares in a stockholder's name, the issuance of stock certificates, and the right to
receive dividends which pertain to the said shares are all rights that flow from ownership. The
determination of whether or not a shareholder is entitled to exercise the above-mentioned rights falls
within the jurisdiction of the SEC. However, if ownership of the shares is not clearly established and is still
unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.
Sec. 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as follows:
Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of stockholders,
partners, members of associations or organizations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the State insofar
as it concerns their individual franchise or right to exist as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations,
partnerships or associations.
(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in
cases where the corporation, partnership or association possesses property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the Management Committee created pursuant to
this decree.
15

Thus, a controversy "among stockholders, partners or associates themselves"
16
is intra-corporate in
nature and falls within the jurisdiction of the SEC.
As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the
allegations in the complaint.
17
In the present case, however, petitioner's claim that he was the owner of
the shares of stock in question has no prima facie basis.
In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he became the owner of the
shares when the term for the loans expired. The Complaint contained the following pertinent averments:
xxx xxx xxx
3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred (300) shares of stock of Go Fay
& Co., Inc., from Sy Guiok as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine
currency, the sum of which was payable within six (6) months [with interest] at ten percentum (10%) per annum from
the date of the execution of the contract; a copy of this Contract of Pledge is attached as Annex "A" and made part
hereof;
4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay received three hundred (300) shares
of stock of Go Pay & Co., Inc. from Alfonso Sy Lim as security for the payment of a loan of [f]orty [t]housand [p]esos
(P40,000.00) Philippine currency, the sum of which was payable within six (6) months [with interest] at ten percentum
(10%) per annum from the date of the execution of the contract; a copy of this Contract of Pledge is attached as Annex
"B" and made part hereof;
5. By the express terms of the agreements, upon failure of the borrowers to pay the stated amounts within the contract
period, the pledge is foreclosed and the shares of stock are purchased by [p]laintiff, who is expressly authorized and
empowered to transfer the duly endorsed shares of stock on the books of the corporation to his own name; . . .
18

(emphasis supplied)
However, the contracts of pledge, which were made integral parts of the Complaint, contain this common proviso:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof,
the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the
same at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the
purchaser at his option; and the PLEDGEE is hereby authorized and empowered at his option, to transfer the said
shares of stock on the books of the corporation to his own name and to hold the certificate issued in lieu thereof under
the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the
payment of the said sum and interest, in the manner hereinabove provided;
This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to foreclose the pledge upon maturity
of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private sale. Nowhere did the Complaint
mention that petitioner had in fact foreclosed the pledge and purchased the shares after such foreclosure. His status as a mere pledgee does
not, under civil law, entitle him to ownership of the subject shares. It is also noteworthy that petitioner's Complaint did not aver that said
shares were acquired through extraordinary prescription, novation or laches. Moreover, petitioner's claim, subsequent to the filing of the
Complaint, that he acquired ownership of the said shares through these three modes is not indubitable and still has to be resolved. In fact, as
will be shown, such allegation-has no merit. Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the
owner of the shares of stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed to lay
down a sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the Complaint and its annexes
negated the jurisdiction of the SEC.
Petitioner's reliance on the doctrines set forth in Abejo v. De la Cruz and Rural Bank of Salinas, Inc. v. Court of Appeals is misplaced. In
Abejo, he Abejo spouses sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines, Inc. Subsequent to such contract of
sale, the corporate secretary, Norberto Braga, refused to record the transfer of the shares in the corporate books and instead asked for the
annulment of the sale, claiming that he and his wife had a preemptive right over some of the shares, and that his wife's shares were sold
without consideration or consent.
At the time the Bragas questioned the validity of the sale, the contract had already been perfected, thereby demonstrating that Telectronic
Systems, Inc. was already the prima facie owner of the shares and, consequently, a stockholder of Pocket Bell Philippines, Inc. Even if the
sale were to be annulled later on, Telectronic Systems, Inc. had, in the meantime, title over the shares from the time the sale was perfected
until the time such sale was annulled. The effects of an annulment operate prospectively and do not, as a rule, retroact to the time the sale
was made. Therefore, at the time the Bragas questioned the validity of the tranfers made by the Abejos, Telectronic Systems, Inc. was
already a prima facie shareholder of the corporation, thus making the dispute between the Bragas and the Abejos "intra-corporate" in nature.
Hence, the Court held that "the issue is not on ownership of shares but rather the non-performance by the corporate secretary of the
ministerial duty of recording transfers of shares of stock of the corporation of which he is secretary."
19

Unlike Abejo, however, petitioner's ownership over the shares in this case was not yet perfected when the
Complaint was filed. The contract of pledge certainly does not make him the owner of the shares pledged.
Further, whether prescription effectively transferred ownership of the shares, whether there was a
novation of the contracts of pledge, and whether laches had set in were difficult legal issues, which were
unpleaded and unresolved when herein petitioner asked the corporate secretary of Go Fay to effect the
transfer, in his favor, of the shares pledged to him.
In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the shares in favor of the
respondents in that case. When the corporate secretary refused to register the transfer, an action for
mandamus was instituted. Subsequently, a motion for intervention was filed, seeking the annulment of the
deeds of assignment on the grounds that the same were fictitious and antedated, and that they were in
fact donations because the considerations therefor were below the book value of the shares.
Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima facie shareholders
when the deeds of assignment were questioned. If the said deeds were to be annulled later on,
respondents would still be considered shareholders of the corporation from the time of the assignment
until the annulment of such contracts.
Second Issue: Mandamus Will Not
Issue to Establish a Right
Petitioner prays for the issuance of a writ of mandamus, directing the corporate secretary of respondent
corporation to have the shares transferred to his name in the corporate books, to issue new certificates of
stock and to deliver the corresponding dividends to him.
20

In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a
clear legal right to the thing demanded and that it is the imperative duty of the respondent to perform the
act required. It neither confers powers nor imposes duties and is never issued in doubtful cases. It is
simply a command to exercise a power already possessed and to perform a duty already imposed.
21

In the present case, petitioner has failed to establish a clear legal right. Petitioner's contention that he is
the owner of the said shares is completely without merit. Quite the contrary and as already shown, he
does not have any ownership rights at all. At the time petitioner instituted his suit at the SEC, his
ownership claim had no prima facie leg to stand on. At best, his contention was disputable and uncertain
Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly
established.
Without Foreclosure and
Purchase at Auction, Pledgor
Is Not the Owner of Pledged Shares
Petitioner initially argued that ownership of the shares pledged had passed to him, upon Respondents Sy
Guiok and Sy Lim's failure to pay their respective loans. But on appeal, petitioner claimed that ownership
over the shares had passed to him, not via the contracts of pledge, but by virtue of prescription and by
respondents' subsequent acts which amounted to a novation of the contracts of pledge. We do not agree.
At the outset, it must be underscored that petitioner did not acquire ownership of the shares by virtue of
the contracts of pledge. Article 2112 of the Civil Code states:
The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of
the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the
thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing
is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either,
the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire
claim.
Furthermore, the contracts of pledge contained a common proviso, which we quote again for the sake of clarity:
3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof,
the PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the
same at public or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the
purchaser at his option; and "the PLEDGEE is hereby authorized and empowered at his option to transfer the said
shares of stock on the books of the corporation to his own name, and to hold the certificate issued in lieu thereof under
the terms of this pledge, and to sell the said shares to issue to him and to apply the proceeds of the sale to the
payment of the said sum and interest, in the manner hereinabove
provided;
22

There is no showing that petitioner made any attempt to foreclose or sell the shares through public or
private auction, as stipulated in the contracts of pledge and as required by Article 2112 of the Civil Code.
Therefore, ownership of the shares could not have passed to him. The pledgor remains the owner during
the pendency of the pledge and prior to foreclosure and sale, as explicitly provided by Article 2103 of the
same Code:
Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to recover it
from, or defend it against a third person.
No Ownership
by Prescription
Petitioner did not acquire the shares by prescription either. The period of prescription of any cause of action is reckoned only from the date
the cause of action accrued.
Since a cause of action requires as an essential element not only a legal right of the plaintiff and a correlative obligation of the defendant, but
also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the party obligated refuses,
expressly or impliedly, to comply with its duty."
23
Accordingly, a cause of action on a written contract accrues when a
breach or violation thereof occurs.
Under the contracts of pledge, private respondents would have a right to ask for the redelivery of their
certificates of stock upon payment of their debts to petitioner, consonant with Article 2105 of the Civil
Code, which reads:
The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid
the debt and its interest, with expenses in a proper case.
24

Thus, the right to recover the shares based on the written contract of pledge between petitioner and
respondents would arise only upon payment of their respective loans. Therefore, the prescriptive period
within which to demand the return of the thing pledged should begin to run only after the payment of the
loan and a demand for the thing has been made, because it is only then that respondents acquire a
cause of action for the return of the thing pledged.
Prescription should not begin to run on the action to demand the return of the thing pledged while the loan
still exists. This is because the right to ask for the return of the thing pledged will not arise so long as the
loan subsists. In the present case, the prescriptive period did not begin to run when the loan became due.
On the other hand, it is petitioner's right to demand payment that may be in danger of prescription.
Petitioner contends that he can be deemed to have acquired ownership over the certificates of stock
through extraordinary prescription, as provided for in Article 1132 of the Civil Code which states:
Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith.
The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of
any other condition. . . . .
Petitioner's argument is untenable. What is required by Article 1132 is possession in the concept of an owner. In the present case,
petitioner's possession of the stock certificates came about because they were delivered to him pursuant to the contracts of pledge. His
possession as a pledgee cannot ripen into ownership by prescription. As aptly pointed out by Justice Jose C. Vitug:
Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. In order to
ripen into ownership, possession must be in the concept of an owner, public, peaceful and uninterrupted. Thus,
possession with a juridical title, such as by a usufructory, a trustee, a lessee, agent or a pledgee, not being in the
concept of an owner, cannot ripen into ownership by acquisitive prescription unless the juridical relation is first
expressly repudiated and such repudiation has been communicated to the other party.
25

Petitioner expressly repudiated the pledge, only when he filed his Complaint and claimed that he was not
a mere pledgee, but that he was already the owner of the shares. Based on the foregoing, petitioner has
not acquired the certificates of stock through extraordinary prescription.
No Novation
in Favor of Petitioner
Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge. Novation is
defined as "the extinguishment of an obligation by a subsequent one which terminates it, either by
changing its object or principal conditions, by substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor."
26
Novation of a contract must not be presumed.
"In the absence of an express agreement, novation takes place only when the old and the new obligations
are incompatible on every point."
27

In the present case, novation cannot be presumed by (a) respondents' indorsement and delivery of the
certificates of stock covering the 600 shares, (b) petitioner's receipt of dividends from 1980 to 1983, and
(c) the fact that respondents have not instituted any action to recover the shares since 1980.
Respondents' indorsement and delivery of the certificates of stock were pursuant to paragraph 2 of the
contract of pledge which reads:
2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be held by the PLEDGEE under the
pledge as security for the payment of the aforementioned sum and interest thereon
accruing.
28

This stipulation did not effect the transfer of ownership to petitioner. It was merely in compliance with
Article 2093 of the Civil Code,
29
which requires that the thing pledged be placed in the possession of the
creditor or a third person of common agreement; and Article 2095,
30
which states that if the thing pledged
are shares of stock, then the "instrument proving the right pledged" must be delivered to the creditor.
Moreover, the fact that respondents allowed the petitioner to receive dividends pertaining to the shares
was not meant to relinquish ownership thereof. As stated by respondent corporation, the same was done
pursuant to an agreement between the petitioner and Respondents Sy Guiok and Sy Lim, following
Article 2102 of the civil Code which provides:
It the pledge earns or produces fruits, income, dividends, or interests, the creditor shall compensate what he receives
with those which are owing him; but if none are owing him, or insofar as the amount may exceed that which is due, he
shall apply it to the principal. Unless there is a stipulation to the contrary, the pledge shall extend to the interest and the
earnings of the right pledged.
Novation cannot be inferred from the mere fact that petitioner has not, since 1980, instituted any action to recover the shares. Such action is
in fact premature, as the loan is still outstanding. Besides, as already pointed out, novation is never presumed or inferred.
No Dacion en Pago
in Favor of Petitioner
Neither can there be dacion en pago, in which the certificates of stock are deemed sold to petitioner, the consideration for which is the
extinguishment of the loans and the accrued interests thereon. Dacion en pago is a form of novation in which a change takes place in the
object involved in the original contract. Absent an explicit agreement, petitioner cannot simply presume dacion en pago.
Laches Not
a Bar to Petitioner
Petitioner submits that "the inaction of the individual respondents with respect to the recovery of the shares of stock serves to bar them from
asserting rights over said shares on the basis of laches."
31

Laches has been defined as "the failure or neglect, for an unreasonable length of time, to do that which
by exercising due diligence could or should have been done earlier; it is negligence or omission to assert
a right within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it."
32

In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand
payment of the debt. More important, under the contracts of pledge, petitioner could have foreclosed the
pledges as soon as the loans became due. But for still unknown or unexplained reasons, he failed to do
so, preferring instead to pursue his baseless claim to ownership.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. Costs against
petitioner.
SO ORDERED.
_____________________
G.R. No. 135043 July 14, 2004
TOWNE & CITY DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS and GUILLERMO R. VOLUNTAD (substituted by TOMAS
VOLUNTAD and FLORDELIZA ESTEBAN Vda. De VOLUNTAD) respondents.

D E C I S I O N

TINGA, J .:
Before us is a Petition for Review on Certiorari under Rule 45 assailing the August 12, 1998
Decision
1
of the Court of Appeals, Tenth Division, in CA-G.R. CV No. 50919.
Respondent Guillermo Voluntad (Guillermo) and petitioner Towne & City Development
Corporation were both engaged in the construction business. From 1984 to 1985, Guillermo and
petitioner entered into a contract for the (a) construction of several housing units belonging to or
reserved for different individuals; (b) repair of several existing housing units belonging to
different individuals; and (c) repair of facilities, all located at the Virginia Valley Subdivision,
owned and developed by the petitioner. The total contract cost amounted to One Million Forty
One Thousand Three Hundred Fifty Nine (P1,041,359.00) Pesos.
The parties agreed that Guillermo should be paid in full by petitioner the agreed contract cost
upon completion of the project. In 1985, pending completion of the project, Guillermo was
allowed by petitioner to occupy, free of charge, one of its houses at the Virginia Valley
Subdivision.
After completing the construction and repair works subject of the contract, Guillermo demanded
payment for his services.
When petitioner failed to satisfy his claim in full, Guillermo filed on April 30, 1990 a Complaint
for collection against petitioner before the Regional Trial Court of Manila (RTC). The case was
docketed as Civil Case No. 90-52880 and raffled to Branch 25 of the RTC. Guillermo alleged
that petitioner paid him only the amount of P69,400.00, leaving a balance of P971,959.00 under
the terms of their contract.
2

In its Answer with Counter-claims (sic), petitioner averred that it had already paid Guillermo the
amount of P1,022,793.46 for his services and that there was even an overpayment of P58,189.46.
Petitioner further claimed that Guillermo is liable for unpaid rentals amounting to P66,000.00 as
of June 1990 for his occupancy of one of the houses in Virginia Valley Subdivision since 1985.
3

During the pre-trial of the case, the parties agreed to limit the issues to: (1) whether petitioner
had paid Guillermo in full in accordance with their contract; (2) if payment in full had been made
by petitioner, whether there was an overpayment on its part; and (3) whether either or both
parties are entitled to attorney's fees.
4

While the case was pending before the trial court, Guillermo passed away. Upon motion of
respondents Tomas Voluntad and Flordeliza Vda. de Voluntad, the trial court issued an Order
substituting them as plaintiffs in place of the deceased Guillermo.
5

Guillermo did not adduce evidence, whether testimonial or documentary, as evidence-in-chief in
view of the admissions made by petitioner in its Answer with Counter-claims
6
that indeed it
entered into a contract with him and that it was obliged to pay him for his services. Petitioner, for
its part, presented as its sole witness Ms. Rhodora Aguila (Ms. Aguila), its Corporate Secretary,
to prove that it paid Guillermo for his services under the contract. She testified that she
personally handed or delivered the cash or check payments to Guillermo, adding that Guillermo
acknowledged payments with his signatures on the vouchers.
7
In rebuttal, Guillermo testified
along with two employees of the Special Security System.
On December 29, 1994, the trial court rendered its Decision, the dispositive portion of which
states:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering defendant to pay plaintiff the total sum of P715,228.50 representing
defendant's unpaid balance owing in favor of plaintiff, with 3% interest from the time of
filing of the complaint until the full amount is satisfied;
2. Ordering plaintiff to vacate the house occupied by him belonging to defendant;
3. No pronouncement as to cost and attorney's fees.
SO ORDERED."
8

Petitioner filed a Motion for Reconsideration on March 2, 1995, stressing that the lower court
erred that it had not paid Guillermo's claim in full.
9
The trial court denied the motion for lack of
merit in its Order dated April 24, 1995.
10

Consequently, on May 3, 1995 petitioner filed its Notice of Partial Appeal to the Court of
Appeals insofar as the Decision ordered it to pay Guillermo the total sum of P715,228.50, which
according to the lower court represented its unpaid balance, with interest thereon.
11

On August 12, 1998, the appellate court rendered a Decision affirming the judgment of the lower
court. The dispositive portion reads:
"ACCORDINGLY, finding no reversible error in the decision appealed from dated
December 29, 1994, the same is hereby AFFIRMED in all respects. Costs against
defendant-appellant.
SO ORDERED."
12

Hence, this Petition.
Petitioner submits that the "Court a quo committed reversible errors of law and/or acted with
grave abuse of discretion" in not considering as proofs of payment the vouchers and other
documentary exhibits, and in ignoring the ruling in Philippine National Bank vs. Court of
Appeals,
13
although it was cited in the assailed decisions.
14

The alleged errors, however, refer to the appreciation of evidence which the appellate and trial
courts made. As such, they involve questions of fact of which the Court cannot take cognizance
of In the case of Naguiat v. Court of Appeals,
15
the Court said that there is a question of fact
when a doubt or difference arises as to the truth or the falsehood of alleged facts, while there is a
question of law when such doubt or difference refers to what the law is on a certain state of facts.
It must be emphasized that this Court is not a trier of facts, and under Rule 45 of the 1997 Rules
of Civil Procedure, a petition for review to be given due course should raise only questions of
law.
16
This rule finds even greater application when the findings of fact of the trial court were
affirmed by the Court of Appeals, as in this case.
17

Neither does the present case fall under any of the recognized exceptions
18
to warrant a review of
the assailed factual findings. Truth to tell, the findings of the Court of Appeals are amply
supported by the evidence on record.
To skirt the procedural obstacle, petitioner insists that the issue of whether a voucher suffices as
evidence of payment is a question of law. Significantly, petitioner claims that the appellate
court's failure to consider the vouchers as proof of payment runs counter to our ruling in
Philippine National Bank (PNB) v. Court of Appeals
19
that "the best evidence for proving
payment is by evidence of receipts showing the same."
Fundamentally, however, petitioner's point raises a question of fact which is definitely out of
place in a petition for review under Rule 45. The question of whether petitioner's vouchers
bearing Guillermo's signature constitute adequate proof of payment of Guillermo's claim requires
an examination of the vouchers and an inquiry into the circumstances surrounding petitioner's
issuance thereof. Such are functions reserved for the trial courts and the Court of Appeals when
reviewing findings of fact by the trial court. They are not functions of this Court.
The ruling in PNB v. Court of Appeals
20
is that while a receipt of payment is the best evidence of
the fact of payment, it is, however, not conclusive but merely presumptive;
21
neither it is
exclusive evidence as the fact of payment may be established also by parole evidence.
22
Contrary
to petitioner's stance, the appellate court did not disregard but instead took into account the
ruling in the cited case. This may easily be confirmed by reviewing the factual predicates on
which the ruling was handed down.
In the cited case, private respondent Flores purchased from petitioner PNB and its Manila
Pavilion Unit, two (2) manager's check worth P500,000.00 each, paying a total of P1,000,040.00,
the extra P40.00 representing the service charge. PNB issued a receipt for the amount. On the
following day, Flores presented the checks at PNB Baguio Hyatt Casino unit, but PNB initially
refused to encash the checks. Eventually, it agreed to encash one of the checks. However, it
deferred payment of the other check until after Flores agreed that it be broken down to five (5)
checks of P100,000.00 each. Moreover, PNB refused to encash one of the five (5) checks until
after it shall have been cleared by its Manila Pavilion Hotel Unit. The PNB Malate Branch, to
which Flores made representations upon his return to Manila, refused to encash the last check.
So, Flores filed a case for collection, plus damages.
PNB admitted that it issued a receipt for P1,000,040.00 but at same time countered that the
receipt is not the best evidence to prove how much Flores actually paid for the purchase of its
manager's checks. So, according to PNB, the issue was not what appears on the receipt but how
much money Flores paid to PNB which, also according to PNB, allows the presentation of
evidence aliunde.
This Court held:
Although a receipt is not conclusive evidence, in the case at bench, an exhaustive review
of the records fails to disclose any other evidence sufficient and strong enough to
overturn the acknowledgment embodied in petitioner's receipt(as to the amount of money
it actually received.)
23

. . . .
Having failed to adduce sufficient rebuttal evidence, petitioner is bound by the contents
of the receipt it issued to Flores. The subject receipt remains to be the primary or best
evidence or "that which affords the greatest certainty of the fact in question."
24

In the case at bar, petitioner has relied on vouchers to prove its defense of payment. However, as
correctly pointed out by the trial court which the appellate court upheld, vouchers are not
receipts.
It should be noted that a voucher is not necessarily an evidence of payment. It is merely
a way or method of recording or keeping track of payments made. A procedure adopted
by companies for the orderly and proper accounting of funds disbursed. Unless it is
supported by an actual payment like the issuance of a check which is subsequently
encashed or negotiated, or an actual payment of cash duly receipted for as is customary
among businessmen, a voucher remains a piece of paper having no evidentiary weight.
25

(Emphasis supplied).
A receipt is a written and signed acknowledgment that money has been or goods have been
delivered,
26
while a voucher is documentary record of a business transaction.
27

The references to alleged check payments in the vouchers presented by the petitioner do not vest
them with the character of receipts. Under Article 1249 of the Civil Code,
28
payment of debts in
money has to be made in legal tender and the delivery of mercantile documents, including
checks, "shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired."
From the text of the Civil Code provision, it is clear that there are two exceptions to the rule that
payment by check does not extinguish the obligation. Neither exception is present in this case.
Concerning the first, petitioner failed to produce the originals of the checks after their supposed
encashment and even the bank statements although the supposed payments by check were
effected only about 5 years before the filing of the collection suit. Anent the second exception,
the doctrine is that it does not apply to instruments executed by the debtor himself and delivered
to the creditor.
29
Indubitably, that is not the situation in this case.
Petitioner also relied upon the testimony of its Corporate Secretary, Rhodora Aguila. Again, the
issue about the credibility of said witness involves a question of fact which is a definite
incongruity in petitions for review, as in the case before us. In any event, the Court of Appeals
convincingly debunked the testimony.
30

All told, the Court finds no reason to disturb the findings of the Court of Appeals which affirmed
in toto the trial court's Decision.
WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of Appeals is
AFFIRMED. Costs against the petitioner.
SO ORDERED.
_______________
G.R. No. 157836 May 26, 2005
NOEMI M. CORONEL, petitioner,
vs.
ENCARNACION C. CAPATI, respondent.
D E C I S I O N
PUNO, J .:
On appeal is the Court of Appeals May 31, 2001 Decision
1
in CA-G.R. CV No. 58060 and April
8, 2003 Resolution,
2
affirming the April 30, 1997 Decision
3
of the Regional Trial Court of
Guagua, Pampanga in Civil Case No. G-2549 which found petitioner liable to pay respondent its
loan obligation, plus attorney's fees and costs of suit.
The facts are as follows:
Petitioner contracted two loans from respondent on September 4, 1992 and October 25, 1992.
The first amounted to P121,000.00 payable on or before February 4, 1993 and the second
amounted to P363,000.00 payable on or before March 25, 1993. In return, petitioner issued
respondent two checks: Metrobank Check No. 114678
4
dated September 4, 1992 for the first
loan and Metrobank Check No. 114679
5
dated October 25, 1992 for the second loan. The two
loans are embodied in two handwritten instruments. The first one reads:
P121,000.
00
/xx
Received the amount of one hundred twenty one thousand pesos only P121,000.
00
/xx
from Mrs. Encarnacion C. Capati & payable in 5 months from Sept. 4, 1992 & said loan
is secured by Metrobank (Guagua Branch) and with check # 114678.
(signed)
Noemi M. Coronel
6

The second instrument, in like tenor, reads as follows:
Received the amount of three hundred sixty three thousand pesos only P363,000.
00
/xx
from Mrs. Encarnacion C. Capati & payable from Oct. 25, 1992 (5 months) & said loan is
secured with Metrobank check # 114679 (Guagua Branch).
(signed)
Noemi M. Coronel
7

Petitioner failed to pay her loans upon maturity despite repeated demands from respondent. The
two checks she issued were dishonored when presented for payment on February 16, 1993 and
April 7, 1993. Hence, on September 14, 1993, respondent filed a complaint for sum of money
and damages with attachment against petitioner before the Regional Trial Court of Guagua,
Pampanga.
On April 30, 1997, the trial court ruled in favor of respondent, ordering petitioner to pay, as
follows:
WHEREFORE, premises considered, judgment is rendered ordering defendant:
1. To pay plaintiff the amount of P484,000.00 as principal obligation plus 12% interest
per annum computed from the time of the filing of this case up to the time it is fully paid;
2. To pay plaintiff 10% of the principal obligation of P484,000.00 as attorneys fees;
3. To pay the costs of the suit.
SO ORDERED.
On appeal to the Court of Appeals, petitioner was unsuccessful as the appellate court affirmed
the ruling of the trial court.
Petitioners Motion for Reconsideration
8
was denied.
Hence, this appeal.
9

Petitioner denied contracting the two loans in the amounts of P121,000.00 and P363,000.00 from
respondent. She alleged that the Metrobank checks representing the foregoing amounts were two
of several checks she issued in favor of respondent for a loan amounting to P1.101 million which
she has fully paid. She claimed that despite full payment, respondent still deposited the two
checks because of a dispute between them arising from respondents demand for exorbitant and
additional interest on the P1.101 million loan.
Petitioner alleged further that there were instances when respondent asked her to affix her
signature on blank sheets of paper thereby implying that the contents of Exhibits "A-1" and "B-
1," containing the loan agreements were written by respondent on sheets of paper signed in
advance by petitioner.
In detail, petitioner contended that on May 20, 1992, respondent informed her that her loan
obligation added to P980,000.00 plus interest of P121,000.00, totaling P1,101,000.00, to which
computation petitioner agreed. At the same time, respondent also asked her to sign a document
entitled "Pacto de Retro Sale"
10
with the assurance that it will serve only as "security." On June
18, 1992, petitioner paid respondent P66,000.00 in cash.
11
Before the end of the redemption
period under the pacto de retro sale which was on August 20, 1992, petitioner, expecting that she
will be unable to pay the full amount on due date, issued respondent two checks: Metrobank
check no. 114668
12
in the amount of P980,000.00 dated August 20, 1992 and Metrobank check
no. 114669
13
in the amount of P121,000.00 dated September 4, 1992. Later, respondent returned
these two Metrobank checks numbered 114668 and 114669 to petitioner. Petitioner replaced
these checks with Metrobank check no. 114675
14
in the same amount of P980,000.00 and
likewise dated August 20, 1992, and Metrobank check no. 114678,
15
again in the same amount
of P121,000.00 and likewise dated September 4, 1992.
On September 7, 1992, petitioner paid respondent another P40,000.00 in the form of Metrobank
check no. 114700.
16
And on November 13, 1992, petitioner paid respondent P1M, evidenced by
a handwritten receipt
17
signed by respondent. The receipt reads as follows:
Received from Miss Noemi M. Coronel the Bank of Philippine Island Cashiers Check
No. 019877 dated Nov. 13, 1992 for ONE MILLION (P1,000,000.00) pesos as partial
payment of the loan from Mrs. Encarnacion C. Capati, & the balance will be paid on or
before Dec. 15, 1992.
(signed)
ENCARNACION CAPATI
LENDER-MORTGAGEE
November 13, 1992
Respondent returned to petitioner check no. 114675
18
in the amount of P980,000.00 dated
August 20, 1992, upon payment of petitioner to respondent of the cashiers check worth P1M.
Petitioner also issued another postdated check Metrobank Check No. 114679
19
in the amount
of P363,000.00 dated October 25, 1992 allegedly for interest of her obligation.
20

Based on petitioners own computation, her remaining balance amounted to only P50,000.00.
Thus, on December 1, 1992, petitioner issued respondent a Metrobank Check No. 147653 in the
amount of P50,000.00.
21
On January 4, 1993, she allegedly ordered Metrobank Guagua, through
a letter,
22
to stop payment of the checks she issued respondent for P121,000.00 and P363,000.00.
According to petitioner, these two checks were not returned by respondent because the latter
claimed that she has not completed the payment of interest yet.
In sum, petitioner alleged that her total obligation is computed, as follows:
P 980,000.00 principal obligation
176,000.00 3% monthly interest from
P1,156,000.00

May to Nov 1992
which she claimed to have paid, as follows:
P 66,000.00 June 18, 1992
40,000.00 September 7, 1992
1,000,000.00 November 13, 1992
50,000.00 December 1, 1992
P1,156,000.00

We find petitioners contentions unmeritorious.
The existence of petitioners obligation is supported by documentary evidence. Exhibits "A-1"
and "B-1" are written instruments containing the loan agreements. The signature of petitioner as
debtor appears in both instruments. Petitioner does not deny she owns these signatures. These
exhibits are the best evidence of the subject obligation. Petitioners contrary evidence has no leg
to stand on. At first, she claims that her total loan obligation amounted to P1.101 million, the
amount of consideration stated in the document entitled "Pacto de Retro Sale." At the end,
however, she came up with a different computation of her obligation as totaling P1.156 million,
without any document to support her allegation. The discrepancy between the two computations
is not explained. The age old rule of evidence is that oral testimony as to a certain fact,
depending as it does on human memory that is most often than not, momentary and fleeting, is
not as reliable as written or documentary evidence.
23
We are, thus, more convinced that Exhibits
"A-1" and "B-1" express the true agreement of the parties, contrary to the oral testimony of
petitioner that those amounts are part of a loan amounting to P1.101 million which she has fully
paid. The latter appears to be another loan, distinct from the one involved in the case at bar.
24

Incidentally, the pacto de retro sale referred to by petitioner, is the subject matter of another
litigation between the same parties pending with the same court.
25

Petitioner tries to escape responsibility by testifying that it has been respondents practice to ask
her to sign blank sheets of paper. She wants the court to believe that she did not know of the
contents of Exhibits "A-1" and "B-1," and that these documentary evidence could have been one
of those blank sheets of paper that respondent has asked her to sign. We find this tale
unacceptable, absent any form of duress or intimidation from respondent, which petitioner does
not even allege. Time and again, we have held that one who is of age and a businesswise is
presumed to have acted with due care and to have signed the documents in question with full
knowledge of its contents and consequences.
26
Petitioner is not one ignorant, illiterate person
who could be easily duped into signing blank sheets of papers. She has borrowed large sums of
money from respondent. In fact, petitioners total loan obligation to respondent has reached over
millions of pesos. Petitioner has transacted business with respondent several times. Among
others, they include transactions involving a pacto de retro sale which is the subject of another
pending case between the parties and loans amounting to P2M and P1M, secured by deeds of
real estate mortgage and chattel mortgage, respectively. As the lower court correctly pointed out,
petitioner apparently knows how to take care of her business dealings. Thus, on October 21,
1992 and February 22, 1993, she caused the execution of two documents entitled "Discharge of
Real Estate Mortgage"
27
and "Discharge of Chattel Mortgage,"
28
respectively, when she paid
respondent the full consideration of the promissory notes of P2M and P1M, wherein the
mortgages served as security for the payment of said notes.
29
Similarly, petitioner, upon payment
of P1M to respondent on November 13, 1992, retrieved the Metrobank Check No. 114675
30

dated August 20, 1992 which she issued as security to respondent. Interestingly, in the case of
the two checks subject matter of this litigation, petitioner did not even demand their return from
respondent, notwithstanding her claim that she has paid in full her loan obligation. All she
presented was a letter
31
ordering Metrobank Guagua to stop payment of the checks without proof
that it has been received by, nor actually sent to Metrobank Guagua.
Again, we reiterate the rule that when the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been extinguished by payment devolves
upon the debtor who offers such defense to the claim of the creditor.
32
Even where respondent-
creditor who was plaintiff in the lower court, alleges non-payment, the general rule is that the
onus rests on the petitioner-debtor who was defendant in the lower court, to prove payment,
rather than on the plaintiff-creditor to prove non-payment.
33
The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment.
34
This,
petitioner failed to do.
IN VIEW THEREOF, petitioners appeal is DENIED. The Court of Appeals May 31, 2001
Decision in CA-G.R. CV No. 58060 and April 8, 2003 Resolution, affirming the April 30, 1997
Decision of the Regional Trial Court of Guagua, Pampanga in Civil Case No. G-2549, are
AFFIRMED.
SO ORDERED.
____________
G.R. No. 166704 December 20, 2006
AGRIFINA AQUINTEY, petitioner,
vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.

D E C I S I O N

CALLEJO, SR., J .:
Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the
Decision
1
of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification
the Decision
2
of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution
3
of
the appellate court denying reconsideration thereof.
The Antecedents
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint
for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong.
Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly
interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding
loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following
prayer:
WHEREFORE, premises considered, it is most respectfully prayed of this Honorable
Court, after due notice and hearing, to render judgment ordering defendants to pay
plaintiff the following:
a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00)
representing the principal obligation of the defendants with the stipulated interests
of six (6%) percent per month from May 11, 1999 to date and or those that are
stipulated on the contracts as mentioned from paragraph two (2) of the complaint.
b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's
fees.
c). Actual expenses representing the filing fee and other charges and expenses to
be incurred during the prosecution of this case.
Further prays for such other relief and remedies just and equitable under the premises.
4

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as
well as copies of the promissory notes and acknowledgment receipts executed by Felicidad
covering the loaned amounts.
5

In their Answer with Counterclaim,
6
spouses Tibong admitted that they had secured loans from
Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates.
They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that
their debtors had executed promissory notes in Agrifina's favor. According to the spouses
Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by
virtue of these documents, Agrifina became the new collector of their debtors; and the obligation
to pay the balance of their loans had been extinguished.
The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the
complaint. While they did not state the total amount of their loans, they declared that they did not
receive anything from Agrifina without any written receipt.
7
They prayed for that the complaint
be dismissed.
In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan
from Agrifina without the benefit of a written document.
8

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the
case were defined:
Whether or not plaintiff is entitled to her claim of P773,000.00;
Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and
Whether or not the parties are entitled to their claim for damages.
9

The Case for Petitioner
Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband,
Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina
agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests
higher than those given by the bank for her money. Felicidad told Agrifina that since she
(Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the
money to buy bonnels and thread.
10
Thus, Agrifina lent a total sum of P773,000.00 to Felicidad,
and each loan transaction was covered by either a promissory note or an acknowledgment
receipt.
11
Agrifina stated that she had lost the receipts signed by Felicidad for the following
amounts: P100,000.00, P34,000.00 and P2,000.00.
12
The particulars of the transactions are as
follows:
Amount Date Obtained Interest Per
Mo.
Due Date
P 100,000.00 May 11, 1989 6% August 11, 1989
4,000.00 June 8, 1989 - -
50,000.00 June 13, 1989 6% On demand
60,000.00 Aug. 16, 1989 7% January 1990
205,000.00 Oct. 13, 1989 7% January 1990
128,000.00 Oct. 19, 1989 7% January 1990
2,000.00 Nov. 12, 1989 6% April 28, 1990
10,000.00 June 13, 1990 - -
80,000.00 Jan. 4, 1990 - -
34,000.00 - 6% October 19, 1989
100,000.00 July 14, 1989 5% October 1989
13

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.
14

In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25,
1990 in the amount of P50,000.00 as partial payment.
15
However, the check was dishonored for
having been drawn against insufficient funds.
16
Agrifina then filed a criminal case against
Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa
Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the
court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the
check.
17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.
18

Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to
execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's
debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad.
This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the
proposal.
19
Agrifina, Felicidad, and the latter's debtors had a conference
20
where Atty. A-ayo
explained that Agrifina could apply her collections as payments of Felicidad's account.
21

From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits
(obligations)
22
duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to
Agrifina the total amount of P546,459.00 due from her debtors.
23
In the said deeds, Felicidad
confirmed that her debtors were no longer indebted to her for their respective loans. For her part,
Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and
Corazon Dalisay.
24
She was furnished copies of the deeds as well as the promissory notes.
25

The following debtors of Felicidad executed promissory notes where they obliged themselves to
pay directly to Agrifina:
Debtors Account Date of Instrument Date Payable
Juliet & Tommy
Tibong
P50,000.00 August 7, 1990 November 4, 1990 and February
4, 1991
Corazon Dalisay 8,000.00 August 7, 1990 No date
Rita Chomacog 4,480.00 August 8, 1990 September 23, 1990
Antoinette Manuel 12,000.00 October 19, 1990 March 30, 1991
Rosemarie Bandas 8,000.00 August 8, 1990 February 3, 1991
Fely Cirilo 63,600.00 September 13, 1990 No date
Virginia Morada 62,379.00 August 9, 1990 February 9, 1991
Carmelita Casuga 59,000.00 August 28, 1990 February 28, 1991
Merlinda Gelacio 17,200.00 August 29, 1990 November 29, 1990
26

T o t a l P284,659.00
Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to
collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but
conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.
27

Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.
28

Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the
promissory note because she was in Taipei, Taiwan.
29

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to
collect the total amount of P301,000.00 from Felicidad's debtors.
30
In April 1990, she tried to
collect the balance of Felicidad's account, but the latter told her to wait until her debtors had
money.
31
When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the
Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.
32

The Case for Respondents
Felicidad testified that she and her friend Agrifina had been engaged in the money-lending
business.
33
Agrifina would lend her money with monthly interest,
34
and she, in turn, would re-
lend the money to borrowers at a higher interest rate. Their business relationship turned sour
when Agrifina started complaining that she (Felicidad) was actually earning more than
Agrifina.
35
Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay
her account since Agrifina needed money to buy a house and lot in Manila. However, she told
Agrifina that she could not pay yet, as her debtors' loan payments were not yet due.
36
Agrifina
then came to her store every afternoon to collect from her, and persuaded her to go to Atty.
Torres G. A-ayo for legal advice.
37
The lawyer suggested that she indorse the accounts of her
debtors to Agrifina so that the latter would be the one to collect from her debtors and she would
no longer have any obligation to Agrifina.
38
She then executed deeds of assignment in favor of
Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by
Atty. A-ayo in the presence of Agrifina.
39
Some of the debtors signed the promissory notes
which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from
Felicidad's debtors.
40
Felicidad further narrated that she received P250,000.00 from one of her
debtors, Rey Rivera, and remitted the payment to Agrifina.
41

Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad.
When she asked Felicidad to consolidate her loans in one document, the latter told her to seek the
assistance of Atty. A-ayo.
42
The lawyer suggested that Felicidad assign her credits in order to
help her collect her loans.
43
She agreed to the deeds of assignment to help Felicidad collect from
the debtors.
44

On January 20, 2003, the trial court rendered its Decision
45
in favor of Agrifina. The fallo of the
decision reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants
ordering the latter to pay the plaintiffs (sic) the following amounts:
1. P472,000 as actual obligation with the stipulated interest of 6% per month from May
11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be
deducted from the total accumulated interest for the same was already paid by the
defendant as admitted by the plaintiff in her complaint,
2. P25,000 as attorney's fees,
3. [T]o pay the costs.
SO ORDERED.
46

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment
and the promissory notes executed by Felicidad's borrowers. It explained that the documents did
not contain any express agreement to novate and extinguish Felicidad's obligation. It declared
that the deeds and notes were separate contracts which could stand alone from the original
indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to
collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from
the latter's accountability.
47
Hence, the balance, exclusive of interests, amounted to P472,000.00.
On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on
the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured
loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as
declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had
lost the promissory notes and acknowledgment receipts, she failed to present competent
documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the
amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account,
P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance
of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the
RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED.
Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in
the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11,
1999 until the finality of this decision.
SO ORDERED.
48

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had
not been novated by the deeds of assignment and promissory notes executed in the latter's favor.
Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to
Agrifina under the loan transaction remained; there was no intention on their part to novate the
original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of
assignment could not be totally disregarded. The assignments of credits were onerous, hence, had
the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never
repudiated or rescinded such assignments only shows that she had accepted and conformed to it.
Consequently, she cannot collect both from Felicidad and her individual debtors without running
afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's
individual debtors on the basis of the deeds of assignment and promissory notes.
The CA further declared that the deeds of assignment executed by Felicidad had the effect of
payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that,
since an assignment of credit is in the nature of a sale, the assignors remained liable for the
warranties as they are responsible for the existence and legality of the credit at the time of the
assignment.
Both parties moved to have the decision reconsidered,
49
but the appellate court denied both
motions on December 21, 2004.
50

Agrifina, now petitioner, filed the instant petition, contending that
1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor
of petitioner has the effect of payment of the original obligation even as it ruled out that
the original obligation and the assigned credit are distinct and separate and can stand
independently from each other;
2. The Honorable Court of Appeals erred in passing upon issues raised for the first time
on appeal; and
3. The Honorable Court of Appeals erred in resolving fact not in issue.
51

Petitioner avers that the appellate court erred in ruling that respondents' original obligation
amounted to only P637,000.00 (instead of P773,000.00) simply because she lost the promissory
notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists
that the issue of whether Felicidad owed her less than P773,000.00 was not raised by respondents
during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking
cognizance of the issue.
Petitioner avers that respondents failed to deny, in their verified answer, that they had secured
the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the
complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned
from the trial court's pre-trial order, the main issue is whether or not she should be made to pay
this amount.
Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00
covered by the deeds of assignment executed by Felicidad and the promissory notes executed by
the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover,
the appellate court's ruling that there was no novation runs counter to its holding that the primary
recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and
promissory notes, only two bore her signature.
52
She insists that she is not bound by the deeds
which she did not sign. By assigning the obligation to pay petitioner their loan accounts,
Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner.
Respondents were not released from their obligation under their loan transactions, and she had
the option to demand payment from them or their debtors. Citing the ruling of this Court in
Magdalena Estates, Inc. v. Rodriguez,
53
petitioner insists that the first debtor is not released from
responsibility upon reaching an agreement with the creditor. The payment by a third person of
the first debtor's obligation does not constitute novation, and the creditor can still enforce the
obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v.
Court of Appeals.
54

In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's
execution of the deeds of assignment, and the original debtors' execution of the promissory notes
(along with their conformity to the deeds of assignment with petitioner's consent), their loan
accounts with petitioner amounting to P585,659.00 had been effectively extinguished.
Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil
Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.
Respondents counter that petitioner had been subrogated to their right to collect the loan
accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors
had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums
received by respondents' debtors were the same loans which they obliged to pay to petitioner
under the promissory notes executed in petitioner's favor.
Respondents aver that their obligation to petitioner cannot stand or exist separately from the
original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as
well as from their original debtors, petitioner would be enriching herself at the expense of
respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents
and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from
them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors'
promissory notes, the original debtors' accounts were assigned to petitioner who would be the
new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan
account inclusive of interests. Respondents also insist that petitioner failed to prove that she
(petitioner) was merely authorized to collect the accounts of the original debtors so as to to
facilitate the payment of respondents' loan obligation.
The Issues
The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from
petitioner; and (2) whether the obligation of respondents to pay the balance of their loans,
including interest, was partially extinguished by the execution of the deeds of assignment in
favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and
Fely Cirilo in the total amount of P371,000.00.
We have carefully reviewed the brief of respondents as appellants in the CA, and find that,
indeed, they had raised the issue of whether they received P773,000.00 by way of loans from
petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the
RTC, the total amount they borrowed was only P673,000.00. They asserted that petitioner failed
to adduce concrete evidence that they received P773,000.00 from her.
55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the
RTC simply because petitioner failed to present any document or receipt signed by Felicidad.
Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material
allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth
the substance of the matters upon which he relies to support his denial.
56

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically
denied are deemed admitted.
57

The purpose of requiring the defendant to make a specific denial is to make him disclose the
matters alleged in the complaint which he succinctly intends to disprove at the trial, together with
the matter which he relied upon to support the denial. The parties are compelled to lay their cards
on the table.
58

A denial is not made specific simply because it is so qualified by the defendant. A general denial
does not become specific by the use of the word "specifically." When matters of whether the
defendant alleges having no knowledge or information sufficient to form a belief are plainly and
necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will
not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material
averments in the complaint other than those as to the amount of unliquidated damages shall be
deemed admitted when not specifically denied.
59
Thus, the answer should be so definite and
certain in its allegations that the pleader's adversary should not be left in doubt as to what is
admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a
belief.
60

In the present case, petitioner alleged the following in her complaint:
2. That defendants are indebted to the plaintiff in the principal amount of SEVEN
HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine
Currency with a stipulated interest which are broken down as follows. The said principal
amounts was admitted by the defendants in their counter-affidavit submitted before the
court. Such affidavit is hereby attached as Annex "A;"
61

x x x x
H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six
(6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the
meantime cannot be recovered as it was misplaced by the plaintiff but the letter of
defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of
the Honorable court;
I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five
(5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989.
Such receipt was lost but admitted by the defendants in their counter-affidavit as attached
[to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x
62

In their Answer, respondents admitted that they had secured loans from petitioner. While the
allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred
that petitioner and respondent Felicidad entered into an agreement for the lending of money to
interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of
the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2
of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No.
93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00.
Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that
respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt
which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of
their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they
have not received sums of money from the plaintiff without any receipt therefor."
Respondents, likewise, failed to specifically deny another allegation in the complaint that they
had secured a P100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on
October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did
respondents deny the allegation that respondents admitted their loan of P100,000.00 in the
counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A."
In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.
We agree with the finding of the CA that petitioner had no right to collect from respondents the
total amount of P301,000.00, which includes more than P178,980.00 which respondent Felicidad
collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel.
Petitioner cannot again collect the same amount from respondents; otherwise, she would be
enriching herself at their expense. Neither can petitioner collect from respondents more than
P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez
and Ramirez.
There is no longer a need for the Court to still resolve the issue of whether respondents'
obligation to pay the balance of their loan account to petitioner was partially extinguished by the
promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita
Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was
able to collect the amounts under the notes from said debtors and applied them to respondents'
accounts.
Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by
which obligations are extinguished. Obligations may be modified by changing their object or
principal creditor or by substituting the person of the debtor.
63
The burden to prove the defense
that an obligation has been extinguished by novation falls on the debtor.
64
The nature of novation
was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,
65
as
follows:
Novation may either be extinctive or modificatory, much being dependent on the nature
of the change and the intention of the parties. Extinctive novation is never presumed;
there must be an express intention to novate; in cases where it is implied, the acts of the
parties must clearly demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation necessitates that the
incompatibility between the old and new obligation be total on every point such that the
old obligation is completely superseded by the new one. The test of incompatibility is
whether they can stand together, each one having an independent existence; if they
cannot and are irreconciliable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an
existing obligation and, second, creating a new one in its stead. This kind of novation
presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory
where the change brought about by any subsequent agreement is merely incidental to the
main obligation (e.g., a change in interest rates or an extension of time to pay); in this
instance, the new agreement will not have the effect of extinguishing the first but would
merely supplement it or supplant some but not all of its provisions.
66
(Citations Omitted)
Novation which consists in substituting a new debtor (delegado) in the place of the original one
(delegante) may be made even without the knowledge or against the will of the latter but not
without the consent of the creditor. Substitution of the person of the debtor may be effected by
delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who
consents to the substitution and assumes the obligation. Thus, the consent of those three persons
is necessary.
67
In this kind of novation, it is not enough to extend the juridical relation to a third
person; it is necessary that the old debtor be released from the obligation, and the third person or
new debtor take his place in the relation.
68
Without such release, there is no novation; the third
person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If
there is no agreement as to solidarity, the first and the new debtor are considered obligated
jointly.
69

In Di Franco v. Steinbaum,
70
the appellate court ruled that as to the consideration necessary to
support a contract of novation, the rule is the same as in other contracts. The consideration need
not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an
inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement
of a remedy, the discontinuance of a suit, or forbearance to sue.
In City National Bank of Huron, S.D. v. Fuller,
71
the Circuit Court of Appeals ruled that the
theory of novation is that the new debtor contracts with the old debtor that he will pay the
debt, and also to the same effect with the creditor, while the latter agrees to accept the new
debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay
the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement
must be based on the consideration of the creditor's agreement to look to the new debtor
instead of the old. It is not essential that acceptance of the terms of the novation and release of
the debtor be shown by express agreement. Facts and circumstances surrounding the transaction
and the subsequent conduct of the parties may show acceptance as clearly as an express
agreement, albeit implied.
72

We find in this case that the CA correctly found that respondents' obligation to pay the balance
of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit
executed by respondent Felicidad in favor of petitioner.
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without
the consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it
against the debtor.
73
It may be in the form of sale, but at times it may constitute a dation in
payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor
a credit he has against a third person.
74

In Vda. de Jayme v. Court of Appeals,
75
the Court held that dacion en pago is the delivery and
transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of
the performance of the obligation. It is a special mode of payment where the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against the debtor's
obligation. As such, the essential elements of a contract of sale, namely, consent, object certain,
and cause or consideration must be present. In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or
obligation.
76

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of
payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right
or a credit against the third person; (2) there must be some difference between the prestation due
and that which is given in substitution (aliud pro alio); and (3) there must be an agreement
between the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due.
77

All the requisites for a valid dation in payment are present in this case. As gleaned from the
deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her
obligation. Felicidad testified that she executed the deeds to enable her to make partial payments
of her account, since she could not comply with petitioner's frenetic demands to pay the account
in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay
the balance of her account, and for petitioner to collect the same from respondent's debtors.
Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their
conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not
essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness
or inefficaciousness of any payment that might have been made. The assignment binds the debtor
upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the
assignee the same defenses he could set up against the assignor
78
necessary in order that
assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent
of the debtor. The purpose of the notice is only to inform that debtor from the date of the
assignment. Payment should be made to the assignee and not to the original creditor.
The transfer of rights takes place upon perfection of the contract, and ownership of the right,
including all appurtenant accessory rights, is acquired by the assignee
79
who steps into the shoes
of the original creditor as subrogee of the latter
80
from that amount, the ownership of the right is
acquired by the assignee. The law does not require any formal notice to bind the debtor to the
assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not
been notified, but came to know of the assignment by whatever means, the debtor is bound by it.
If the document of assignment is public, it is evidence even against a third person of the facts
which gave rise to its execution and of the date of the latter. The transfer of the credit must
therefore be held valid and effective from the moment it is made to appear in such instrument,
and third persons must recognize it as such, in view of the authenticity of the document, which
precludes all suspicion of fraud with respect to the date of the transfer or assignment of the
credit.
81

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other
debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and
P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad,
likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her.
Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds,
petitioner no longer attempted to collect from respondents the balance of their accounts. It was
only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from
respondents. In the meantime, petitioner had collected from respondents' debtors the amount of
P301,000.00.
While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the
debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that
respondent merely authorized petitioner to collect the accounts of respondents' debtors and for
her to apply her collections in partial payments of their accounts. It bears stressing that
petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at
the time of the assignment.
82
Such rights and remedies include the right to collect her debtors'
obligations to her.
Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court
ruled that the mere fact that novation does not follow as a matter of course when the creditor
receives a guaranty or accepts payments from a third person who has agreed to assume the
obligation when there is no agreement that the first debtor would be released from responsibility.
Thus, the creditor can still enforce the obligation against the original debtor.
In the present case, petitioner and respondent Felicidad agreed that the amounts due from
respondents' debtors were intended to "make good in part" the account of respondents. Case law
is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of
construction governing contracts generally, the primary object being always to ascertain and
carry out the intention of the parties. This intention is to be derived from a consideration of the
whole instrument, all parts of which should be given effect, and is to be sought in the words and
language employed.
83

Indeed, the Court must not go beyond the rational scope of the words used in construing an
assignment, words should be construed according to their ordinary meaning, unless something in
the assignment indicates that they are being used in a special sense. So, if the words are free from
ambiguity and expressed plainly the purpose of the instrument, there is no occasion for
interpretation; but where necessary, words must be interpreted in the light of the particular
subject matter.
84
And surrounding circumstances may be considered in order to understand more
perfectly the intention of the parties. Thus, the object to be accomplished through the
assignment, and the relations and conduct of the parties may be considered in construing the
document.
Although it has been said that an ambiguous or uncertain assignment should be construed most
strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning
of an assignment will be resolved against the party who prepared it; hence, if the assignment was
prepared by the assignee, it will be construed most strictly against him or her.
85
One who chooses
the words by which a right is given ought to be held to the strict interpretation of them, rather
than the other who only accepts them.
86

Considering all the foregoing, we find that respondents still have a balance on their account to
petitioner in the principal amount of P33,841.00, the difference between their loan of
P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to
P103,500.00, and the P50,000.00 payment made by respondents.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and
Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance
of the principal account of the respondents to the petitioner is P33,841.00. No costs.
SO ORDERED.
__________________
G.R. No. 130972 January 23, 2002
PHILIPPINE LAWIN BUS, CO., MASTER TOURS & TRAVEL CORP., MARCIANO
TAN, ISIDRO TAN, ESTEBAN TAN and HENRY TAN, petitioners,
vs.
COURT OF APPEALS and ADVANCE CAPITAL CORPORATION, respondents.
D E C I S I O N
PARDO, J .:
The Case
The case is a petition for review via certiorari of the decision of the Court of Appeals,
1
reversing
that of the trial court
2
and sentencing petitioners as follows:
"WHEREFORE, the appealed decision should be, as it is hereby REVERSED and SET ASIDE.
In lieu thereof, a new one is hereby rendered ordering the defendants-appellees to pay, jointly
and solidarily, in favor of plaintiff-appellant Advance Capital Corporation, the following
amounts:
"1. P16,484,994.42, the principal obligation under the two promissory note Nos. 003 and
00037 plus interest and penalties;
"2. P100,000.00 for loss of goodwill and good reputation;
"3. An amount equivalent to 10% of the collectible amount, plus P50,000, as acceptance
fee and P500 per appearance, as and for attorneys fees: and
"4. P100,000 as litigation expenses.
"Costs shall be taxed against defendant-appellees.
"SO ORDERED."
3

The Facts
The facts, as found by the Court of Appeals, are as follows:
"On 7 August 1990 plaintiff Advance Capital Corporation, a licensed lending investor, extended
a loan to defendant Philippine Lawin Bus Company (hereafter referred to as LAWIN), in the
amount of P8,000,000.00 payable within a period of one (1) year, as evidenced by a Credit
Agreement (Exhibits "B" to "B-4-B"). The defendant, through Marciano Tan, its Executive Vice
President, executed Promissory Note No. 003, for the amount of P8,000,000.00 (Exhs. "C" to
"C-1").
"To guarantee payment of the loan, defendant Lawin executed in favor of plaintiff the following
documents: (1) A Deed of Chattel Mortgage wherein 9 units of buses were constituted as
collaterals (Exhibits "F" to "F-7"): (2) A joint and several UNDERTAKING of defendant Master
Tours and Travel Corporation dated 07 August 1990, signed by Isidro Tan and Marciano Tan
(Exhs. "H" to "H-1): and (3) A joint and several UNDERTAKING dated 21 August 1990,
executed and signed by Esteban, Isidro, Marciano and Henry, all surnamed Tan (Exhs. "I" to "I-
6").
"Out of the P8,000,000.00 loan, P1,800,000.00 was paid. Thus, on 02 November 1990, defendant
Bus Company was able to avail an additional loan of P2,000,000.00 for one (1) month under
Promissory Note 00028 (Exhs. "J"-"J-1").
"Defendant LAWIN failed to pay the aforementioned promissory note and the same was
renewed on 03 December 1990 to become due on or before 01 February 1991, under Promissory
Note 00037 (Exh. "K").
"On 15 May 1991 for failure to pay the two promissory notes, defendant LAWIN was granted a
loan re-structuring for two (2) months to mature on 31 July 1991.
"Despite the restructuring, defendant LAWIN failed to pay. Thus, plaintiff foreclosed the
mortgaged buses and as the sole bidder thereof, the amount of P2,000,000.00 was accepted by
the deputy sheriff conducting the sale and credited to the account of defendant LAWIN.
"Thereafter, on 27 May 1992, identical demand letters were sent to the defendants to pay their
obligation (Exhs. "X" to "CC"). Despite repeated demands, the defendants failed to pay their
indebtedness which totaled of P16,484,992.42 as of 31 July 1992 (Exhs. "DD"-"DD-1").
"Thus, the suit for sum of money, wherein the plaintiff prays that defendants solidarily pay
plaintiff as of July 31, 1992 the sum of (a) P16,484,994.12 as principal obligation under the two
promissory notes Nos. 003 and 00037, plus interests and penalties: (b) P300,000.00 for loss of
good will and good business reputation: (c) attorneys fees amounting to P100,000.00 as
acceptance fee and a sum equivalent to 10% of the collectible amount, and P500.00 as
appearance fee; (d) P200,000.00 as litigation expenses; (e) exemplary damages in an amount to
be awarded at the courts discretion; and (f) the costs.
"On 04 September 1993, a writ of preliminary injunction was issued with respect to movable and
immovable properties of the defendants.
"In answer to the complaint, defendants-appellees assert by way of special and affirmative
defense, that there was already an arrangement as to the full settlement of the loan obligation by
way of:
"17.A. Sale of the nine (9) units passenger buses the proceeds of which will be credited against
the loan amount as full payment thereof; or in the alternative.
"17.B. Plaintiff will shoulder and bear the cost of rehabilitating the buses, with the amount
thereof to be included in the total obligation of defendant Lawin and the bus operated, with the
earnings thereof to be applied to the loan obligation of defendant Lawin." (p. 4 Answer; p. 166,
rec.)
"Defendants further assert that the foreclosure sale was in violation of the aforequoted
arrangement and prayed for the nullification of the same and the dismissal of the complaint."
4

On 28 June 1995, the trial court rendered a decision dismissing the complaint, as follows:
"WHEREFORE, judgment is rendered as follows:
"1. Dismissing the complaint for lack of merit;
"2. Declaring the foreclosure and auction sale null and void;
"3. Declaring the obligation or indebtedness of defendants EXTINGUISHED;
"4. Declaring the writ of attachment issued in this case null and void and, therefore, is
hereby declared dissolved; and
"5. Ordering the Sheriff of this Branch or whoever is in possession, to return all the
personal properties attached in this case to the owner/s thereof within one (1) week from
the finality of this decision;
"6. Dismissing defendants counterclaim for lack of sufficient merit.
"No pronouncement as to costs.
"SO ORDERED."
5

In time, respondent Advance Capital Corporation appealed from the decision to the Court of
Appeals.
6

On 30 September 1997, the Court of Appeals promulgated a decision reversing that of the trial
court, the dispositive portion of which is set out in the opening paragraph of this decision.
Hence, this appeal.
7

The Issue
The issue raised is whether there was dacion en pago between the parties upon the surrender or
transfer of the mortgaged buses to the respondent.
8

The Courts Ruling
We deny the petition, with modification.
The issue raised is factual. In an appeal via certiorari, we may not review the factual findings of
the Court of Appeals.
9
When supported by substantial evidence, the findings of fact of the Court
of Appeals are conclusive and binding on the parties and are not reviewable by this Court,
10

unless the case falls under any of the recognized exceptions to the rule.
11

Petitioner failed to prove that the case falls within the exceptions.
12
The Supreme Court is not a
trier of facts.
13
It is not our function to review, examine and evaluate or weigh the probative
value of the evidence presented.
14
A question of fact would arise in such event.
15

Nonetheless, we agree with the Court of Appeals that there was no dacion en pago that took
place between the parties.
In dacion en pago, property is alienated to the creditor in satisfaction of a debt in money.
16
It is
"the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation."
17
It "extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally extinguished."
18

Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of
dacion en pago. A contract of sale is perfected at the moment there is a meeting of the minds of
the parties thereto upon the thing which is the object of the contract and upon the price.
19
In
Filinvest Credit Corporation v. Philippine Acetylene Co., Inc., we said:
"x x x. In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtors debt.1wphi1 As
such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en
pago is an objective novation of the obligation where the thing offered as an accepted equivalent
of the performance of an obligation is considered as the object of the contract of sale, while the
debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or
obligation."
20

In this case, there was no meeting of the minds between the parties on whether the loan of the
petitioners would be extinguished by dacion en pago. The petitioners anchor their claim solely
on the testimony of Marciano Tan that he proposed to extinguish petitioners obligation by the
surrender of the nine buses to the respondent acceded to as shown by receipts its representative
made.
21
However, the receipts executed by respondents representative as proof of an agreement
of the parties that delivery of the buses to private respondent would result in extinguishing
petitioners obligation do not in any way reflect the intention of the parties that ownership
thereof by respondent would be complete and absolute. The receipts show that the two buses
were delivered to respondent in order that it would take custody for the purpose of selling the
same. The receipts themselves in fact show that petitioners deemed respondent as their agent in
the sale of the two vehicles whereby the proceeds thereof would be applied in payment of
petitioners indebtedness to respondent. Such an agreement negates transfer of absolute
ownership over the property to respondent, as in a sale. Thus, in Philippine National Bank v.
Pineda
22
we held that where machinery and equipment were repossessed to secure the payment
of a loan obligation and not for the purpose of transferring ownership thereof to the creditor in
satisfaction of said loan, no dacion en pago was ever accomplished.1wphi1
The Fallo
IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the Court
of Appeals
23
with MODIFICATION as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. In lieu thereof,
judgment is hereby rendered ordering defendants-appellees to pay, jointly and severally,
plaintiff-appellant Advance Capital Corp. the following amounts:
(1) P16,484,994.42, the principal obligation under the two promissory notes plus 12% per
annum from the finality of this decision until fully paid;
(2) P50,000.00 as attorneys fees;
(3) Costs of suit.
All other monetary awards are deleted.
SO ORDERED.
_______________
G.R. No. 72703 November 13, 1992
CALTEX (PHILIPPINES), INC., petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT and ASIA PACIFIC AIRWAYS, INC., respondents.

BIDIN, J .:
This is a petition for certiorari seeking the annulment of the decision dated August 27,1985 of the then Intermediate Appellate Court in CA-
G.R. No. 02684, which reversed the judgment of the trial court and ordered petitioner to return the amount of P510, 550.63 to private
respondent plus interest at the legal rate of 14% per annum.
The facts of the case are as follows:
On January 12, 1978, private respondent Asia Pacific Airways Inc., entered into an agreement with petitioner Caltex (Philippines) Inc.,
whereby petitioner agreed to supply private respondent's aviation fuel requirements for two (2) years, covering the period from January 1,
1978 until December 31, 1979. Pursuant thereto, petitioner supplied private respondent's fuel supply requirements. As of June 30, 1980,
private respondents had an outstanding obligation to petitioner in the total amount of P4,072,682.13, representing the unpaid price of the fuel
supplied. To settle this outstanding obligation, private respondent executed a Deed of Assignment dated July 31, 1980, wherein it assigned
to petitioner its receivables or refunds of Special Fund Import Payments from National Treasury of the Philippines to be applied as payment
of the amount of P4,072,682.13 which private respondent owed to petitioner. On February 12, 1981, pursuant to the Deed of Assignment,
Treasury Warrant No. B04708613 in the amount of P5,475,294.00 representing the refund to respondent of Special Fund Import Payment on
its fuel purchases was issued by the National Treasury in favor of the petitioner. Four days later, on February 16, 1981, private respondent,
having learned that the amount remitted to petitioner exceeded the amount covered by the Deed of Assignment, wrote a letter to petitioner,
requesting a refund in the amount of P900,000.00 plus in favor of private respondent. The latter, believing that it was entitled to a larger
amount by way of refund, wrote a petitioner anew, demanding the refund of the remaining amount. In response thereto, petitioner informed
private respondent that the amount not returned (P510,550.63) represented interest and service charges at the rate of 18% per annum on
the unpaid and overdue account of respondent from June 1, 1980 to July 31, 1981.
Thus, on September 13, 1982, private respondent filed a complaint against petitioner in the Regional Trial Court of Manila, to collect the sum
of P510,550.63.00.
Petitioner (defendant in the trial court) filed its answer, reiterating that the amount not returned represented interest and service charges on
the unpaid and overdue account at the rate of 18% per annum. It was further alleged that the collection of said interest and service charges
is sanctioned by law, and is in accordance with the terms and conditions of the sale of petroleum products to respondent, which was made
with the conformity of said private respondent who had accepted the validity of said interest and service charges.
On November 7, 1983, the trial court rendered its decision dismissing the complaint, as well as the counterclaim filed by defendant therein.
Private respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On August 27, 1985, a decision was rendered by the said
appellate court reversing the decision of the trial court, and ordering petitioner to return the amount of P510,550.63 to private respondent.
Counsel for petitioner received a copy of the appellate court's decision on September 6, 1985. On September 20, 1985 or 14 days after
receipt of the aforesaid decision, an Urgent Motion for extension of five days within which to file a motion for reconsideration was filed by
petitioner. On September 26, 1985, the Motion for Reconsideration was filed. The following day, petitioner filed a motion to set the motion for
reconsideration for hearing.
In a Resolution dated October 24, 1985, the appellate court denied the aforesaid three motions. The first motion praying for an extension of
five days within which to file a motion for reconsideration was denied by the appellate court citing the new ruling of the Supreme Court in
Habaluyas Enterprises Inc. vs. Japzon (138 SCRA 46 [1985]) as authority. The appellate court, following said ruling, held that the 15-day
period for filing a motion for reconsideration cannot be extended. Thus, the motion for reconsideration filed on September 26, 1985 was
stricken from the record, having been filed beyond the non-extensible 15-day reglementary period. The third motion was likewise denied for
being moot and academic.
On November 4, 1985, the prevailing party (respondent herein) filed Urgent Motion for Entry of Judgment. Two days latter, or on November
6, 1985, the petitioner filed a Motion for Reconsideration of the Resolution dated October 24, 1985.
The appellate court in a Resolution dated November 12, 1985 granted the motion for entry of judgment filed by private respondent. It directed
the entry of judgment and ordered the remand of the records of the case to the court of origin for execution.
On November 14, 1985, petitioner, without waiting for the resolution of the appellate court in the urgent motion for reconsideration it filed on
November 6, 1985, filed the instant petition to annul and set aside the resolution of the appellate court dated October 24, 1985 which denied
the Motion for Reconsideration of its decision dated August 27, 1985.
In a motion dated November 21, 1985, petitioner prayed of the issuance of temporary restraining order to enjoin the appellate court from
remanding the records of the case for execution of the judgment. The petitioner also filed a Supplement to Petition for Certiorari, dated
November 21, 1985.
In a Resolution dated November 27, 1985, this Court, acting on the petition, required private respondent to file its Comment; granted the
prayer of the petitioner in his urgent motion, and a temporary restraining order was issued enjoining the appellate court from remanding the
records of the case for execution of judgment.
Private respondent filed its COMMENT dated December 14, 1985.
In a Resolution dated January 27, 1986, the Court resolved to give due course to the petition, and required the parties to submit their
memoranda. In compliance with the said Resolution, the parties filed their respective memoranda.
On August 15, 1986, petitioner filed a Motion to Remand Records to the Court of Appeals in view of the resolution of this Court dated May
30, 1986 in the Habaluyas case which considered and set aside its decision dated August 5, 1985 by giving it prospective application
beginning one month after the promulgation of the said resolution. This motion was opposed by private respondent. On September 22, 1986,
petitioner filed its Reply to Opposition to which private respondent filed its rejoinder. In a Resolution dated December 3, 1986, the motion to
remand records was denied.
Petitioner's Brief raised six (6) assignment of errors, to wit:
I.
THE IAC ERRED IN APPLYING THE NEW POLICY OF NOT GRANTING ANY EXTENSION OF TIME TO FILE
MOTION FOR RECONSIDERATION.
II.
THE IAC ERRED IN RULING THAT THE OBLIGATION OF RESPONDENT WAS LIMITED TO P4,072,682.13
NOTWITHSTANDING THAT FACT THAT THE DEED OF ASSIGNMENT (THE CONTRACT SUED UPON) ITSELF
EXPRESSLY AND REPEATEDLY SPEAKS OF RESPONDENT'S OBLIGATION AS "THE AMOUNT OF
P4,072,682.13 AS JUNE 30, 1980 PLUS APPLICABLE INTEREST CHARGES ON OVERDUE ACCOUNT AND
OTHER AVTURBO FUEL LIFTING AND DELIVERIES THAT ASSIGNOR MAY FROM TIME TO TIME RECEIVE
FROM ASSIGNEE."
III.
THE IAC ERRED IN RULING THAT THE DEED OF ASSIGNMENT SATISFIES THE REQUISITES OF DATION IN
PAYMENT (WHICH HAS THE EFFECT OF IMMEDIATE EXTINGUISHMENT OF THE OBLIGATION) DESPITE THE
FACT THAT SAID DEED OF ASSIGNMENT (1) COVERS FUTURE OBLIGATION FOR "APPLICABLE INTEREST
CHARGES ON OVER DUE ACCOUNT AND OTHER AVTURBO FUEL LIFTING THE DELIVERIES THAT ASSIGNOR
MAY FROM TIME TO TIME RECEIVE FROM ASSIGNEES" AND (2) INCLUDES AN EXPRESS RESERVATION BY
ASSIGNEE TO DEMAND FULL PAYMENT OF THE OBLIGATIONS OF THE ASSIGNOR "IN CASE OF
UNREASONABLE DELAY OR NON-RECEIPT OF ASSIGNEE OF THE AFOREMENTIONED FUNDS AND/OR
REFUND OF SPECIAL FUND IMPORT PAYMENT FROM THE GOVERNMENT DUE TO ANY CAUSE OR REASON
WHATSOEVER.
IV.
THE IAC ERRED IN FAILING TO TAKE INTO ACCOUNT THE CONTEMPORANEOUS AND SUBSEQUENT ACTS
OF THE PARTIES WHICH ALSO CLEARLY SHOW THAT THEY DID NOT INTEND THE DEED OF ASSIGNMENT
TO HAVE EFFECT OF DATION IN PAYMENT.
V.
IF THE DEED OF ASSIGNMENT HAD THE EFFECT OF A DATION IN PAYMENT, THEN THE IAC ERRED IN NOT
RULING THAT PETITIONER HAS A RIGHT TO RETAIN THE ENTIRE CREDIT ASSIGNED TO IT IN LIEU OF
PAYMENT OF RESPONDENT'S OBLIGATION INSTEAD OF BEING REQUIRED TO RETURN PORTION OF THE
CREDIT WHICH IS CLAIMED TO BE IN EXCESS OF RESPONDENT'S OBLIGATION.
VI.
ASSUMING THAT PETITIONER IS LIABLE TO MAKE A RETURN OF A PORTION OF THE CREDIT ASSIGNED,
THE IAC ERRED IN AWARDING "INTEREST AT THE LEGAL RATE OF 14% PER ANNUM FROM THE FILING OF
THE LEGAL OF THE COMPLAINT."
We find merit in the instant petition.
The two vital issues presented to the Court for resolution are, as follows:
1. Whether or not the Urgent Motion for Extension of Time to File a Motion for Reconsideration filed by petitioner on September 20, 1985, as
well as the Motion for Reconsideration filed on September 26, 1985 (within the period of extension prayed for), may be validly granted; and
2. Whether or not the Deed of Assignment entered into by the parties herein on July 31, 1980 constituted dacion en pago, as ruled by the
appellate court, such that the obligation is totally extinguished, hence after said date, no interest and service charges could anymore be
imposed on private respondent, so that petitioner was not legally authorized to deduct the amount of P510,550.63 as interest and service
charges on the unpaid and overdue accounts of private respondent.
Anent the first issue, we rule in the affirmative.
We held in the case of Habaluyas Enterprises, Inc., et. al. vs. Japson et. al. (138 SCRA 46 [1985], promulgated August 5, 1985), that the "15-
day period for appealing or for filing a motion for reconsideration cannot be extended". Subsequently, the Court, acting on respondent's
motion for reconsideration in the same entitled case (142 SCRA 208 [1986]), restated and clarified the rule on this point for the guidance of
the Bench and Bar by giving the rule prospective application in its resolution dated May 30, 1986;
After considering the able arguments of counsels for petitioners and respondents, the Court resolved that the interest of
justice would be better served if the ruling in the original decision were applied prospectively from the time herein
stated. The reason is that it would be unfair to deprive parties of the right to appeal simply because they availed
themselves of a procedure which was not expressly prohibited or allowed by the law or the Rules. On the otherhand, a
motion for new trial or reconsideration is not a pre-requisite to an appeal, a petition for review or a petition for review on
certiorari, and since the purpose of the amendments above referred to is to expedite the final disposition of cases, a
strict but prospective application of the said ruling is in order. Hence, for the guidance of the Bench and Bar, the Court
restates and clarifies the rules on this point, as follows.
1.) Beginning one month after the promulgation of this Resolution, the rule shall be strictly enforced that no motion for
extension of time to file a motion for new trial or reconsideration may be filed with the Metropolitan or Municipal Trial
Courts, the Regional Trial Courts, and the Intermediate Appellate Court. Such a motion may be filed only in cases
pending with the Supreme Court as the court of last resort, which may in its sound discretion either grant or deny the
extension requested.
In Singh vs. IAC, (148 SCRA 277 [1987]), this Court applying the aforesaid ruling in the Habaluyas case, held.
In other words, there is one month grace period from the promulgation on May 30, 1986, of the Court's Resolution in
the clarificatory Habaluyas case, or up to June 30, 1986, within which the rule barring extensions of time to file motions
for reconsideration is, as yet, not strictly enforceable (Bayaca vs. IAC, G.R. No. 78424, September 15, 1986).
Since petitioners herein filed their Motion for Extension on August 6, 1985, it was still within the grace period, which
expired on June 30, 1986, and may still be allowed.
Similarly, when petitioner herein filed its Motion for Extension of time to file motion for reconsideration on September 20, 1985, the said
motion was filed within the one-month grace period, which expired on June 30, 1986, and may still be allowed. Consequently, the Motion for
Reconsideration filed by petitioner on September 26, 1985, was also filed on time.
With respect to the second issue, We rule that the Deed of Assignment executed by the parties on July 31, 1980 is not a dation in payment
and did not totally extinguish respondent's obligation as stated therein.
The then Intermediate Appellate Court ruled that the three (3) requisites dacion en pago * are all present in the instant case, and concluded
that the Deed of Assignment of July 31, 1980 (Annex "C" of Partial Stipulation of Facts) constitutes a dacion in payment provided for in
Article 1245 ** of the Civil Code which has the effect of extinguishing the obligation, thus supporting the claim of private respondent for the
return of the amount retained by petitioner.
This Court, speaking of the concept of dation in payment, in the case of Lopez vs. Court of Appeals (114 SCRA 671, 685 [1982]), among
others, stated:
The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. (8 Manresa 324; 3
Valverde 174 fn.)
From the above, it is clear that a dation in payment does not necessarily mean total extinguishment of the obligation. The obligation is totally
extinguished only when the parties, by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation.
In the instant case, the then Intermediate Appellate Court failed to take into account the following express recitals of the Deed of Assignment

That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in the amount of P4,072,682.13 as of June
30, 1980, plus any applicable interest on overdue account. (p. 2, Deed of Assignment)
Now therefore in consideration of the foregoing premises, ASSIGNOR by virtue of these presents, does hereby
irrevocably assign and transfer unto ASSIGNEE any and all funds and/or Refund of Special Fund Payments, including
all its rights and benefits accruing out of the same, that ASSIGNOR might be entitled to, by virtue of and pursuant to
the decision in BOE Case No. 80-123, in payment of ASSIGNOR's outstanding obligation plus any applicable interest
charges on overdue account and other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive
from the ASSIGNEE, and ASSIGNEE does hereby accepts such assignment in its favor. (p. 2, Deed of Assignment)
(Emphasis supplied)
Hence, it could easily be seen that the Deed of Assignment speaks of three (3) obligations (1) the outstanding obligation of P4,072,682.13
as of June 30, 1980; (2) the applicable interest charges on overdue accounts; and (3) the other avturbo fuel lifting and deliveries that
assignor (private respondent) may from time to time receive from assignee (Petitioner). As aptly argued by petitioner, if it were the intention
of the parties to limit or fix respondent's obligation to P4,072.682.13; they should have so stated and there would have been no need for
them to qualify the statement of said amount with the clause "as of June 30, 1980 plus any applicable interest charges on overdue account"
and the clause "and other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE". The terms
of the Deed of Assignment being clear, the literal meaning of its stipulations should control (Art. 1370, Civil Code). In the construction of an
instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all (Rule
130, Sec. 9, Rules of Court).
Likewise, the then Intermediate Appellate Court failed to take into consideration the subsequent acts of the parties which clearly show that
they did not intend the Deed of Assignment to totally extinguish the obligation (1) After the execution of the Deed of Assignment on July
31, 1980, petitioner continued to charge respondent with interest on its overdue account up to January 31, 1981 (Annexes "H", "I", "J" and
"K" of the Partial Stipulation of Facts). This was pursuant to the Deed of Assignment which provides for respondent's obligation for
"applicable interest charges on overdue account." The charges for interest were made every month and not once did respondent question or
take exception to the interest; and (2) In its letter of February 16, 1981 (Annex "J", Partial Stipulation of Facts), respondent addressed the
following request to petitioner;
Moreover, we would also like to request for a consideration in the following
1. Interest charges be limited up to December 31, 1980 only; and
2. Reduction of 2% of 18% interest rate p.a.
We are hoping for your usual kind consideration on this matter.
In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered (Art.
1253, Civil Code). The foregoing subsequent acts of the parties clearly show that they did not intend the Deed of Assignment to have the
effect of totally extinguishing the obligations of private respondent without payment of the applicable interest charges on the overdue
account.
Finally, the payment of applicable interest charges on overdue account, separate from the principal obligation of P4,072.682.13 was
expressly stipulated in the Deed of Assignment. The law provides that "if the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered." (Art. 1253, Civil Code).
WHEREFORE, the decision of the then Intermediate Appellate Court dated August 27, 1985 is hereby SET ASIDE, and the November 7,
1983 decision of the trial court is REINSTATED.
SO ORDERED.
________
A.C. No. 6955 July 27, 2006
MAR YUSON, complainant,
vs.
ATTY. JEREMIAS R. VITAN, respondent.
D E C I S I O N
PANGANIBAN, C.J .:
Once again this Court exhorts members of the bar to live up to the strictures of the Lawyers'
Oath, the Code of Professional Responsibility, and the Canons of Professional Ethics. Otherwise,
they shall be sanctioned by this Court.
The Case
Before us is a Letter-Complaint
1
for the disbarment of Atty. Jeremias R. Vitan, filed by Mar
Yuson with the Commission on Bar Discipline (CBD) of the Integrated Bar of the Philippines
(IBP). Respondent was accused of taking advantage of complainant's generosity and credulity.
On August 5, 2004, IBP-CBD directed Atty. Vitan to submit his Answer within 15 days from
receipt of the Order;
2
otherwise, he would be considered in default and the case heard ex parte.
Because respondent failed to submit his Answer within the given period, the CBD considered his
failure and non-appearance as a waiver of his right to participate in the proceedings.
3
Thus, the
hearing scheduled for August 11, 2005, pushed through, with the original copies of the checks he
had issued presented by complainant as evidence. Afterwards, the CBD issued an Order
submitting the case for Resolution.
4
On August 23, 2005, Commissioner Milagros V. San Juan
rendered her Report and Recommendation.
5

Respondent denied having received a copy of the Complaint against him and alleged that it was
only on August 24, 2005, that he received the Order submitting the case for resolution. Thus, he
filed an Urgent Motion to Revive/Re-open and with Leave to Admit Attached Answer.
6

In its Resolution No. XVII-2005-101 dated October 22, 2005, the IBP Board of Directors
adopted and approved, with modification, the investigating commissioner's Report and
Recommendation. Upon respondent was imposed the penalty of suspension from the practice of
law for two years, after the board found that he had taken advantage of complainant through
deceit and dishonesty. The lawyer was further ordered to give back the money he had received
from complainant.
The Facts
Complainant Mar Yuson was a taxi driver with eight children. In October 2002, he received a
sum of money by way of inheritance. According to him, he and his wife intended to use the
money to purchase a taxi, repair their dilapidated house, and hold a debut party for their
daughter.
7

They were able to purchase a secondhand taxi, and Atty. Vitan helped him with all the legal
matters concerning this purchase. Regrettably, their other plans were put on hold, because the
lawyer borrowed P100,000 from them in December 2002. It was agreed that the loan would be
repaid before the end of the following year,
8
in time for the debut on November 24, 2003.
9

To guarantee payment, respondent executed in favor of complainant several postdated checks to
cover the loaned amount. Those checks, however, turned out to be worthless, because they had
been drawn against the lawyer's closed account in the Bank of Commerce in Escolta, Manila.
The six dishonored checks were presented during the hearing before the IBP commissioner.
10

Complainant maintained that he had repeatedly tried to recover the debt, only to be turned away
empty-handed each time. He conceded, though, that respondent had given an undisclosed
amount covered by the checks dated January and February 2003.
11
The amounts covered by the
dishonored checks remained unpaid.
This development prompted complainant to seek the aid of the IBP National Committee on Legal
Aid (NCLA) in obtaining payment. On November 14, 2003, the IBP-NCLA, through Deputy
Director Rosalie J. de la Cruz, sent him a letter.
12
It informed him of the impending
administrative case and advised him to confer with complainant, presumably to settle the matter.
Upon receipt
13
of the letter, he again gave assurances that he would pay the loan in time for the
debut.
14

When the date passed without any payment, complainant demanded a collateral to secure the
loan. Thus, in his favor, Atty. Vitan executed a document denominated as a Deed of Absolute
Sale, covering the latter's parcel of land located in Sta. Maria, Bulacan. According to
complainant, their intention was to transfer the title of the property to him temporarily, so that he
could either sell or mortgage
15
it. It was further agreed that, if it was mortgaged, respondent
would redeem it as partial or full payment of the loan.
16

Curiously, however, the parties executed a second Deed of Absolute Sale,
17
this time in favor of
Atty. Vitan, with complainant as vendor. The purpose of this particular document was not
explained by either party.
On April 12, 2004, complainant was able to mortgage
18
the property for P30,000.
19
Contrary to
their earlier agreement, respondent did not redeem it from the mortgagee and, instead, simply
sent complainant a letter
20
dated July 7, 2004, promising to pay on or before July 12, 2004. As
this promise was not fulfilled, the mortgagee demanded payment from complainant and thereby
allegedly exposed the latter to shame and ridicule.
21

On July 19, 2004, IBP-NCLA sent another letter
22
on behalf of complainant. Respondent was
informed that an administrative case would be filed against him, unless he settled his obligations
by July 30, 2004, the date given by complainant.
On August 30, 2004, the IBP-NCLA received the reply
23
dated July 30, 2004, submitted by Atty.
Vitan who explained that he had already settled his obligation. He maintained that he had in fact
executed, in complainant's favor, a Deed of Absolute Sale over his 203-square-meter residential
property in Sta. Maria, Bulacan. He clarified that "[their] understanding was that [complainant]
ha[d] the option to use, mortgage or sell [the property] and return to me the excess of the
proceeds after obtaining his money represented by my six (6) dishonored checks."
24

Interestingly, respondent attached the Deed of Absolute Sale in which he was the vendee and
complainant the vendor.
25
It appears that this was the second Deed of Absolute Sale, also
referred to in the Complaint.
26

Only after the IBP investigating commissioner had rendered her Report and Recommendation
27

did Atty. Vitan submit his Answer to the Letter-Complaint. He called the second document a
"Counter Deed of Sale," executed as a "sort of collateral/security for the account of [his] liaison
officer [Evelyn Estur]."
28
He admitted having given several postdated checks amounting to
P100,000, supposedly to guarantee the indebtedness of Estur to complainant. Atty. Vitan argued
for the first time that it was she who had incurred the debts, and that he had acted only as a
"character reference and/or guarantor."
29
He maintained that he had given in to the one-sided
transactions, because he was "completely spellbound by complainant's seeming sincerity and
kindness."
30
To corroborate his statements, he attached Estur's Affidavit.
31

Report of the Investigating Commissioner
In her Report and Recommendation, Commissioner San Juan recommended that Atty. Vitan be
suspended until his restitution of the amount he had borrowed. She held that respondent, having
taken advantage of complainant and thus shown dishonesty and untrustworthiness, did not
deserve to retain his membership in the bar.
On November 24, 2005, the Supreme Court received the IBP Resolution adopting, with
modification, the Report and Recommendation of the investigating commissioner.
The Court's Ruling
We agree with the findings of the IBP Board of Governors, but reduce the period of suspension
to six months.
Respondent's Administrative Liability
Lawyers are instruments for the administration of justice. They are expected to maintain not only
legal proficiency but also a high standard of ethics, honesty, integrity and fair dealing. In this
way, the people's faith and confidence in the judicial system is ensured.
32

In the present case, Atty. Vitan undoubtedly owed money to complainant. In a letter
33
to IBP
Deputy Director de la Cruz, respondent admitted having incurred the P100,000 loan. It was only
in his Answer
34
that the lawyer suddenly denied that he had personally incurred this obligation.
This time, he pointed to his employee, Estur, as the true debtor. We find his version of the facts
implausible.
First, the story involving a certain Evelyn Estur was clearly a mere afterthought, conjured simply
to escape his liability. If it were true that it was she who owed the money, he should have
mentioned this alleged fact in his letter to the IBP NCLA deputy director. Instead, respondent
was completely silent about Estur and merely asserted that he had already settled his debt with
complainant.
Second, the promise of Atty. Vitan to settle his obligations on particular dates is contained in two
handwritten notes signed by him and worded as follows:
"I undertake to settle the financial obligations of P100,000 plus before the end of the
year."
35

"Mar:
"We will settle on July 12, 2004, on or before said date."
36

The wordings of these promissory notes disclose that he had a personal obligation to
complainant, without any mention of Estur at all. If it were true that Atty. Vitan had executed
those notes for the account of his liaison officer, he should have used words to that effect. As a
lawyer, he was aware that the preparation of promissory notes was not a "mere formality;" it had
legal consequences. It is quite far-fetched for a lawyer to assume the role of guarantor, without
saying so in the notes.
A lawyer may be disciplined for evading the payment of a debt validly incurred.
37
In this case,
the failure of Atty. Vitan to pay his debt for over three years despite repeated demands puts in
question his standing as a member of the bar. Worse, he made several promises to pay his debt
promptly, but reneged on all of them. He even started to hide from complainant according to the
latter .
38

Failure to honor just debts, particularly from clients, constitutes dishonest conduct that does not
speak well of a member of the bar.
39
It is vital that a lawyer's conduct be kept beyond reproach
and above suspicion at all times. Rule 1.01 of the Code of Professional Responsibility clearly
provides that lawyers must not engage in unlawful, immoral or deceitful conduct. They must
comport themselves in a manner that will secure and preserve the respect and confidence of the
public for the legal profession.
40

Atty. Vitan contends that his obligation was already extinguished, because he had allegedly sold
his Bulacan property to complainant.
41
Basically, respondent is asserting that what had transpired
was a dation in payment. Governed by the law on sales, it is a transaction that takes place when a
piece of property is alienated to the creditor in satisfaction of a debt in money.
42
It involves
delivery and transmission of ownership of a thing -- by the debtor to the creditor -- as an
accepted equivalent of the performance of the obligation.
43

Going over the records of this case, we find the contention of Atty. Vitan undeserving of
credence. The records reveal that he did not really intend to sell and relinquish ownership over
his property in Sta. Maria, Bulacan, notwithstanding the execution of a Deed of Absolute Sale in
favor of complainant. The second Deed of Absolute Sale, which reconveyed the property to
respondent, is proof that he had no such intention. This second Deed, which he referred to as his
"safety net,"
44
betrays his intention to counteract the effects of the first one .
In a manner of speaking, Atty. Vitan was taking back with his right hand what he had given with
his left. The second Deed of Absolute Sale returned the parties right back where they started, as
if there were no sale in favor of complainant to begin with. In effect, on the basis of the second
Deed of Sale, respondent took back and asserted his ownership over the property despite having
allegedly sold it. Thus, he fails to convince us that there was a bona fide dation in payment or
sale that took place between the parties; that is, that there was an extinguishment of obligation.
It appears that the true intention of the parties was to use the Bulacan property to facilitate
payment. They only made it appear that the title had been transferred to complainant to authorize
him to sell or mortgage the property.
45
Atty. Vitan himself admitted in his letter dated July 30,
2004, that their intention was to convert the property into cash, so that payment could be
obtained by complainant and the excess returned to respondent.
46
The records, however, do not
show that the proceeds derived were sufficient to discharge the obligation of the lawyer fully;
thus, he is still liable to the extent of the deficiency.
We hasten to add, however, that this administrative case is not the proper venue for us to
determine the extent of the remaining liability. This Court will not act as a collection agency
from faltering debtors, when the amount of the indebtedness is indefinite and disputed.
47

Nevertheless, the records satisfactorily reveal the failure of respondent to live up to his duties as
a lawyer in consonance with the strictures of the Lawyer's Oath, the Code of Professional
Responsibility, and the Canons of Professional Ethics, thereby degrading not only his person but
his profession as well. So far, we find that his lack of sincerity in fulfilling his obligations is
revealed by his acts of issuing promissory notes and reneging on them; executing a simulated
Deed of Absolute Sale; and breaking his promise to redeem the property from the mortgagee.
The repeated failure of Atty. Vitan to fulfill his promise puts in question his integrity and
character. Indeed, not only his integrity as an individual but, more important, his stature as a
member of the bar is affected by his acts of welching on his promises and misleading
complainant. Canon 1 and Rule 1.01 of the Code of Professional Responsibility explicitly state
thus:
"CANON 1 A lawyer shall uphold the constitution, obey the laws of the land and
promote respect for law and legal processes.
"Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral or deceitful
conduct."
Any wrongdoing, whether professional or nonprofessional, indicating unfitness for the
profession justifies disciplinary action.
48

There is yet another reason to find Atty. Vitan administratively liable. In his letter of July 30,
2004, was an admission that the personal checks he issued in favor of complainant had all been
dishonored.
49
Whether those checks were issued for the account of respondent or of Estur is not
important. The fact remains that the lawyer knowingly issued worthless checks and thus revealed
his disposition to defraud complainant.
The act of a lawyer in issuing a check without sufficient funds to cover them -- or, worse, drawn
against a closed account --constitutes such willful dishonesty and unethical conduct as to
undermine the public confidence in the law and in lawyers.
50
The act also manifests a low regard
for the Oath taken by the lawyer upon joining the profession, whose image should be held in
high esteem, not seriously and irreparably tarnished.
51

Moreover, the inimical effect of the issuance of worthless checks has been recognized by this
Court in an earlier case, from which we quote:
"[T]he effect [of issuance of worthless checks] transcends the private interests of the
parties directly involved in the transaction and touches the interests of the community at
large. The mischief it creates is not only a wrong to the payee or holder, but also an injury
to the public since the circulation of valueless commercial papers can very well pollute
the channels of trade and commerce, injure the banking system and eventually hurt the
welfare of society and the public interest."
52

We have also held that the deliberate failure to pay just debts and the issuance of worthless
checks constitute gross misconduct,
53
for which a lawyer may be sanctioned with one year's
suspension from the practice of law,
54
or a suspension of six months upon partial payment of the
obligation.
55

In the instant case, complainant himself admits that respondent had already paid the amounts
covered by the January and February checks.
56
Thus, there has been a partial payment that
justifies a modification of IBP's recommended penalty.
WHEREFORE, Atty. Jeremias R. Vitan is hereby found guilty of gross misconduct and
SUSPENDED from the practice of law for six (6) months, effective upon his receipt of this
Decision, with the warning that a repetition of the same or any other misconduct will be dealt
with more severely.
Let a copy of this Decision be entered in respondent's record as a member of the Bar, and notice
served on the Integrated Bar of the Philippines and on the Office of the Court Administrator for
circulation to all courts in the country.
SO ORDERED.
__________
G.R. No. 158086 February 14, 2008
ASJ CORPORATION and ANTONIO SAN JUAN, petitioners,
vs.
SPS. EFREN & MAURA EVANGELISTA, respondents.
D E C I S I O N
QUISUMBING, J .:
For review on certiorari is the Decision
1
dated April 30, 2003 of the Court of Appeals in CA-
G.R. CV No. 56082, which had affirmed the Decision
2
dated July 8, 1996 of the Regional Trial
Court (RTC) of Malolos, Bulacan, Branch 9 in Civil Case No. 745-M-93. The Court of Appeals,
after applying the doctrine of piercing the veil of corporate fiction, held petitioners ASJ
Corporation (ASJ Corp.) and Antonio San Juan solidarily liable to respondents Efren and Maura
Evangelista for the unjustified retention of the chicks and egg by-products covered by Setting
Report Nos. 108 to 113.
3

The pertinent facts, as found by the RTC and the Court of Appeals, are as follows:
Respondents, under the name and style of R.M. Sy Chicks, are engaged in the large-scale
business of buying broiler eggs, hatching them, and selling their hatchlings (chicks) and egg by-
products
4
in Bulacan and Nueva Ecija. For the incubation and hatching of these eggs,
respondents availed of the hatchery services of ASJ Corp., a corporation duly registered in the
name of San Juan and his family.
Sometime in 1991, respondents delivered to petitioners various quantities of eggs at an agreed
service fee of 80 centavos per egg, whether successfully hatched or not. Each delivery was
reflected in a "Setting Report" indicating the following: the number of eggs delivered; the date of
setting or the date the eggs were delivered and laid out in the incubators; the date of candling or
the date the eggs, through a lighting system, were inspected and determined if viable or capable
of being hatched into chicks; and the date of hatching, which is also the date respondents would
pick-up the chicks and by-products. Initially, the service fees were paid upon release of the eggs
and by-products to respondents. But as their business went along, respondents delays on their
payments were tolerated by San Juan, who just carried over the balance, as there may be, into the
next delivery, out of keeping goodwill with respondents.
From January 13 to February 3, 1993, respondents had delivered to San Juan a total of
101,3[50]
5
eggs, detailed as follows:
6

Date Set SR Number No. of eggs
delivered
Date hatched/
Pick-up date
1/13/1993 SR 108 32,566 eggs February 3, 1993
1/20/1993 SR 109 21,485 eggs February 10, 1993
1/22/1993 SR 110 7,213 eggs February 12, 1993
1/28/1993 SR 111 14,495 eggs February 18, 1993
1/30/1993 SR 112 15,346 eggs February 20, 1993
2/3/1993 SR 113 10,24[5]
7
eggs February 24, 1993

TOTAL 101,350 eggs

On February 3, 1993, respondent Efren went to the hatchery to pick up the chicks and by-
products covered by Setting Report No. 108, but San Juan refused to release the same due to
respondents failure to settle accrued service fees on several setting reports starting from Setting
Report No. 90. Nevertheless, San Juan accepted from Efren 10,245 eggs covered by Setting
Report No. 113 and P15,000.00
8
in cash as partial payment for the accrued service fees.
On February 10, 1993, Efren returned to the hatchery to pick up the chicks and by-products
covered by Setting Report No. 109, but San Juan again refused to release the same unless
respondents fully settle their accounts. In the afternoon of the same day, respondent Maura, with
her son Anselmo, tendered P15,000.00
9
to San Juan, and tried to claim the chicks and by-
products. She explained that she was unable to pay their balance because she was hospitalized
for an undisclosed ailment. San Juan accepted the P15,000.00, but insisted on the full settlement
of respondents accounts before releasing the chicks and by-products. Believing firmly that the
total value of the eggs delivered was more than sufficient to cover the outstanding balance,
Maura promised to settle their accounts only upon proper accounting by San Juan. San Juan
disliked the idea and threatened to impound their vehicle and detain them at the hatchery
compound if they should come back unprepared to fully settle their accounts with him.
On February 11, 1993, respondents directed their errand boy, Allan Blanco, to pick up the chicks
and by-products covered by Setting Report No. 110 and also to ascertain if San Juan was still
willing to settle amicably their differences. Unfortunately, San Juan was firm in his refusal and
reiterated his threats on respondents. Fearing San Juans threats, respondents never went back to
the hatchery.
The parties tried to settle amicably their differences before police authorities, but to no avail.
Thus, respondents filed with the RTC an action for damages based on petitioners retention of
the chicks and by-products covered by Setting Report Nos. 108 to 113.
On July 8, 1996, the RTC ruled in favor of respondents and made the following findings: (1) as
of Setting Report No. 107, respondents owed petitioners P102,336.80;
10
(2) petitioners withheld
the release of the chicks and by-products covered by Setting Report Nos. 108-113;
11
and (3) the
retention of the chicks and by-products was unjustified and accompanied by threats and
intimidations on respondents.
12
The RTC disregarded the corporate fiction of ASJ Corp.,
13
and
held it and San Juan solidarily liable to respondents for P529,644.80 as actual damages,
P100,000.00 as moral damages, P50,000.00 as attorneys fees, plus interests and costs of suit.
The decretal portion of the decision reads:
WHEREFORE, based on the evidence on record and the laws/jurisprudence applicable
thereon, judgment is hereby rendered ordering the defendants to pay, jointly and
severally, unto the plaintiffs the amounts of P529,644.80, representing the value of the
hatched chicks and by-products which the plaintiffs on the average expected to derive
under Setting Reports Nos. 108 to 113, inclusive, with legal interest thereon from the date
of this judgment until the same shall have been fully paid, P100,000.00 as moral damages
and P50,000.00 as attorneys fees, plus the costs of suit.
SO ORDERED.
14

Both parties appealed to the Court of Appeals. Respondents prayed for an additional award of
P76,139.00 as actual damages for the cost of other unreturned by-products and P1,727,687.52 as
unrealized profits, while petitioners prayed for the reversal of the trial courts entire decision.
On April 30, 2003, the Court of Appeals denied both appeals for lack of merit and affirmed the
trial courts decision, with the slight modification of including an award of exemplary damages
of P10,000.00 in favor of respondents. The Court of Appeals, applying the doctrine of piercing
the veil of corporate fiction, considered ASJ Corp. and San Juan as one entity, after finding that
there was no bona fide intention to treat the corporation as separate and distinct from San Juan
and his wife Iluminada. The fallo of the Court of Appeals decision reads:
WHEREFORE, in view of the foregoing, the Decision appealed from is hereby
AFFIRMED, with the slight modification that exemplary damages in the amount of
P10,000.00 are awarded to plaintiffs.
Costs against defendants.
SO ORDERED.
15

Hence, the instant petition, assigning the following errors:
I.
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING,
AS DID THE COURT A QUO, THAT PETITIONERS WITHHELD/OR FAILED TO
RELEASE THE CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT
NOS. 108 AND 109.
II.
THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE
HEARSAY TESTIMONY OF MAURA EVANGELISTA SUPPORTIVE OF ITS
FINDINGS THAT PETITIONERS WITHHELD/OR FAILED TO RELEASE THE
CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT NOS. 108 AND
109.
III.
THE HONORABLE COURT OF APPEALS, AS DID THE COURT A QUO, ERRED
IN NOT FINDING THAT RESPONDENTS FAILED TO RETURN TO THE PLANT
TO GET THE CHICKS AND BY-PRODUCTS COVERED BY SETTING REPORT
NOS. 110, 111, 112 AND 113.
IV.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING, AS DID THE
COURT A QUO, THAT THE PIERCING OF THE VEIL OF CORPORATE ENTITY IS
JUSTIFIED, AND CONSEQUENTLY HOLDING PETITIONERS JOINTLY AND
SEVERALLY LIABLE TO PAY RESPONDENTS THE SUM OF P529,644.[80].
V.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONERS HAVE VIOLATED THE PRINCIPLES ENUNCIATED IN ART. 19 OF
THE NEW CIVIL CODE AND CONSEQUENTLY IN AWARDING MORAL
DAMAGES, EXEMPLARY DAMAGES AND ATTORNEYS FEES.
VI.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
PETITIONERS COUNTERCLAIM.
16

Plainly, the issues submitted for resolution are: First, did the Court of Appeals err when (a) it
ruled that petitioners withheld or failed to release the chicks and by-products covered by Setting
Report Nos. 108 and 109; (b) it admitted the testimony of Maura; (c) it did not find that it was
respondents who failed to return to the hatchery to pick up the chicks and by-products covered
by Setting Report Nos. 110 to 113; and (d) it pierced the veil of corporate fiction and held ASJ
Corp. and Antonio San Juan as one entity? Second, was it proper to hold petitioners solidarily
liable to respondents for the payment of P529,644.80 and other damages?
In our view, there are two sets of issues that the petitioners have raised.
The first set is factual. Petitioners seek to establish a set of facts contrary to the factual findings
of the trial and appellate courts. However, as well established in our jurisprudence, only errors of
law are reviewable by this Court in a petition for review under Rule 45.
17
The trial court, having
had the opportunity to personally observe and analyze the demeanor of the witnesses while
testifying, is in a better position to pass judgment on their credibility.
18
More importantly, factual
findings of the trial court, when amply supported by evidence on record and affirmed by the
appellate court, are binding upon this Court and will not be disturbed on appeal.
19
While there
are exceptional circumstances
20
when these findings may be set aside, none of them is present in
this case.
Based on the records, as well as the parties own admissions, the following facts were
uncontroverted: (1) As of Setting Report No. 107, respondents were indebted to petitioners for
P102,336.80 as accrued service fees for Setting Report Nos. 90 to 107;
21
(2) Petitioners, based on
San Juans own admission,
22
did not release the chicks and by-products covered by Setting
Report Nos. 108 and 109 for failure of respondents to fully settle their previous accounts; and (3)
Due to San Juans threats, respondents never returned to the hatchery to pick up those covered by
Setting Report Nos. 110 to 113.
23

Furthermore, although no hard and fast rule can be accurately laid down under which the
juridical personality of a corporate entity may be disregarded, the following probative factors of
identity justify the application of the doctrine of piercing the veil of corporate fiction
24
in this
case: (1) San Juan and his wife own the bulk of shares of ASJ Corp.; (2) The lot where the
hatchery plant is located is owned by the San Juan spouses; (3) ASJ Corp. had no other
properties or assets, except for the hatchery plant and the lot where it is located; (4) San Juan is
in complete control of the corporation; (5) There is no bona fide intention to treat ASJ Corp. as a
different entity from San Juan; and (6) The corporate fiction of ASJ Corp. was used by San Juan
to insulate himself from the legitimate claims of respondents, defeat public convenience, justify
wrong, defend crime, and evade a corporations subsidiary liability for damages.
25
These
findings, being purely one of fact,
26
should be respected. We need not assess and evaluate the
evidence all over again where the findings of both courts on these matters coincide.
On the second set of issues, petitioners contend that the retention was justified and did not
constitute an abuse of rights since it was respondents who failed to comply with their obligation.
Respondents, for their part, aver that all the elements on abuse of rights were present. They
further state that despite their offer to partially satisfy the accrued service fees, and the fact that
the value of the chicks and by-products was more than sufficient to cover their unpaid
obligations, petitioners still chose to withhold the delivery.
The crux of the controversy, in our considered view, is simple enough. Was petitioners retention
of the chicks and by-products on account of respondents failure to pay the corresponding service
fees unjustified? While the trial and appellate courts had the same decisions on the matter,
suffice it to say that a modification is proper. Worth stressing, petitioners act of withholding the
chicks and by-products is entirely different from petitioners unjustifiable acts of threatening
respondents. The retention had legal basis; the threats had none.
To begin with, petitioners obligation to deliver the chicks and by-products corresponds to three
dates: the date of hatching, the delivery/pick-up date and the date of respondents payment. On
several setting reports, respondents made delays on their payments, but petitioners tolerated such
delay. When respondents accounts accumulated because of their successive failure to pay on
several setting reports, petitioners opted to demand the full settlement of respondents accounts
as a condition precedent to the delivery. However, respondents were unable to fully settle their
accounts.
Respondents offer to partially satisfy their accounts is not enough to extinguish their obligation.
Under Article 1248
27
of the Civil Code, the creditor cannot be compelled to accept partial
payments from the debtor, unless there is an express stipulation to that effect. More so,
respondents cannot substitute or apply as their payment the value of the chicks and by-products
they expect to derive because it is necessary that all the debts be for the same kind, generally of a
monetary character. Needless to say, there was no valid application of payment in this case.
Furthermore, it was respondents who violated the very essence of reciprocity in contracts,
consequently giving rise to petitioners right of retention. This case is clearly one among the
species of non-performance of a reciprocal obligation. Reciprocal obligations are those which
arise from the same cause, wherein each party is a debtor and a creditor of the other, such that
the performance of one is conditioned upon the simultaneous fulfillment of the other.
28
From the
moment one of the parties fulfills his obligation, delay by the other party begins.
29

Since respondents are guilty of delay in the performance of their obligations, they are liable to
pay petitioners actual damages of P183,416.80, computed as follows: From respondents
outstanding balance of P102,336.80, as of Setting Report No. 107, we add the corresponding
services fees of P81,080.00
30
for Setting Report Nos. 108 to 113 which had remain unpaid.
Nonetheless, San Juans subsequent acts of threatening respondents should not remain among
those treated with impunity. Under Article 19
31
of the Civil Code, an act constitutes an abuse of
right if the following elements are present: (a) the existence of a legal right or duty; (b) which is
exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.
32
Here, while
petitioners had the right to withhold delivery, the high-handed and oppressive acts of petitioners,
as aptly found by the two courts below, had no legal leg to stand on. We need not weigh the
corresponding pieces of evidence all over again because factual findings of the trial court, when
adopted and confirmed by the appellate court, are binding and conclusive and will not be
disturbed on appeal.
33

Since it was established that respondents suffered some pecuniary loss anchored on petitioners
abuse of rights, although the exact amount of actual damages cannot be ascertained, temperate
damages are recoverable. In arriving at a reasonable level of temperate damages of P408,852.10,
which is equivalent to the value of the chicks and by-products, which respondents, on the
average, are expected to derive, this Court was guided by the following factors: (a) award of
temperate damages will cover only Setting Report Nos. 109 to 113 since the threats started only
on February 10 and 11, 1993, which are the pick-up dates for Setting Report Nos. 109 and 110;
the rates of (b) 41% and (c) 17%, representing the average rates of conversion of broiler eggs
into hatched chicks and egg by-products as tabulated by the trial court based on available
statistical data which was unrebutted by petitioners; (d) 68,784 eggs,
34
or the total number of
broiler eggs under Setting Report Nos. 109 to 113; and (e) P14.00 and (f) P1.20, or the then unit
market price of the chicks and by-products, respectively.
Thus, the temperate damages of P408,852.10 is computed as follows:
[b X (d X e) + c X (d X f)] = Temperate Damages
41% X (68,784 eggs X P14) = P394,820.16
17% X (68,784 eggs X P1.20) = P 14,031.94
[P394,820.16 + P14,031.94] = P408,852.10
At bottom, we agree that petitioners conduct flouts the norms of civil society and justifies the
award of moral and exemplary damages. As enshrined in civil law jurisprudence: Honeste vivere,
non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure others and to
give everyone his due.
35
Since exemplary damages are awarded, attorneys fees are also proper.
Article 2208 of the Civil Code provides that:
In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
x x x x
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 30, 2003 of
the Court of Appeals in CA-G.R. CV No. 56082 is hereby MODIFIED as follows:
a. Respondents are ORDERED to pay petitioners P183,416.80 as actual damages, with interest
of 6% from the date of filing of the complaint until fully paid, plus legal interest of 12% from the
finality of this decision until fully paid.
b. The award of actual damages of P529,644.80 in favor of respondents is hereby REDUCED to
P408,852.10, with legal interest of 12% from the date of finality of this judgment until fully paid.
c. The award of moral damages, exemplary damages and attorneys fees of P100,000.00,
P10,000.00, P50,000.00, respectively, in favor of respondents is hereby AFFIRMED.
d. All other claims are hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
_______
G.R. No. 133498 April 18, 2002
C.F. SHARP & CO., INC., petitioner,
vs.
NORTHWEST AIRLINES, INC., respondent.
This is a petition for review under Rule 45 of the Rules of Court assailing the February 17, 1997
Decision
1
and the April 2, 1998 Resolution
2
of the Court of Appeals
3
in CA-G.R. SP No. 40996.
The undisputed facts are as follows:
On May 9, 1974, respondent, through its Japan Branch, entered into an International Passenger
Sales Agency Agreement with petitioner, authorizing the latter to sell its air transport tickets.
Petitioner failed to remit the proceeds of the ticket sales, for which reason, respondent filed a
collection suit against petitioner before the Tokyo District Court which rendered judgment on
January 29, 1981, ordering petitioner to pay respondent the amount of "83,158,195 Yen and
damages for the delay at the rate of 6% per annum from August 28, 1980 up to and until payment
is completed."
4
Unable to execute the decision in Japan, respondent filed a case to enforce said
foreign judgment with the Regional Trial Court of Manila, Branch 54.
5
However, the case was
dismissed on the ground of failure of the Japanese Court to acquire jurisdiction over the person
of the petitioner. Respondent appealed to the Court of Appeals, which affirmed the decision of
the trial court.1wphi1.nt
Respondent filed a petition for review with this Court, docketed as G.R. No. 112573. On
February 9, 1995, a decision was rendered, the dispositive portion of which reads:
WHEREFORE, the instant petition is partly GRANTED, and the challenged decision is
AFFIRMED insofar as it denied NORTHWESTs claims for attorneys fees, litigation
expenses, and exemplary damages but REVERSED insofar as it sustained the trial courts
dismissal of NORTHWESTs complaint in Civil Case No. 83-17637 of Branch 54 of the
Regional Trial Court of Manila, and another in its stead is hereby rendered ORDERING
private respondent C.F. SHARP & COMPANY, INC. to pay to NORTHWEST the
amounts adjudged in the foreign judgment subject of said case, with interest thereon at
the legal rate from the filing of the complaint therein until the said foreign judgment is
fully satisfied.
Costs against the private respondent.
SO ORDERED.
6

Accordingly, the Regional Trial Court of Manila, Branch 54, issued a writ of execution of the
foregoing decision.
7
On November 22, 1995, the trial court modified its order for the execution
of the decision, viz:
WHEREFORE, in view of the foregoing, this Court hereby issues another order, as
follows: the writ of execution is issued against defendant C.F. Sharp ordering said
defendant to pay the plaintiff the sum of 83,158,195 Yen at the exchange rate prevailing
on the date of the foreign judgment on January 29, 1981, plus 6% per annum until May
19, 1983; and from said date until full payment, 12% per annum (6% by way of damages
and 6% interest) until the entire obligation is fully satisfied.
SO ORDERED.
8

On December 18, 1995, petitioner filed a petition for certiorari under Rule 65, docketed as G.R.
No. 122890, assailing the aforequoted order. On May 29, 1996, the case was referred to the
Court of Appeals. Petitioner contended that it had already made partial payments; hence, it was
liable only for the amount of 61,734,633 Yen. Moreover, it argued that it was not liable to pay
additional interest on top of the 6% interest imposed in the foreign judgment.
The Court of Appeals rendered the assailed decision on February 17, 1997. It sustained the
imposition of additional interest on the liability of petitioner as adjudged in the foreign judgment.
The appellate court likewise corrected the reckoning date of the imposition of the interests in
accordance with the February 9, 1995 decision to be executed, but lowered the additional interest
from 12% to 6% per annum. Further, it ruled that the basis of the conversion of petitioners
liability in its peso equivalent should be the prevailing rate at the time of payment and not the
rate on the date of the foreign judgment. The dispositive portion of the said decision reads:
WHEREFORE, the petition is GRANTED. The assailed Orders dated October 13, 1995
and November 22, 1995 are annulled and set aside on the ground that they varied the
final judgment of the First Division of the Supreme Court in G.R. No. 112573, entitled,
"NORTHWEST ORIENT AIRLINES, INC., Petitioner, versus, COURT OF APPEALS
and C. F. SHARP & COMPANY, INC., Respondents".
Respondent court is enjoined to execute the said final judgment with an unpaid principal
balance of Y61,734,633 plus damages for delay at the rate of 6% per annum from August
28, 1980, until fully paid, which may be paid in local currency based on the conversion
rate prevailing at the time of payment; plus 6% legal interest per annum from August 28,
1980, the date of the filing of the complaint in the foreign judgment.
No costs.
SO ORDERED.
9

On April 2, 1998, the Court of Appeals denied both the motion for reconsideration and the partial
motion for reconsideration filed by petitioner and respondent, respectively.
In the present recourse, petitioner questions the applicable conversion rate of its liability, and
claims that a ruling thereon by the Court of Appeals effectively deprived it of due process of law
because said rate was not among the issues submitted for resolution.
In ruling that the applicable conversion rate of petitioners liability is the rate at the time of
payment, the Court of Appeals cited the case of Zagala v. Jimenez,
10
interpreting the provisions
of Republic Act No. 529, as amended by R.A. No. 4100. Under this law, stipulations on the
satisfaction of obligations in foreign currency are void. Payments of monetary obligations,
subject to certain exceptions, shall be discharged in the currency which is the legal tender in the
Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of
foreign currency obligations incurred after its enactment, the Court held in a number of cases
11

that the rate of exchange for the conversion in the peso equivalent should be the prevailing rate at
the time of payment.
Petitioner, however, contends that with the repeal of R.A. No. 529 by R.A. No. 8183,
12
the
jurisprudence relied upon by the Court of Appeals is no longer applicable.
Republic Act No. 529, as amended by R.A. No. 4100, provides:
SECTION 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provision purports to
give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and null, void, and of
no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to (a) transactions
where the funds involved are the proceeds of loans or investments made directly or
indirectly, through bona fide intermediaries or agents, by foreign governments, their
agencies and instrumentalities, and international financial banking institutions so long as
the funds are identifiable, as having emanated from the sources enumerated above; b)
transactions affecting high-priority economic projects for agricultural, industrial and
power development as may be determined by the National Economic Council which are
financed by or through foreign funds; (c) forward exchange transactions entered into
between banks or between banks and individuals or juridical persons; (d) import-export
and other international banking, financial investment and industrial transactions. With the
exception of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provision,
in which cases the terms of the parties agreement shall apply, every other domestic
obligation heretofore or hereafter incurred, whether or not any such provision as to
payment is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for public
and private debts: Provided, That if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin or currency other than
Philippine currency, it shall be discharged in Philippine currency, measured at the
prevailing rates of exchange at the time the obligation was incurred, except in case of a
loan made in a foreign currency stipulated to be payable in the same currency in which
case the rate of exchange prevailing at the time of the stipulated date of payment shall
prevail. All coin and currency, including Central Bank notes, heretofore or hereafter
issued and declared by the Government of the Philippines shall be legal tender for all
debts, public and private.
Pertinent portion of Republic Act No. 8183 states:
SECTION 1. All monetary obligations shall be settled in the Philippine currency which is
legal tender in the Philippines. However, the parties may agree that the obligation or
transaction shall be settled in any other currency at the time of payment.
SEC. 2. Republic Act Numbered Five Hundred and Twenty-Nine (R.A. No. 529), as
amended, entitled "An Act to Assure the Uniform Value of Philippine Coin and
Currency" is hereby repealed.
The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the
stipulation of currency other than Philippine currency, such that obligations or transactions may
now be paid in the currency agreed upon by the parties. Just like R.A. No. 529, however, the new
law does not provide for the applicable rate of exchange for the conversion of foreign currency-
incurred obligations in their peso equivalent. It follows, therefore, that the jurisprudence
established in R.A. No. 529 regarding the rate of conversion remains applicable. Thus, in Asia
World Recruitment, Inc. v. National Labor Relations Commission,
13
the Court, applying R.A.
No. 8183, sustained the ruling of the NLRC that obligations in foreign currency may be
discharged in Philippine currency based on the prevailing rate at the time of payment. The
wisdom on which the jurisprudence interpreting R.A. No. 529 is based equally holds true with
R.A. No. 8183. Verily, it is just and fair to preserve the real value of the foreign exchange-
incurred obligation to the date of its payment.
14

We find no denial of due process in the instant case. Contrary to the argument of petitioner, the
matter of the applicable conversion rate was one of the issues submitted for resolution before the
Court of Appeals. Moreover, opportunity to be heard, which is the very essence of due process,
was afforded petitioner when it filed a motion for reconsideration of the Court of Appeals
decision.
Petitioners contention that it is Article 1250
15
of the Civil Code that should be applied is
untenable. The rule that the value of the currency at the time of the establishment of the
obligation shall be the basis of payment finds application only when there is an official
pronouncement or declaration of the existence of an extraordinary inflation or deflation.
16

For its part, respondent prays for the modification of the Court of Appeals award of interest.
While as a general rule, a party who has not appealed is not entitled to affirmative relief other
than what was granted in the decision of the court below, law and jurisprudence authorize a
tribunal to consider errors, although unassigned, if they involve (1) errors affecting the lower
courts jurisdiction over the subject matter, (2) plain errors not specified, and (3) clerical errors.
17

In the case at bar, the Court of Appeals failure to apply the correct legal rate of interest, to
which respondent is lawfully entitled, amounts to a "plain error." In Eastern Shipping Lines, Inc.
v. Court of Appeals,
18
it was held that absent any stipulation, the legal rate of interest in
obligations which consists in the payment of a sum of money, as in the present case, is 12% per
annum. As stated in the decision of the Court in G.R. No. 112573, which is final and executory,
petitioner is liable to pay respondent the amount adjudged in the foreign judgment, with "interest
thereon at the legal rate [12% per annum] from the filing of the complaint therein [on August 28,
1980] until the said foreign judgment is fully satisfied." Since petitioner already made partial
payments, his obligation was reduced to 61,734,633 Yen. Thus, petitioner should pay respondent
the amount of 61,734,633 Yen plus "damages for the delay at the rate of 6% per annum from
August 28, 1980 up to and until payment is completed," with interest thereon at the rate of 12%
per annum from the filing of the complaint on August 28, 1980, until fully satisfied.
The Court is clothed with ample authority to review matters, even if they are not assigned as
errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of
the case. Rules of procedure are mere tools designed to facilitate the attainment of justice. Their
strict and rigid application, which would result in technicalities that tend to frustrate rather than
promote substantial justice, must be avoided. Hence, substantive rights, like the applicable legal
rate of interest on petitioners long due and demandable obligation, must not be prejudiced by a
rigid and technical application of the rules.
19

WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The February 17,
1997 decision and the April 2, 1998 resolution of the Court of Appeals in CA-G.R. SP No.
40996 are AFFIRMED with MODIFICATION. Petitioner is directed to pay respondent
61,734,633 Yen plus damages for the delay at the rate of 6% per annum from August 28, 1980
up to and until payment is completed, with interest at the rate of 12% per annum counted from
the date of filing of the complaint on August 28, 1980, until fully satisfied. Petitioners liability
may be paid in Philippine currency, computed at the exchange rate prevailing at the time of
payment.1wphi1.nt
SO ORDERED.
________
G.R. No. 138703 June 30, 2006
DEVELOPMENT BANK OF THE PHILIPPINES
1
and PRIVATIZATION AND
MANAGEMENT OFFICE (formerly ASSET PRIVATIZATION TRUST), Petitioners,
vs.
HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY AND MACHINERY
CORP. and PHILIPPINE IRON MANUFACTURING CO., INC., Respondents.
D E C I S I O N
AZCUNA, J .:
This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of
the Court of Appeals (CA) dated May 7, 1999 in CA-G.R. CV No. 49239 entitled "Philippine
United Foundry and Machinery Corp. and Philippine Iron Manufacturing Co., Inc. v.
Development Bank of the Philippines and Asset Privatization Trust" which upheld the decision
of the Regional Trial Court (RTC), Branch 98 of Quezon City in Civil Case No. Q-49650.
Sometime in March 1968, the Development Bank of the Philippines (DBP) granted to
respondents Philippine United Foundry and Machineries Corporation and Philippine Iron
Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000 consisting of
P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was evidenced by a
promissory note
2
dated June 26, 1968 and secured by a mortgage
3
executed by respondents over
their present and future properties such as buildings, permanent improvements, various
machineries and equipment for manufacture.
Subsequently, DBP granted to respondents another loan in the form of a five-year revolving
guarantee amounting to P1,700,000 which was reflected in the amended mortgage contract
4

dated November 20, 1968. According to respondents, the loan guarantee was extended to them
when they encountered difficulty in negotiating the DBP Progress Bonds. Respondents were
only able to sell the bonds in 1972 or about five years from its issuance for an amount that was
25% less than its face value.
5

On September 10, 1975, the outstanding accounts of respondents with DBP were restructured in
view of their failure to pay. Thus, the outstanding principal balance of the loans and advances
amounting to P4,655,992.35 were consolidated into a single account. The restructured loan was
evidenced by a new promissory note
6
dated November 12, 1975 payable within seven years, with
partial payments on the principal to be made beginning on the third year plus a 12% interest per
annum payable every month. The following paragraph appears at the bottom portion of the note:
This promissory note represents the consolidation into one account of the outstanding principal
balance of PHILIMCO and PHUMACOs account, and is prepared pursuant to Res. No. 228,
dated September 10, 1975, approved by the Executive Committee pursuant to Bd. Res. No. 3577,
s. of 1975. This note is secured by mortgages on the existing assets of the firms.
7

On the other hand, all accrued interest and charges due amounting to P3,074,672.21 were
denominated as "Notes Taken for Interests" and evidenced by a separate promissory note
8
dated
November 12, 1975. The following annotation appears at the bottom portion of the note:
This promissory note represents all accrued interests and charges which are taken up as "NOTES
TAKEN FOR INTEREST" due on the accounts of PHILIMCO and PHUMACO approved under
Bd. Res. No. 3577, s. of 1975. This note is secured by (a) mortgage on the existing assets of the
firm.
9

Both notes provided for the following additional charges and penalties:
(1) 12% interest per annum on unpaid amortizations
10
;
(2) 10% penalty charge per annum on the total amortizations past due effective 30 days
from the date respondents failed to comply with any of the terms stipulated in the notes
11

; and,
(3) Bank advances for insurance premiums, taxes, rentals, litigation and acquired assets
expenses, collection and other out-of-pocket expenses not covered by inspection and
processing fees subject to the following charges
12
:
(a) One time service charge of % on the amount advanced to be included in the
receivable account;
(b) Penalty charge of 8% per annum on past due advances; and
(c) Interest at 12% per annum.
Notwithstanding the restructuring, respondents were still unable to comply with the terms and
conditions of the new promissory notes. As a result, respondents requested DBP to refinance the
matured obligation. The request was granted by DBP, pursuant to which three foreign currency
denominated loans sourced from DBPs own foreign borrowings were extended to respondents
on various dates between 1980 and 1981.
13
These loans were secured by mortgages
14
on the
properties of respondents and were evidenced by the following promissory notes:
Face Value Maturity Date Interest Rate Per Annum
(1) Promissory Note
15

dated December 11,
1980
$661,330 December 15,
1990
3% over DBPs borrowing
rate
16

(2) Promissory Note
17

dated June 5, 1981
$666,666 June 23, 1991 3% over DBPs borrowing
rate
18

(3) Promissory Note
19

dated December 16,
1981
$486,472.37 December 31,
1982
4% over DBPs borrowing
cost
Apart from the interest, the promissory notes imposed additional charges and penalties if
respondents defaulted on their payments. The notes dated December 11, 1980 and June 5, 1981
specifically provided for a 2% annual service fee computed on the outstanding principal balance
of the loans as well as the following additional interest and penalty charges on the loan
amortizations or portions in arrears:
(a) If in arrears for thirty (30) days or less:
i. Additional interest at the basic loan interest rate per annum computed on total
amortizations past due, irrespective of age.
ii. No penalty charge
(b) If in arrears for more than thirty (30) days:
i. Additional interest at the basic loan interest rate per annum computed on total
amortizations past due, irrespective of age, plus,
ii. Penalty charge of 16% per annum computed on amortizations or portions
thereof in arrears for more than thirty (30) days counted from the date the amount
in arrears becomes liable to this charge.
20

Under these two notes, respondents also bound themselves to pay bank advances for insurance
premiums, taxes, litigation and acquired assets expenses and other out-of-pocket expenses not
covered by inspection and processing fees as follows:
(a) One-time service charge of 2% of the amount advanced, same to be included in the
receivable account.
(b) Interest at 16% per annum.
(c) Penalty charge from date of advance at 16% per annum.
The note dated December 16, 1981, on the other hand, provided for the interest and penalty
charges on loan amortizations or portions of it in arrears as follows:
(a) Additional interest at the basic loan interest per annum computed on total
amortizations past due irrespective of age; plus
(b) Penalty charges of 8% per annum computed on total amortizations in arrears,
irrespective of age.
21

Respondents were likewise bound to pay bank advances for insurance premiums, taxes, litigation
and acquired assets expenses and other out-of-pocket expenses not covered by inspection and
processing fees as follows:
(a) One-time service charge of 2% of (the) amount advanced, same to be included and
debited to the advances account;
(b) Interest at the basic loan interest rate; and
(c) Penalty charge from date of advance at 8% per annum.
22

Sometime in October 1985, DBP initiated foreclosure proceedings upon its computation that
respondents loans were in arrears by P62,954,473.68.
23
According to DBP, this figure already
took into account the intermittent payments made by respondents between 1968 and 1981 in the
aggregate amount of P5,150,827.71.
24

However, the foreclosure proceedings were suspended on twelve separate occasions from
October 1985 to December 1986 upon the representations of respondents that a financial
rehabilitation fund arising from a contract with the military was forthcoming. On December 23,
1986, before DBP could proceed with the foreclosure proceedings, respondents instituted the
present suit for injunction.
On January 6, 1987, the complaint was amended to include the annulment of mortgage. On
December 15, 1987, the complaint was amended a second time to implead the Asset
Privatization Trust (APT) (now the Privatization and Management Office [PMO])
25
as a party
defendant.
Respondents cause of action arose from their claim that DBP was collecting from them an
unconscionable if not unlawful or usurious obligation of P62,954,473.68 as of September 30,
1985, out of a mere P6,200,000 loan. Primarily, respondents contended that the amount claimed
by DBP is erroneous since they have remitted to DBP approximately P5,300,000 to repay their
original debt. Additionally, respondents assert that since the loans were procured for the Self-
Reliant Defense Posture Program of the Armed Forces of the Philippines (AFP), the latters
breach of its commitment to purchase military armaments and equipment from respondents
amounts to a failure of consideration that would justify the annulment of the mortgage on
respondents properties.
26

On December 24, 1986, the RTC issued a temporary restraining order. A Writ of Preliminary
Injunction was subsequently issued on May 4, 1987. After trial on the merits, the court rendered
a decision in favor of respondents,
27
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered in favor of
the [respondents] and against the defendants [DBP and APT], ordering that:
(1) The Writ of Preliminary Injunction already issued be made permanent;
(2) The [respondents] be made to pay the original loans in the aggregate amount of Six
Million Two Hundred Thousand (P6,200,000) Pesos;
(3) The [respondents] payment in the amount of Five Million Three Hundred Thirty-Five
Thousand, Eight Hundred Twenty-seven Pesos and Seventy-one Centavos
(P5,335,827.71) be applied to payment for interest and penalties; and
(4) No further interest and/or penalties on the aforementioned principal obligation of P6.2
million shall be imposed/charged upon the [respondents] for failure of the military
establishment to honor their commitment to a valid and consummated contract with the
former. Costs against the defendants.
SO ORDERED.
Both DBP and PMO appealed the decision to the CA. The CA, however, affirmed the decision of
the RTC. Aggrieved, DBP filed with the CA a motion for a reconsideration
28
dated May 26,
1999, which motion has not been resolved by the CA to date. PMO, on the other hand, sought
relief directly with the Court by filing this present petition upon the following grounds:
I. THE CA DISREGARDED THE BINDING AND OBLIGATORY FORCE OF
CONTRACTS WHICH IS THE LAW BETWEEN THE PARTIES.
x x x
II. THE CA VIOLATED THE PRINCIPLE OF LAW THAT CONTRACTS TAKE
EFFECT ONLY BETWEEN THE PARTIES AS IT LINKED RESPONDENTS
CONTRACTS WITH THE AFP WITH RESPONDENTS LOANS WITH DBP.
x x x
III. THE CA ERRED IN PERMANENTLY ENJOINING THE DBP AND APT FROM
FORECLOSING THE MORTGAGES ON RESPONDENTS PROPERTIES THEREBY
VIOLATING THE PROVISIONS OF P[RESIDENTIAL] D[ECREE NO.] 385 AND
PROCLAMATION NO. 50.
29

On the first issue, PMO asserts that the CA erred in declaring that the interest rate on the loans
had been unilaterally increased by DBP despite the evidence on record (consisting of promissory
notes and testimonies of witnesses for DBP) showing otherwise. PMO also claims that the CA
failed to take into account the effect of the restructuring and refinancing of the loans granted by
DBP upon the request of respondents.
Anent the second issue, PMO argues that the failure of the AFP to honor its commitment to
respondents should have had no bearing on respondents loan obligations to DBP as DBP was
not a party to their contract. Hence, PMO contends that the CA ran afoul of the principle of
relativity of contracts when it ruled that no further interest could be imposed on the loans.
Finally, PMO claims that DBP, being a government financial institution, could not be enjoined
by any restraining order or injunction, whether permanent or temporary, from proceeding with
the foreclosure proceedings mandated under Section 1 of Presidential Decree No. 385.
For their part, respondents moved for the denial of the petition in their comment dated October
27, 1999,
30
stating that (1) the petition merely raises questions of fact and not of law; (2) PMO is
engaged in forum shopping considering that the motion for reconsideration filed by its co-
defendant, DBP, against the CA decision was still pending before the appellate court; and, (3) the
petition is fatally defective because the attached certification against non-forum shopping does
not conform to the requirements set by law. After PMO filed its reply denying the foregoing
allegations, the parties submitted their respective memoranda.
The petition is partly meritorious.
Prefatorily, it bears stressing that only questions of law may be raised in a petition for review on
certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts, its jurisdiction in
such a proceeding being limited to reviewing only errors of law that may have been committed
by the lower courts. Consequently, findings of fact of the trial court and the CA are final and
conclusive, and cannot be reviewed on appeal.
31
It is not the function of the Court to reexamine
or reevaluate evidence, whether testimonial or documentary, adduced by the parties in the
proceedings below.
32
Nevertheless, the rule admits of certain exceptions and has, in the past,
been relaxed when the lower courts findings were not supported by the evidence on record or
were based on a misapprehension of facts,
33
or when certain relevant and undisputed facts were
manifestly overlooked that, if properly considered, would justify a different conclusion.
34

The resolution of the present controversy turns on the issue regarding the precise amount of
respondents principal obligation under the series of mortgages which DBP, as mortgagee-
creditor, attempted to foreclose. In this case, the total amount of respondents indebtedness is not
simply a question of fact but is a question of law, one requiring the application of legal principles
for the computation of the amount owed, and is thus a matter that can be properly brought up for
the Courts determination.
35

PMO claims that the total outstanding obligation of respondents reached P62.9 Million on
September 30, 1985. This amount was purportedly the peso equivalent of the foreign-currency
denominated loans granted to respondents to refinance the original loans they procured, and is
inclusive of interest, penalties and other surcharges incurred from that date as a result of
respondents past defaults. Respondents contend, on the other hand, that DBP grossly misstated
the extent of their obligation, and insist that they should be made liable only for the amount of
P6.2 Million which they actually received from DBP.
As mentioned, the RTC ultimately sustained respondents and made permanent the writ of
preliminary injunction it issued to enjoin the foreclosure proceedings. Respondents were directed
to pay only the amount of the original loans, that is, P6.2 Million, with the P5.3 Million which
they previously paid to be applied as interest and penalties. The RTC did not find respondents
culpable for defaulting on their loan obligations and passed the blame to the AFP for not
fulfilling its contractual obligations to respondents.
The CA affirmed the RTC decision and agreed that DBP cannot be allowed to foreclose on the
mortgage securing respondents loan. The CA surmised that since DBP failed to adequately
explain how it arrived at P62.9 Million, the original loan amount of P6.2 Million could only have
been "blatantly enlarged or erroneously computed" by DBP through the imposition of an
"unconscionable rate of interest and charges." The CA also agreed with the trial court that there
was no consideration for the mortgage contracts executed by respondents considering the
proceeds from the alleged foreign currency loans were never actually received by the latter. This
view is untenable and lacks foundation.
As correctly pointed out by PMO, the original loans alluded to by respondents had been
refinanced and restructured in order to extend their maturity dates. Refinancing is an exchange of
an old debt for a new debt, as by negotiating a different interest rate or term or by repaying the
existing loan with money acquired from a new loan.
36
On the other hand, restructuring, as
applied to a debt, implies not only a postponement of the maturity
37
but also a modification of
the essential terms of the debt (e.g., conversion of debt into bonds or into equity,
38
or a change in
or amendment of collateral security) in order to make the account of the debtor current.
39

In this instance, it is important to note that DBP accommodated respondents request to
restructure and refinance their account twice in view of the financial difficulties the latter were
experiencing. The first restructuring/refinancing was granted in 1975 while the second one was
undertaken sometime in the early 1980s. Pursuant to the restructuring schemes, respondents
executed promissory notes and mortgage contracts in favor of DBP,
40
the second restructuring
being evidenced by three promissory notes dated December 11, 1980, June 5, 1981 and
December 16, 1981 in the total amount of $1.8 Million. The reason respondents seek to be
excused from fulfilling their obligation under the second batch of promissory notes is that first,
they allegedly had "no choice" but to sign the documents in order to have the loan restructured
41

and thus avert the foreclosure of their properties, and second, they never received any proceeds
from the same. This reasoning cannot be sustained.
Respondents allegation that they had no "choice" but to sign is tantamount to saying that DBP
exerted undue influence upon them. The Court is mindful that the law grants an aggrieved party
the right to obtain the annulment of a contract on account of factors such as mistake, violence,
intimidation, undue influence and fraud which vitiate consent.
42
However, the fact that the
representatives were "forced" to sign the promissory notes and mortgage contracts in order to
have respondents original loans restructured and to prevent the foreclosure of their properties
does not amount to vitiated consent.
The financial condition of respondents may have motivated them to contract with DBP, but
undue influence cannot be attributed to DBP simply because the latter had lent money. The
concept of undue influence is defined as follows:
There is undue influence when a person takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of choice. The following circumstances
shall be considered: the confidential, family, spiritual and other relations between the parties or
the fact that the person alleged to have been unduly influenced was suffering from mental
weakness, or was ignorant or in financial distress.
43

While respondents were purportedly financially distressed, there is no clear showing that those
acting on their behalf had been deprived of their free agency when they executed the promissory
notes representing respondents refinanced obligations to DBP. For undue influence to be
present, the influence exerted must have so overpowered or subjugated the mind of a contracting
party as to destroy the latters free agency, making such party express the will of another rather
than its own. The alleged lingering financial woes of a debtor per se cannot be equated with the
presence of undue influence.
44

Corollarily, the threat to foreclose the mortgage would not in itself vitiate consent as it is a threat
to enforce a just or legal claim through competent authority.
45
It bears emphasis that the
foreclosure of mortgaged properties in case of default in payment of a debtor is a legal remedy
given by law to a creditor.
46
In the event of default by the mortgage debtor in the performance of
the principal obligation, the mortgagee undeniably has the right to cause the sale at public
auction of the mortgaged property for payment of the proceeds to the mortgagee.
47

It is likewise of no moment that respondents never physically received the proceeds of the
foreign currency loans. When the loan was refinanced and restructured, the proceeds were
understandably not actually given by DBP to respondents since the transaction was but a renewal
of the first or original loan and the supposed proceeds were applied as payment for the latter.
It also bears emphasis that the second set of promissory notes executed by respondents must
govern the contractual relation of the parties for they unequivocally express the terms and
conditions of the parties loan agreement, which are binding and conclusive between them.
Parties are free to enter into stipulations, clauses, terms and conditions they may deem
convenient; that is, as long as these are not contrary to law, morals, good customs, public order
or public policy.
48
With the signatures of their duly authorized representatives on the subject
notes and mortgage contracts, the genuineness and due execution of which having been
admitted,
49
respondents in effect freely and voluntarily affirmed all the concurrent rights and
obligations flowing therefrom. Accordingly, respondents are barred from claiming the contrary
without transgressing the principle of estoppel and mutuality of contracts. Contracts must bind
both contracting parties; their validity or compliance cannot be left to the will of one of them.
50

The significance of the promissory notes should not have been overlooked by the trial court and
the CA. By completely disregarding the promissory notes, the lower courts unilaterally modified
the contractual obligations of respondents after the latter already benefited from the extension of
the maturity date on their original loans, to the damage and prejudice of PMO which steps into
the shoes of DBP as mortgagee-creditor.
At this juncture, it must be emphasized that a party to a contract cannot deny its validity after
enjoying its benefits without outrage to ones sense of justice and fairness. Where parties have
entered into a well-defined contractual relationship, it is imperative that they should honor and
adhere to their rights and obligations as stated in their contracts because obligations arising from
it have the force of law between the contracting parties and should be complied with in good
faith.
51

As a rule, a court in such a case has no alternative but to enforce the contractual stipulations in
the manner they have been agreed upon and written. Courts, whether trial or appellate, generally
have no power to relieve parties from obligations voluntarily assumed simply because their
contract turned out to be disastrous or unwise investments.
52

Thus, respondents cannot be absolved from their loan obligations on the basis of the failure of
the AFP to fulfill its commitment under the manufacturing agreement
53
entered by them
allegedly upon the prompting of certain AFP and DBP officials. While it is true that the DBP
representatives appear to have been aware that the proceeds from the sale to the AFP were
supposed to be applied to the loan, the records are bereft of any proof that would show that DBP
was a party to the contract itself or that DBP would condone respondents credit if the contract
did not materialize. Even assuming that the AFP defaulted in its obligations under the
manufacturing agreement, respondents cause of action lies with the AFP, and not with DBP or
PMO. The loan contract of respondents is separate and distinct from their manufacturing
agreement with the AFP.
Incidentally, the CA sustained the validity of a loan obligation but annulled the mortgage
securing it on the ground of failure of consideration. This is erroneous. A mortgage is a mere
accessory contract and its validity would depend on the validity of the loan secured by it.
54

Hence, the consideration of the mortgage contract is the same as that of the principal contract
from which it receives life, and without which it cannot exist as an independent contract.
55
The
debtor cannot escape the consequences of the mortgage contract once the validity of the loan is
upheld.
Again, as a rule, courts cannot intervene to save parties from disadvantageous provisions of their
contracts if they consented to the same freely and voluntarily.
56
Thus, respondents cannot now
protest against the fact that the loans were denominated in foreign currency and were to be paid
in its peso equivalent after they had already given their consent to such terms.
57
There is no legal
impediment to having obligations or transactions paid in a foreign currency as long as the parties
agree to such an arrangement. In fact, obligations in foreign currency may be discharged in
Philippine currency based on the prevailing rate at the time of payment.
58
For this reason, it was
improper for the CA to reject outright DBPs claim that the conversion of the remaining balance
of the foreign currency loans into peso accounted for the considerable differential in the total
indebtedness of respondents mainly because the exchange rates at the time of demand had been
volatile and led to the depreciation of the peso.
59

PMO also denies that a unilateral increase in the interest rates on the loans caused the substantial
increase in the indebtedness of respondents and points out that the promissory notes themselves
specifically provided for the rates of interest as well as penalty and other charges which were
merely applied on respondents outstanding obligations. It should be noted, however, that at the
time of the transaction, Act No. 2655, as amended by Presidential Decree No. 116 (Usury Law),
was still in full force and effect. Basic is the rule that the laws in force at the time the contract is
made governs the effectivity of its provisions.
60
Section 2 of the Usury Law specifically provides
as follows:
Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other
property, real or personal, or choses in action, a higher rate of interest or a greater sum or value,
including commissions, premiums, fines and penalties, for the loan or renewal thereof or
forbearance of money, goods, or credits, where such loan or renewal or forbearance is secured in
whole or in part by a mortgage upon real estate the title to which is duly registered, or by any
document conveying such real estate or interest therein, than twelve per centum per annum or the
maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal
thereof or forbearance is granted: Provided, that the rate of interest under this section or the
maximum rate of interest that may be prescribed by the monetary board under this section may
likewise apply to loans secured by other types of security as may be specified by the Monetary
Board.
A perusal of the promissory notes reveals that the interest charged upon the notes is dependent
upon the borrowing cost of DBP which, however, would be pegged at a fixed rate assuming
certain factors. The notes dated December 11, 1980 and June 5, 1981, for example, had a per
annum interest rate of 3% over DBPs borrowing rate that will become 1 % per annum in the
event the loan is drawn under the Central Banks Jumbo Loan. These were further subject to the
condition that should the loan from where they were drawn be fully repaid, the interest to be
charged on respondents remaining dollar obligation would be pegged at 16% per annum.
61
The
promissory note dated December 16, 1981, on the other hand, had a per annum interest rate of
4% over DBPs borrowing rate. This rate would also become 1 % per annum in the event the
loan is drawn under the Central Banks Jumbo Loan. However, should the loan from where
respondents foreign currency loan was drawn be fully repaid, the interest to be charged on their
remaining dollar obligation would be pegged at 18% per annum.
62

Due to the variable factors mentioned above, it cannot be determined whether DBP did in fact
apply an interest rate higher than what is prescribed under the law. It appears on the records,
however, that DBP attempted to explain how it arrived at the amount stated in the Statement of
Account
63
it submitted in support of its claim but was not allowed by the trial court to do so
citing the rule that the best evidence of the same is the document itself.
64
DBP should have been
given the opportunity to explain its entries in the Statement of Account in order to place the
figures that were cited in the proper context. Assuming the interest applied to the principal
obligation did, in fact, exceed 12%, in addition to the other penalties stipulated in the note, this
should be stricken out for being usurious.
In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to
the interest is void. The debt is then considered to be without stipulation as to the interest. In the
absence of an express stipulation as to the rate of interest, the legal rate of 12% per annum shall
be imposed.
65

As to the issue raised by PMO that the injunction issued by the lower courts violated Presidential
Decree No. 385, the Court agrees with the ruling of the CA. Presidential Decree No. 385 was
issued primarily to see to it that government financial institutions are not denied substantial cash
inflows which are necessary to finance development projects all over the country, by large
borrowers who, when they become delinquent, resort to court actions in order to prevent or delay
the governments collection of their debts and loans.
66

The government, however, is bound by basic principles of fairness and decency under the due
process clause of the Bill of Rights. Presidential Decree No. 385 does not provide the
government blanket authority to unqualifiedly impose the mandatory provisions of the decree
without due regard to the constitutional rights of the borrowers. In fact, it is required that a
hearing first be conducted to determine whether or not 20% of the outstanding arrearages has
been paid, as a prerequisite for the issuance of a temporary restraining order or a writ of
preliminary injunction. Hence, the trial court can, on the basis of the evidence then in its
possession, make a provisional determination on the matter of the actual existence of the
arrearages and the amount on which the 20% requirement is to be computed. Consequently,
Presidential Decree No. 385 cannot be invoked where the extent of the loan actually received by
the borrower is still to be determined.
67

Finally, respondents allegation that PMO is engaged in forum shopping is untenable. Forum
shopping is the act of a party, against whom an adverse judgment has been rendered in one
forum, of seeking another and possibly favorable opinion in another forum by appeal or a special
civil action of certiorari.
68
As correctly pointed out by PMO, the present petition is merely an
appeal from the adverse decision rendered in the same action where it was impleaded as co-
defendant with DBP. That DBP opted to file a motion for reconsideration with the CA rather
than a direct appeal to this Court does not bar PMO from seeking relief from the judgment by
taking the latter course of action.
It must be remembered that PMO was impleaded as party defendant through the amended
complaint
69
dated November 25, 1987. Persons made parties-defendants via a supplemental
complaint possess locus standi or legal personality to seek a review by the Court of the decision
by the CA which they assail even if their co-defendants did not appeal the said ruling of the
appellate court.
70
Even assuming that separate actions have been filed by two different parties
involving essentially the same subject matter, no forum shopping is committed where the parties
did not resort to multiple judicial remedies.
71

In any event, the Court deems it fit to put an end to this controversy and to finally adjudicate the
rights and obligations of the parties in the interest of a speedy dispensation of justice, taking into
account the length of time this action has been pending with the courts as well as in light of the
fact that PMO is the real party-in-interest in this case, being the successor-in-interest of DBP.
WHEREFORE, the petition is PARTLY GRANTED and the assailed Decision dated May 7,
1999 rendered by the Court of Appeals in CA-G.R. CV No. 49239 is REVERSED AND SET
ASIDE. The case is hereby remanded to the trial court for determination of the total amount of
the respondents obligation based on the promissory notes dated December 11, 1980, June 5,
1981 and December 16, 1981 according to the interest rate agreed upon by the parties or the
interest rate of 12% per annum, whichever is lower.
No costs.
SO ORDERED.
________
G.R. No. 150866 March 6, 2006
MANUEL MALLARI and MILLIE MALLARI, Petitioners,
vs.
REBECCA ALSOL, Respondent.
D E C I S I O N
CARPIO, J .:
The Case
Before the Court is a petition for review
1
assailing the 9 August 2001 Decision
2
and 12
November 2001 Resolution
3
of the Court of Appeals in CA-G.R. CV No. 52681. The Court of
Appeals affirmed with modification the 8 November 1995 Decision
4
of the Regional Trial Court
of Cabanatuan City, Nueva Ecija, Branch 27 ("trial court") in Civil Case No. 870-AF.
The Antecedent Facts
Stalls No. 7 and 8 of the Supermarket Section of the Cabanatuan City Public Market were
awarded to and occupied by Abelardo Mallari ("Abelardo"), father of Manuel Mallari
("Manuel") and Rebecca Alsol ("respondent"). Before Abelardos death on 16 July 1986, he gave
the stalls to Manuel and respondent. Manuel and his wife Millie Mallari ("petitioners") occupied
Stall No. 7 while respondent and her husband Zacarias Alsol occupied Stall No. 8.
In July 1988, respondents daughter became sick and the Alsol family had to stay in Manila for
two months for the medical treatment. They returned to Cabanatuan City in September 1988 only
to find out that petitioners were already occupying Stall No. 8. The partition between Stalls No. 7
and 8 had been removed and respondents merchandise and things were already gone. Petitioners
refused respondents demand to vacate Stall No. 8.
Respondent sought the help of the City Market Committee ("Committee"). On 5 May 1989, the
Committee passed Kapasiyahan Blg. 1, s-1989 granting Stall No. 7 to Manuel and Stall No. 8 to
respondent. On 4 June 1990, respondent and the City Government of Cabanatuan ("City
Government"), represented by City Mayor Honorato C. Perez ("Mayor Perez"), executed a
Contract of Lease ("Lease Contract"). The Lease Contract granted respondent the right to occupy
Stall No. 8 for a monthly rental of P316 subject to increase or decrease in accordance with the
rules and ordinances of the City Government.
However, petitioners still refused to vacate Stall No. 8. Instead, they filed an action for
annulment of the Lease Contract before the Regional Trial Court of Cabanatuan City, Branch 29
("Branch 29"). The case was docketed as Civil Case No. 789-AF. In its Order of 25 May 1990,
Branch 29 dismissed the case for non-exhaustion of administrative remedies and on the
additional ground that the Committee is not the proper party to the case.
5

On 17 October 1990, respondent filed an action for recovery and possession before the trial
court. On 8 November 1995, the trial court rendered judgment, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in favor of
the plaintiff and against the defendants, by:
a) Declaring the plaintiff as the rightful awardee of Stall No. 8, Building A, Cabanatuan
Public Market and ordering the defendants, or any person acting in their behalf, to vacate
said Stall No. 8 and relinquish the possession thereof to the plaintiff;
b) Condemning the defendants to pay to the plaintiff the sum of P18,000.00, representing
the value of the merchandize [sic] and items taken by the defendants from said Stall No.
8;
c) Ordering the defendants to pay to the plaintiff the following amounts:
(1) P10,000.00 - as attorneys fees; and
(2) P20,000.00 - as exemplary and punitive damages; and
d) Awarding costs in favor of the plaintiff.
SO ORDERED.
6

Petitioners appealed the trial courts Decision to the Court of Appeals.
The Ruling of the Court of Appeals
In its 9 August 2001 Decision, the Court of Appeals partly granted the appeal and affirmed the
trial courts Decision with modification. The Court of Appeals sustained respondents right to
occupy Stall No. 8 by virtue of the Lease Contract she entered with the City Government.
However, the Court of Appeals deleted the award of actual damages amounting to P18,000 in
favor of respondent on the ground that there was no sufficient proof of the loss. The Court of
Appeals also deleted the award of exemplary damages to respondent amounting to P20,000.
Petitioners moved for reconsideration of the Court of Appealss Decision. In its 12 November
2001 Resolution, the Court of Appeals denied the motion for reconsideration for lack of merit.
Hence, the petition before this Court.
The Issues
Petitioners raise the following issues:
1. Whether respondent is the proper awardee of Stall No. 8.
2. Whether the Lease Contract executed between respondent and the City Government is
valid.
3. Whether respondent is entitled to attorneys fees.
The Ruling of This Court
The petition has no merit.
Ruling on Whether Respondent is the Proper Awardee of
Stall No. 8 is Premature
The Court of Appeals pointed out that when the Committee awarded Stall No. 8 to respondent,
petitioners filed an appeal before the Secretary of Finance questioning the award. In their appeal,
petitioners alleged that respondent failed to comply with the conditions set by the Committee.
The appeal was still pending when the Court of Appeals promulgated the assailed Decision.
Petitioners admitted in their Memorandum the pendency of the appeal.
7
Hence, the Court may
not at this time rule on whether respondent is the proper awardee of Stall No. 8. Any resolution
on this question will preempt whatever ruling the Secretary of Finance may issue on the pending
appeal.
Validity of the Lease Contract
Respondent and the City Government executed the Lease Contract on 4 June 1990 prior to
petitioners filing of appeal before the Secretary of Finance. The pendency of the appeal does not
affect the validity of the lease. As the Court of Appeals ruled, the Lease Contract remains valid
until revoked by the City Government or annulled by the proper court in a proper action.
Petitioners insist that the Lease Contract is not valid because the City Treasurer should have
signed the Lease Contract and not Mayor Perez. Petitioners allege that the Court of Appeals
erred in applying Republic Act No. 7160
8
("RA 7160"), otherwise known as the Local
Government Code of 1991, which took effect on 1 January 1992 or long after the execution of
the Lease Contract on 4 June 1990. Petitioners further allege that granting Mayor Perez has the
authority to sign the Lease Contract, Mayor Perez did not appear before the notary public who
notarized the Lease Contract. Hence, the Lease Contract did not produce any right in favor of
respondent.
The Court agrees with petitioners that RA 7160 is not the applicable law. Instead, the Court of
Appeals should have applied Batas Pambansa Blg. 337
9
("BP 337") or the old Local Government
Code. Still, even under BP 337, city mayors have the authority to sign contracts on behalf of city
governments.
Under Section 171(2), Article One, Chapter 3 of BP 337, the powers and duties of the city mayor
are as follows:
Sec. 171. Chief Executive; Compensation, Powers and Duties.
x x x x
(2) The city mayor shall:
(a) Take care that the laws of the Philippines and the ordinances and resolutions of the
city are duly observed and enforced;
(b) Maintain peace and order in the city, and in pursuance thereof, he shall be entitled to
possess and carry the necessary firearms within its territorial jurisdiction, subject to
existing rules and regulations on the possession and carrying of firearms;
(c) Prepare and submit to the sangguniang panlungsod the annual budget of the city for
the ensuing calendar year on the date and in the manner provided and prescribed by law;
(d) See to it that executive officers and employees of the city faithfully discharge their
respective duties, and for the purpose, cause, if necessary, the institution and filing of
appropriate criminal or administrative action;
(e) Furnish the sangguniang panlungsod from time to time, such information and
recommend such measures as he shall deem appropriate or necessary;
(f) Examine the books, records, and papers of all offices, officers, agents or employees of
the city;
(g) Represent the city in its business transactions, and sign all warrants drawn on the city
treasury and all bonds, contracts and obligations of the city;
(h) Appoint, in accordance with civil service law, rules and regulations, all officers and
employees of the city, whose appointments are not otherwise provided in this Code;
(i) Cause to be instituted judicial proceedings to recover property and funds of the city
wherever found, and cause to be defended all suits against the city, or otherwise protect
its interests;
(j) As soon as possible but not later than March 31 of each year, prepare and submit to
the Ministry of Local Government an annual report covering the operation of the city
government during the preceding calendar year;
(k) Ensure that all taxes and other revenues of the city are collected, and the city funds
applied in accordance with law or ordinance to the payment and settlement of the city
expenses and obligations;
(l) Exempt, upon the recommendation of the superintendent of city schools, deserving but
financially disadvantaged students from the payment of tuition and other school fees or
any part thereof;
(m) Take such emergency measures as may be necessary to protect the public from fires,
prevent and mitigate the effects of floods, storms, earthquakes and other public
calamities;
(n) Grant or refuse to grant, pursuant to law, city licenses or permits, and revoke the same
for violation of law or ordinance or the conditions upon which they are granted;
(o) Require owners of houses, buildings or other structures constructed without the
necessary permit or in violation of existing law or ordinance, to remove or demolish such
houses, buildings or structures within thirty days, or cause its removal or demolition at
the expense of the owner;
(p) Grant permits to hold benefits, excepting prohibited games of chance, for public and
charitable purposes without requiring approval of the Ministry of Social Services and
Development;
(q) Act on the commutation of vacation, sick and maternity leaves and of trips outside the
city of chiefs of offices appointed by him;
(r) Initiate appropriate action or proceedings against any national government official or
employee rendering service within the city to draw the attention of the corresponding
superior officer to the dereliction of the official or employee involved;
(s) Authorize payment of medical attendance, necessary transportation, subsistence, and
hospital fees of officials and employees of the city who suffer any injury arising out of or
in the course of their employment. Absence in such cases shall not be charged against any
leave credit;
(t) Approve the commutation of such transportation allowances as may be authorized by
law for chiefs of offices;
(u) Direct the preparation and formulation of the development plan and program of the
city, and upon approval of the sangguniang panlungsod, direct and supervise the
implementation and execution of the same;
(v) Call a meeting of any or all of the officers and employees of the city; and
(w) Perform such other duties and exercise such other powers as may be prescribed by
law or ordinance. (Emphasis supplied)
On the other hand, the powers and duties of the city treasurer are enumerated under Section
181(4), Article Five, Chapter 3 of BP 337, thus:
Sec. 181. Appointment, Qualifications, Compensation, Powers and Duties. x x x x
(4) The city treasurer shall:
(a) Advise the city mayor, the sangguniang panlungsod, other city officials, and the
national officers concerned with the disposition of property of the city government;
(b) Collect taxes throughout the city, including national, provincial and municipal taxes
and other revenues authorized by law;
(c) Take custody of and exercise supervision over all city funds and property, including
city buildings and grounds and, subject to the approval of the city mayor, assign rooms to
city officers and other public officials who by law are entitled to office space in the city
buildings;
(d) Make annual reports to the mayor of all income disbursements, and acquisition and
disposition of all assets of the city during the period, and furnish copies thereof to the
sangguniang panlungsod and to all department heads of the city government;
(e) Take charge of the disbursement of all city and other funds the custody of which may
be entrusted to him by law or other competent authority;
(f) Upon designation by the Minister of Finance, act as treasury fiscal examiner in the
city under the administrative authority of the Treasurer of the Philippines in accordance
with pertinent rules and regulations;
(g) Inspect, under the authority of the sangguniang panlungsod, the operation of public
utilities belonging to, leased or operated by, the city government, such as telegraph and
telephone, land and water transportation, waterworks, electric-light plants, irrigation
systems, bonded warehouses, ferries, slaughterhouses, and other commercial and
industrial enterprises of the city and all private commercial and industrial establishments
within the city in relation to city tax ordinances; and
(h) Perform such other duties as may be required by law or ordinance.
Applying BP 337, there is nothing in the powers and functions of the city treasurer that gives the
city treasurer authority to sign contracts for the city government. Instead, Paragraph (g), Section
171(2), Article One, Chapter 3 of BP 337 clearly provides that the city mayor shall represent the
city in its business transactions and sign contracts of the city. Hence, Mayor Perez has the
authority to sign the Lease Contract on behalf of the City Government. Even under the Revenue
Code of Cabanatuan City of 1974, the authority of the city treasurer is limited to direct and
immediate supervision, administration and control over the Cabanatuan public markets and its
personnel.
10
The city treasurer has the authority to designate spaces and stalls to vendors,
11
but
the authority does not include signing of contracts on behalf of the City Government.
Petitioners also allege that the Lease Contract is not valid because Mayor Perez did not appear
before the notary public who notarized the document.
We cannot sustain this argument.
Notarization converts a private document into a public document.
12
However, the non-
appearance of the parties before the notary public who notarized the document does not
necessarily nullify nor render the parties transaction void ab initio.
13
Thus:
x x x Article 1358 of the New Civil Code on the necessity of a public document is only for
convenience, not for validity or enforceability. Failure to follow the proper form does not
invalidate a contract. Where a contract is not in the form prescribed by law, the parties can
merely compel each other to observe that form, once the contract has been perfected. This is
consistent with the basic principle that contracts are obligatory in whatever form they may have
been entered into, provided all essential requisites are present.
14

Hence, the Lease Contract is valid despite Mayor Perezs failure to appear before the notary
public.
Award of Attorneys Fees
Article 2208 of the Civil Code provides:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens compensation and employers liability
laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
We agree with the Court of Appeals that the award of attorneys fees is justified. Petitioners
refused to vacate and turn over Stall No. 8 to respondent despite respondents repeated demands
and the existence of the Lease Contract between respondent and the City Government.
Respondent was left with no recourse but to litigate to protect her interest. Hence, we sustain the
award of attorneys fees amounting to P10,000 to respondent.
WHEREFORE, we DENY the petition. We AFFIRM the 9 August 2001 Decision and 12
November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 52681.
SO ORDERED.
__________
G.R. No. 190375 February 8, 2012
TAN SHUY, Petitioner,
vs.
Spouses GUILLERMO MAULAWIN and PARING CARIO-MAULAWIN, Respondents.
D E C I S I O N
SERENO, J .:
Before the Court is a Petition for Review on Certiorari filed under Rule 45 of the Rules of Court,
assailing the 31 July 2009 Decision and 13 November 2009 Resolution of the Court of Appeals
(CA).
1

Facts
Petitioner Tan Shuy is engaged in the business of buying copra and corn in the Fourth District of
Quezon Province. According to Vicente Tan (Vicente), son of petitioner, whenever they would
buy copra or corn from crop sellers, they would prepare and issue a pesada in their favor. A
pesada is a document containing details of the transaction, including the date of sale, the weight
of the crop delivered, the trucking cost, and the net price of the crop. He then explained that
when a pesada contained the annotation "pd" on the total amount of the purchase price, it meant
that the crop delivered had already been paid for by petitioner.
2

Guillermo Maulawin (Guillermo), respondent in this case, is a farmer-businessman engaged in
the buying and selling of copra and corn. On 10 July 1997, Tan Shuy extended a loan to
Guillermo in the amount of P 420,000. In consideration thereof, Guillermo obligated himself to
pay the loan and to sell lucad or copra to petitioner. Below is a reproduction of the contract:
3

N
o
2567 Lopez, Quezon July 10, 1997
Tinanggap ko kay G. TAN SHUY ang halagang
. (P420,000.00)
salaping Filipino. Inaako ko na isusulit sa kanya ang aking LUCAD at
babayaran ko ang nasabing halaga. Kung hindi ako makasulit ng LUCAD
o makabayad bago sumapit ang ., 19 maaari niya
akong ibigay sa may kapangyarihan. Kung ang pagsisingilan ay
makakarating sa Juzgado ay sinasagutan ko ang lahat ng kaniyang gugol.
P................ [Sgd. by respondent]
.
Lagda
Most of the transactions involving Tan Shuy and Guillermo were coursed through Elena Tan,
daughter of petitioner. She served as cashier in the business of Tan Shuy, who primarily prepared
and issued the pesada. In case of her absence, Vicente would issue the pesada. He also helped his
father in buying copra and granting loans to customers (copra sellers). According to Vicente, part
of their agreement with Guillermo was that they would put the annotation "sulong" on the pesada
when partial payment for the loan was made.
Petitioner alleged that despite repeated demands, Guillermo remitted only P 23,000 in August
1998 and P 5,500 in October 1998, or a total of P 28,500.
4
He claimed that respondent had an
outstanding balance of P 391,500. Thus, convinced that Guillermo no longer had the intention to
pay the loan, petitioner brought the controversy to the Lupon Tagapamayapa. When no
settlement was reached, petitioner filed a Complaint before the Regional Trial Court (RTC).
Respondent Guillermo countered that he had already paid the subject loan in full. According to
him, he continuously delivered and sold copra to petitioner from April 1998 to April 1999.
Respondent said they had an oral arrangement that the net proceeds thereof shall be applied as
installment payments for the loan. He alleged that his deliveries amounted to P 420,537.68 worth
of copra. To bolster his claim, he presented copies of pesadas issued by Elena and Vicente. He
pointed out that the pesadas did not contain the notation "pd," which meant that actual payment
of the net proceeds from copra deliveries was not given to him, but was instead applied as loan
payment. He averred that Tan Shuy filed a case against him, because petitioner got mad at him
for selling copra to other copra buyers.
On 27 July 2007, the trial court issued a Decision, ruling that the net proceeds from Guillermos
copra deliveries represented in the pesadas, which did not bear the notation "pd" should be
applied as installment payments for the loan. It gave weight and credence to the pesadas, as their
due execution and authenticity was established by Elena and Vicente, children of petitioner.
5

However, the court did not credit the net proceeds from 12 pesadas, as they were deliveries for
corn and not copra. According to the RTC, Guillermo himself testified that it was the net
proceeds from the copra deliveries that were to be applied as installment payments for the loan.
Thus, it ruled that the total amount of P 41,585.25, which corresponded to the net proceeds from
corn deliveries, should be deducted from the amount of P 420,537.68 claimed by Guillermo to be
the total value of his copra deliveries. Accordingly, the trial court found that respondent had not
made a full payment for the loan, as the total creditable copra deliveries merely amounted to P
378,952.43, leaving a balance of P 41,047.57 in his loan.
6

On 31 July 2009, the CA issued its assailed Decision, which affirmed the finding of the trial
court. According to the appellate court, petitioner could have easily belied the existence of the
pesadas and the purpose for which they were offered in evidence by presenting his daughter
Elena as witness; however, he failed to do so. Thus, it gave credence to the testimony of
respondent Guillermo in that the net proceeds from the copra deliveries were applied as
installment payments for the loan.
7
On 13 November 2009, the CA issued its assailed Resolution,
which denied the Motion for Reconsideration of petitioner.
Petitioner now assails before this Court the aforementioned Decision and Resolution of the CA
and presents the following issues:
Issues
1. Whether the pesadas require authentication before they can be admitted in evidence,
and
2. Whether the delivery of copra amounted to installment payments for the loan obtained
by respondents from petitioner.
Discussion
As regards the first issue, petitioner asserts that the pesadas should not have been admitted in
evidence, since they were private documents that were not duly authenticated.
8
He further
contends that the pesadas were fabricated in order to show that the goods delivered were copra
and not corn. Finally, he argues that five of the pesadas mentioned in the Formal Offer of
Evidence of respondent were not actually offered.
9

With regard to the second issue, petitioner argues that respondent undertook two separate
obligations (1) to pay for the loan in cash and (2) to sell the latters lucad or copra. Since their
written agreement did not specifically provide for the application of the net proceeds from the
deliveries of copra for the loan, petitioner contends that he cannot be compelled to accept copra
as payment for the loan. He emphasizes that the pesadas did not specifically indicate that the net
proceeds from the copra deliveries were to be used as installment payments for the loan. He also
claims that respondents copra deliveries were duly paid for in cash, and that the pesadas were in
fact documentary receipts for those payments.
We reiterate our ruling in a line of cases that the jurisdiction of this Court, in cases brought
before it from the CA, is limited to reviewing or revising errors of law.
10
Factual findings of
courts, when adopted and confirmed by the CA, are final and conclusive on this Court except if
unsupported by the evidence on record.
11
There is a question of fact when doubt arises as to the
truth or falsehood of facts; or when there is a need to calibrate the whole evidence, considering
mainly the credibility of the witnesses and the probative weight thereof, the existence and
relevancy of specific surrounding circumstances, as well as their relation to one another and to
the whole, and the probability of the situation.
12

Here, a finding of fact is required in the ascertainment of the due execution and authenticity of
the pesadas, as well as the determination of the true intention behind the parties oral agreement
on the application of the net proceeds from the copra deliveries as installment payments for the
loan.
13
This function was already exercised by the trial court and affirmed by the CA. Below is a
reproduction of the relevant portion of the trial courts Decision:
x x x The defendant further averred that if in the receipts or "pesadas" issued by the plaintiff to
those who delivered copras to them there is a notation "pd" on the total amount of purchase price
of the copras, it means that said amount was actually paid or given by the plaintiff or his
daughter Elena Tan Shuy to the seller of the copras. To prove his averments the defendant
presented as evidence two (2) receipts or pesadas issued by the plaintiff to a certain "Cario"
(Exhibits "1" and "2" defendant) showing the notation "pd" on the total amount of the purchase
price for the copras. Such claim of the defendant was further bolstered by the testimony of
Apolinario Cario which affirmed that he also sell copras to the plaintiff Tan Shuy. He also
added that he incurred indebtedness to the plaintiff and whenever he delivered copras the amount
of the copras sold were applied as payments to his loan. The witness also pointed out that the
plaintiff did not give any official receipts to those who transact business with him (plaintiff).
This Court gave weight and credence to the documents receipts (pesadas) (Exhibits "3" to "64")
offered as evidence by the defendant which does not bear the notation "pd" or paid on the total
amount of the purchase price of copras appearing therein. Although said "pesadas" were private
instrument their execution and authenticity were established by the plaintiffs daughter Elena
Tan and sometimes by plaintiffs son Vicente Tan. x x x.
14
(Emphasis supplied)
In affirming the finding of the RTC, the CA reasoned thus:
In his last assigned error, plaintiff-appellant herein impugns the conclusion arrived at by the trial
court, particularly with respect to the giving of evidentiary value to Exhs. "3" to "64" by the
latter in order to prove the claim of defendant-appellee Guillermo that he had fully paid the
subject loan already.
The foregoing deserves scant consideration.
Here, plaintiff-appellant could have easily belied the existence of Exhs. "3" to "64", the pesadas
or receipts, and the purposes for which they were offered in evidence by simply presenting his
daughter, Elena Tan Shuy, but no effort to do so was actually done by the former given that
scenario.
15
(Emphasis supplied)
We found no clear showing that the trial court and the CA committed reversible errors of law in
giving credence and according weight to the pesadas presented by respondents. According to
Rule 132, Section 20 of the Rules of Court, there are two ways of proving the due execution and
authenticity of a private document, to wit:
SEC. 20. Proof of private document. Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be. (21a)
As reproduced above, the trial court found that the due execution and authenticity of the pesadas
were "established by the plaintiffs daughter Elena Tan and sometimes by plaintiffs son Vicente
Tan."
16
The RTC said:
On cross-examination, [Vicente] reiterated that he and her [sic] sister Elena Tan who acted as
their cashier are helping their father in their business of buying copras and mais. That witness
agreed that in the business of buying copra and mais of their father, if a seller is selling copra, a
pesada is being issued by his sister. The pesada that she is preparing consists of the date when
the copra is being sold to the seller. Being familiar with the penmanship of Elena Tan, the
witness was shown a sample of the pesada issued by his sister Elena Tan. x x x
x x x x x x x x x
x x x. He clarified that in the "pesada" (Exh. "1") prepared by Elena and also in Exh "2", there
appears on the lower right hand portion of the said pesadas the letter "pd", the meaning of which
is to the effect that the seller of the copra has already been paid during that day. He also
confirmed the penmanship and handwriting of his sister Ate Elena who acted as a cashier in the
pesada being shown to him. He was even made to compare the xerox copies of the pesadas with
the original copies presented to him and affirmed that they are faithful reproduction of the
originals.
17
(Emphasis supplied)
In any event, petitioner is already estopped from questioning the due execution and authenticity
of the pesadas.1wphi1 As found by the CA, Tan Shuy "could have easily belied the existence of
x x x the pesadas or receipts, and the purposes for which they were offered in evidence by simply
presenting his daughter, Elena Tan Shuy, but no effort to do so was actually done by the former
given that scenario." The pesadas having been admitted in evidence, with petitioner failing to
timely object thereto, these documents are already deemed sufficient proof of the facts contained
therein.
18
We hereby uphold the factual findings of the RTC, as affirmed by the CA, in that the
pesadas served as proof that the net proceeds from the copra deliveries were used as installment
payments for the debts of respondents.
19

Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or
performance. There is payment when there is delivery of money or performance of an
obligation.
20
Article 1245 of the Civil Code provides for a special mode of payment called dation
in payment (dacin en pago). There is dation in payment when property is alienated to the
creditor in satisfaction of a debt in money.
21
Here, the debtor delivers and transmits to the
creditor the formers ownership over a thing as an accepted equivalent of the payment or
performance of an outstanding debt.
22
In such cases, Article 1245 provides that the law on sales
shall apply, since the undertaking really partakes in one sense of the nature of sale; that is,
the creditor is really buying the thing or property of the debtor, the payment for which is to be
charged against the debtors obligation.
23
Dation in payment extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed upon by the parties or as may be
proved, unless the parties by agreement express or implied, or by their silence consider the
thing as equivalent to the obligation, in which case the obligation is totally extinguished.
24

The trial court found thus:
x x x [T]he preponderance of evidence is on the side of the defendant. x x x The defendant
explained that for the receipts (pesadas) from April 1998 to April 1999 he only gets the payments
for trucking while the total amount which represent the total purchase price for the copras that he
delivered to the plaintiff were all given to Elena Tan Shuy as installments for the loan he owed to
plaintiff. The defendant further averred that if in the receipts or "pesadas" issued by the plaintiff
to those who delivered copras to them there is a notation "pd" on the total amount of purchase
price of the copras, it means that said amount was actually paid or given by the plaintiff or his
daughter Elena Tan Shuy to the seller of the copras. To prove his averments the defendant
presented as evidence two (2) receipts or pesadas issued by the plaintiff to a certain "Cario"
(Exhibits "1" and "2" defendant) showing the notation "pd" on the total amount of the purchase
price for the copras. Such claim of the defendant was further bolstered by the testimony of
Apolinario Cario which affirmed that he also sell [sic] copras to the plaintiff Tan Shuy. He also
added that he incurred indebtedness to the plaintiff and whenever he delivered copras the amount
of the copras sold were applied as payments to his loan. The witness also pointed out that the
plaintiff did not give any official receipts to those who transact business with him (plaintiff). x x
x
Be that it may, this Court cannot however subscribe to the averments of the defendant that he has
fully paid the amount of his loan to the plaintiff from the proceeds of the copras he delivered to
the plaintiff as shown in the "pesadas" (Exhibits "3" to "64"). Defendant claimed that based on
the said "pesadas" he has paid the total amount of P420,537.68 to the plaintiff. However, this
Court keenly noted that some of the "pesadas" offered in evidence by the defendant were not for
copras that he delivered to the plaintiff but for "mais" (corn). The said pesadas for mais or corn
were the following, to wit:
x x x x x x x x x
To the mind of this Court the aforestated amount (P41,585.25) which the above listed pesadas
show as payment for mais or corn delivered by the defendant to the plaintiff cannot be claimed
by the defendant to have been applied also as payment to his loan with the plaintiff because he
does not testify on such fact. He even stressed during his testimony that it was the proceeds from
the copras that he delivered to the plaintiff which will be applied as payments to his loan. x x x
Thus, equity dictates that the total amount of P41,585.25 which corresponds to the payment for
"mais" (corn) delivered by the plaintiff shall be deducted from the total amount of P420,537.68
which according to the defendant based on the pesadas (Exhibits "3" to "64") that he presented as
evidence, is the total amount of the payment that he made for his loan to the plaintiff. x x x
x x x x x x x x x
Clearly from the foregoing, since the total amount of defendants loan to the plaintiff is
P420,000.00 and the evidence on record shows that the actual amount of payment made by the
defendant from the proceeds of the copras he delivered to the plaintiff is P378,952.43, the
defendant is still indebted to the plaintiff in the amount of P41,047.53 (sic) (P420,000.00-
P378,952.43).
25
(Emphasis supplied)
In affirming this finding of fact by the trial court, the CA cited the above-quoted portion of the
RTCs Decision and stated the following:
In fact, as borne by the records on hand, herein defendant-appellee Guillermo was able to
describe and spell out the contents of Exhs. "3" to "64" which were then prepared by Elena Tan
Shuy or sometimes by witness Vicente Tan. Herein defendant-appellee Guillermo professed that
since the release of the subject loan was subject to the condition that he shall sell his copras to
the plaintiff-appellant, the former did not already receive any money for the copras he delivered
to the latter starting April 1998 to April 1999. Hence, this Court can only express its approval to
the apt observation of the trial court on this matter[.]
x x x x x x x x x
Notwithstanding the above, however, this Court fully agrees with the pronouncement of the trial
court that not all amounts indicated in Exhs. "3" to "64" should be applied as payments to the
subject loan since several of which clearly indicated "mais" deliveries on the part of defendant-
appellee Guillermo instead of "copras"[.]
26
(Emphasis supplied)
The subsequent arrangement between Tan Shuy and Guillermo can thus be considered as one in
the nature of dation in payment. There was partial payment every time Guillermo delivered copra
to petitioner, chose not to collect the net proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy. We therefore uphold the findings
of the trial court, as affirmed by the CA, that the net proceeds from Guillermos copra deliveries
amounted to P 378,952.43. With this partial payment, respondent remains liable for the balance
totaling P 41,047.57.
27

WHEREFORE the Petition is DENIED. The 31 July 2009 Decision and 13 November 2009
Resolution of the Court of Appeals in CA-G.R. CV No. 90070 are hereby AFFIRMED.
SO ORDERED.
____________
G.R. No. 168646 January 12, 2011
LUZON DEVELOPMENT BANK, Petitioner,
vs.
ANGELES CATHERINE ENRIQUEZ, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 168666
DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner,
vs.
ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK,
Respondents.
D E C I S I O N
DEL CASTILLO, J .:
The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or
The Subdivision and Condominium Buyers Protective Decree will not be defeated by someone
who is not an innocent purchaser for value. The lofty aspirations of PD 957 should be read in
every provision of the statute, in every contract that undermines its objects, in every transaction
which threatens its fruition. "For a statute derives its vitality from the purpose for which it is
enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or
destroy the law."
1

These cases involve the separate appeals of Luzon Development Bank
2
(BANK) and Delta
Development and Management Services, Inc.
3
(DELTA) from the November 30, 2004 Decision
of the Court of Appeals (CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280.
The dispositive portion of the assailed Decision reads:
WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated
November 24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and
Management Services, Inc. is liable and directed to pay petitioner Luzon Development Bank the
value of the subject lot subject matter of the Contract to Sell between Delta Development and
Management Services, Inc. and the private respondent [Catherine Angeles Enriquez].
SO ORDERED.
4

Factual Antecedents
The BANK is a domestic financial corporation that extends loans to subdivision
developers/owners.
5

Petitioner DELTA is a domestic corporation engaged in the business of developing and selling
real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De
Leon (De Leon),
6
who is the registered owner of a parcel of land covered by Transfer Certificate
of Title (TCT) No. T-637183
7
of the Registry of Deeds of the Province of Cavite, which
corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases.
On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the
express purpose of developing Delta Homes I.
8
To secure the loan, the spouses De Leon
executed in favor of the BANK a real estate mortgage (REM) on several of their properties,
9

including Lot 4. Subsequently, this REM was amended
10
by increasing the amount of the secured
loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT
No. T-637183.
11

DELTA then obtained a Certificate of Registration
12
and a License to Sell
13
from the Housing
and Land Use Regulatory Board (HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine
Enriquez (Enriquez)
14
over the house and lot in Lot 4 for the purchase price of P614,950.00.
Enriquez made a downpayment of P114,950.00. The Contract to Sell contained the following
provisions:
That the vendee/s offered to buy and the Owner agreed to sell the above-described property
subject to the following terms and conditions to wit:
x x x x
6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided,
however, that for failure to pay three (3) successive monthly installment payments, the Owner
may consider this Contract to Sell null and void ab initio without further proceedings or court
action and all payments shall be forfeited in favor of the Owner as liquidated damages and
expenses for documentations. x x x
That upon full payment of the total consideration if payable in cash, the Owner shall execute a
final deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain
period of time, only upon full payment of the total consideration that a final deed of sale shall be
executed by the Owner in favor of the Vendee/s.
15

When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM,
agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt
was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and conveys
and sets over [to] the assignee that real estate with the building and improvements existing
thereon x x x in payment of the total obligation owing to [the Bank] x x x."
16
Unknown to
Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,
17
which is
the subject of her Contract to Sell with DELTA. The records do not bear out and the parties are
silent on whether the BANK was able to transfer title to its name. It appears, however, that the
dacion en pago was not annotated on the TCT of Lot 4.
18

On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the
Region IV Office of the HLURB
19
alleging that DELTA violated the terms of its License to Sell
by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP)
Bilang 220;
20
and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez
sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages,
and the imposition of administrative fines on DELTA and the BANK.
In his June 1, 2000 Decision,
21
HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity
of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from
Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from
liens and encumbrances. The dispositive portion reads:
WHEREFORE, premises considered, a decision is hereby rendered as follows:
1. Ordering [DELTA] to accept complainant[]s payments in the amount of P108,013.36
representing her balance based on the maximum selling price of P375,000.00;
2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free
from any liens and encumbrances;
3. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of
moral damages;
4. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of
exemplary damages;
5. Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and
6. Respondent DELTA to pay administrative fine of P10,000.00
[22]
for violation of
Section 18 of P.D. 957
[23]
and another P10,000.00 for violation of Section 22 of P.D.
957.
[24

SO ORDERED.
25

DELTA appealed the arbiters Decision to the HLURB Board of Commissioners.
26
DELTA
questioned the imposition of an administrative fine for its alleged violation of Section 18 of PD
957. It argued that clearance was not required for mortgages that were constituted on a
subdivision project prior to registration. According to DELTA, it did not violate the terms of its
license because it did not obtain a new mortgage over the subdivision project. It likewise assailed
the award of moral and exemplary damages to Enriquez on the ground that the latter has no
cause of action.
27

Ruling of the Board of Commissioners (Board)
28

The Board held that all developers should obtain a clearance for mortgage from the HLURB,
regardless of the date when the mortgage was secured, because the law does not distinguish.
Having violated this legal requirement, DELTA was held liable to pay the administrative fine.
The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the
alleged violation of the price ceilings in BP 220. The Board held that DELTA and Enriquez were
presumed to have had a meeting of the minds on the object of the sale and the purchase price.
Absent any circumstance vitiating Enriquezconsent, she was presumed to have willingly and
voluntarily agreed to the higher purchase price; hence, she was bound by the terms of the
contract.
The Board, however, deleted the arbiters award of damages to Enriquez on the ground that the
latter was not free from liability herself, given that she was remiss in her monthly amortizations
to DELTA.
The dispositive portion of the Boards Decision reads:
Wherefore, in view of the foregoing, the Office belows decision dated June 01, 2000 is hereby
modified to read as follows:
1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended
payment up to filing of the complaint with 12% interest thereon per annum; thereafter the
provisions of the Contract to Sell shall apply until full payment is made;
2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation of its
license to sell and for violation of Section 18 of P.D. 957.
SO ORDERED. Quezon City.
29

Enriquez moved for a reconsideration of the Boards Decision
30
upholding the contractual
purchase price. She maintained that the price for Lot 4 should not exceed the price ceiling
provided in BP 220.
31
lawph!l
Finding Enriquezs arguments as having already been passed upon in the decision, the Board
denied reconsideration. The board, however, modified its decision, with respect to the period for
the imposition of interest payments. The Boards resolution
32
reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the
decision of our decision [sic] is MODIFIED as follows:
1. Ordering complainant to pay respondent DELTA the amount due from the time she
suspended (sic) at 12% interest per annum, reckoned from finality of this decision[,]
thereafter the provisions of the Contract to Sell shall apply until full payment is made.
In all other respects, the decision is AFFIRMED.
SO ORDERED.
33

Both Enriquez and the BANK appealed to the Office of the President (OP).
34
The BANK
disagreed with the ruling upholding Enriquezs Contract to Sell; and insisted on its ownership
over Lot 4. It argued that it has become impossible for DELTA to comply with the terms of the
contract to sell and to deliver Lot 4s title to Enriquez given that DELTA had already
relinquished all its rights to Lot 4 in favor of the BANK
35
via the dation in payment.
Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed
in BP 220.
36

Ruling of the Office of the President
37

The OP adopted by reference the findings of fact and conclusions of law of the HLURB
Decisions, which it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the
purchase price, in order to conform to the provisions of BP 220.
38
The motion was denied for
lack of merit.
39

Only the BANK appealed the OPs Decision to the CA.
40
The BANK reiterated that DELTA can
no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of
the dacion en pago.
41
As an alternative argument, in case the appellate court should find that
DELTA retained ownership over Lot 4 and could convey the same to Enriquez, the BANK
prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it first
before it could convey the same to Enriquez in accordance with Section 25
42
of PD 957.
43

The BANK likewise sought an award of exemplary damages and attorneys fees in its favor
because of the baseless suit filed by Enriquez against it.
44

45

The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the
ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via
the Contract to Sell.
46

Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA
remained indebted to the BANK to the extent of Lot 4s value. Thus, the CA ordered DELTA to
pay the corresponding value of Lot 4 to the BANK.
47

The CA also rejected the BANKs argument that, before DELTA can deliver the title to Lot 4 to
Enriquez, DELTA should first redeem the mortgaged property from the BANK. The CA held
that the BANK does not have a first lien on Lot 4 because its real estate mortgage over the same
had already been extinguished by the dacion en pago. Without a mortgage, the BANK cannot
require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.
48

The CA denied the BANKs prayer for the award of exemplary damages and attorneys fees for
lack of factual and legal basis.
49

Both DELTA
50
and the BANK
51
moved for a reconsideration of the CAs Decision, but both
were denied.
52

Hence, these separate petitions of the BANK and DELTA.
Petitioner Deltas arguments
53

DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to
Enriquez via the Contract to Sell. DELTA points out that the Contract to Sell contained a
condition that ownership shall only be transferred to Enriquez upon the latters full payment of
the purchase price to DELTA. Since Enriquez has yet to comply with this suspensive condition,
ownership is retained by DELTA.
54
As the owner of Lot 4, DELTA had every right to enter into
a dation in payment to extinguish its loan obligation to the BANK. The BANKs acceptance of
the assignment, without any reservation or exception, resulted in the extinguishment of the entire
loan obligation; hence, DELTA has no more obligation to pay the value of Enriquezs house and
lot to the BANK.
55

DELTA prays for the reinstatement of the OP Decision.
The BANKs arguments
56

Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a
conveyance of DELTAs ownership over Lot 4 to Enriquez. The Contract to Sell expressly
provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price.
Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and
could validly convey the same to the BANK via dacion en pago.
57

Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to
Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the
BANK. It maintains that the loan obligation extinguished by the dacion en pago only extends to
the value of the properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan
obligation of DELTA remains to the extent of Lot 4s value.
58

The BANK prays to be declared the rightful owner of the subject house and lot and asks for an
award of exemplary damages and attorneys fees.
Enriquezs waiver
Enriquez did not file comments
59
or memoranda in both cases; instead, she manifested that she
will just await the outcome of the case.
60

Issues
The following are the issues raised by the two petitions:
1. Whether the Contract to Sell conveys ownership;
2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK;
3. Whether the BANK is entitled to damages and attorneys fees for being compelled to
litigate; and
4. What is the effect of Enriquezs failure to appeal the OPs Decision regarding her
obligation to pay the balance on the purchase price.
Our Ruling
Mortgage contract void
As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of
PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without
prior clearance from the HLURB. This point need not be belabored since the parties have chosen
not to appeal the administrative fine imposed on DELTA for violation of Section 18.
This violation of Section 18 renders the mortgage executed by DELTA void. We have held
before that "a mortgage contract executed in breach of Section 18 of [PD 957] is null and
void."
61
Considering that "PD 957 aims to protect innocent subdivision lot and condominium
unit buyers against fraudulent real estate practices," we have construed Section 18 thereof as
"prohibitory and acts committed contrary to it are void."
62

Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right
arising therefrom. The BANKs loan of P8 million to DELTA has effectively become unsecured
due to the nullity of the mortgage. The said loan, however, was eventually settled by the two
contracting parties via a dation in payment. In the appealed Decision, the CA invalidated this
dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had
already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to
the BANK. This is error, prescinding from a wrong understanding of the nature of a contract to
sell.
Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of
Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the
prospective seller reserves the transfer of title to the prospective buyer until the happening of an
event, such as full payment of the purchase price. What the seller obliges himself to do is to sell
the subject property only when the entire amount of the purchase price has already been
delivered to him. "In other words, the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective
buyer."
63
It does not, by itself, transfer ownership to the buyer.
64

In the instant case, there is nothing in the provisions of the contract entered into by DELTA and
Enriquez that would exempt it from the general definition of a contract to sell. The terms thereof
provide for the reservation of DELTAs ownership until full payment of the purchase price; such
that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay
three successive monthly amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership
remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another
person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to
respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision
lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers
such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in
order to make it binding on third parties. Thus, Section 17 of PD 957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments
relative to the sale or conveyance of the subdivision lots and condominium units, whether or not
the purchase price is paid in full, shall be registered by the seller in the Office of the Register of
Deeds of the province or city where the property is situated.
x x x x (Emphasis supplied.)
The purpose of registration is to protect the buyers from any future unscrupulous transactions
involving the object of the sale or contract to sell, whether the purchase price therefor has been
fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it
serves as a notice to the whole world that the property is subject to the prior right of the buyer of
the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with
the said property will be held bound by such prior right.
While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register
of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to
respect Enriquezs Contract to Sell. Despite the non-registration, the BANK cannot be
considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted
the latter (together with other assigned properties) as payment for DELTAs obligation. The
BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and
therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the
development of DELTAs subdivision project, for this was indicated in the corresponding
promissory notes. The technical description of Lot 4 indicates its location, which can easily be
determined as included within the subdivision development. Under these circumstances, the
BANK knew or should have known of the possibility and risk that the assigned properties were
already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by
the Court in another case involving a bank regarding a subdivision lot that was already subject of
a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a property subject of a real estate
development project. A reasonable person, particularly a financial institution x x x, should have
been aware that, to finance the project, funds other than those obtained from the loan could have
been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any
part of the property was already intended to be the subject of any other contract involving buyers
or potential buyers. In granting the loan, [the Bank] should not have been content merely with a
clean title, considering the presence of circumstances indicating the need for a thorough
investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot
be deemed to be an innocent mortgagee. x x x
65

Further, as an entity engaged in the banking business, the BANK is required to observe more
care and prudence when dealing with registered properties. The Court cannot accept that the
BANK was unaware of the Contract to Sell existing in favor of Enriquez. In Keppel Bank
Philippines, Inc. v. Adao,
66
we held that a bank dealing with a property that is already subject of
a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell
(even if the contract to sell in that case was not registered). In the Courts words:
It is true that persons dealing with registered property can rely solely on the certificate of title
and need not go beyond it. However, x x x, this rule does not apply to banks. Banks are required
to exercise more care and prudence than private individuals in dealing even with registered
properties for their business is affected with public interest. As master of its business, petitioner
should have sent its representatives to check the assigned properties before signing the
compromise agreement and it would have discovered that respondent was already occupying one
of the condominium units and that a contract to sell existed between [the vendee] and [the
developer]. In our view, petitioner was not a purchaser in good faith and we are constrained to
rule that petitioner is bound by the contract to sell.
67

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor
the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can
only collect the balance of the purchase price from Enriquez and has the obligation, upon full
payment, to deliver to Enriquez a clean title over the subject property.
68

Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the
obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the
dation in payment extinguished the loan only to the extent of the value of the thing delivered.
Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would
remain indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment
is paramount and controlling. The contractual intention determines whether the property subject
of the dation will be considered as the full equivalent of the debt and will therefore serve as full
satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement, express or implied, or by their silence, consider the thing as equivalent to
the obligation, in which case the obligation is totally extinguished."
69

In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear
intention by the parties that the assigned properties would serve as full payment for DELTAs
entire obligation:
KNOW ALL MEN BY THESE PRESENTS:
This instrument, made and executed by and between:
x x x x
THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of
ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT
HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25, 1998. Therefore, by
virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND
SETS OVER [TO] the ASSIGNEE that real estate with the building and improvements existing
thereon, more particularly described as follows:
x x x x
of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by
the Registry of Deeds of Trece Martires City.
THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE
TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;
70

Without any reservation or condition, the Dacion stated that the assigned properties served as full
payment of DELTAs "total obligation" to the BANK. The BANK accepted said properties as
equivalent of the loaned amount and as full satisfaction of DELTAs debt. The BANK cannot
complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by
existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were
subdivision lots and covered by PD 957. It was aware of the nature of DELTAs business, of the
location of the assigned properties within DELTAs subdivision development, and the possibility
that some of the properties may be subjects of existing contracts to sell which enjoy protection
under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due
diligence review to discover the status of the properties they deal with. It may thus be said that
the BANK, in accepting the assigned properties as full payment of DELTAs "total obligation,"
has assumed the risk that some of the assigned properties (such as Lot 4) are covered by
contracts to sell which it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales.
71
Contracts of sale come with warranties,
either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the
Civil Code). In this case, however, the BANK does not even point to any breach of warranty by
DELTA in connection with the Dation in Payment. To be sure, the Dation in Payment has no
express warranties relating to existing contracts to sell over the assigned properties. As to the
implied warranty in case of eviction, it is waivable
72
and cannot be invoked if the buyer knew of
the risks or danger of eviction and assumed its consequences.
73
As we have noted earlier, the
BANK, in accepting the assigned properties as full payment of DELTAs "total obligation," has
assumed the risk that some of the assigned properties are covered by contracts to sell which must
be honored under PD 957.
Award of damages
There is nothing on record that warrants the award of exemplary damages
74
as well as attorneys
fees
75
in favor of the BANK.
Balance to be paid by Enriquez
As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the
BANK.1avvphi1 Upon Enriquezs full payment of the balance of the purchase price, the BANK
is bound to deliver the title over Lot 4 to her. As to the amount of the balance which Enriquez
must pay, we adopt the OPs ruling thereon which sustained the amount stipulated in the
Contract to Sell. We will not review Enriquezs initial claims about the supposed violation of the
price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by
Enriquez, who chose not to file the required pleadings
76
before the Court. The parties were
informed in the Courts September 5, 2007 Resolution that issues that are not included in their
memoranda shall be deemed waived or abandoned. Since Enriquez did not file a memorandum in
either petition, she is deemed to have waived the said issue.
WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of
Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby
AFFIRMED with the MODIFICATIONS that Delta Development and Management Services,
Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the subject lot; and
respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and
the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development
Bank, instead of Delta Development and Management Services, Inc., within thirty (30) days
from finality of this Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN
TITLE to Angeles Catherine Enriquez upon the latters full payment of the balance of the
purchase price and the accrued interests.
SO ORDERED.
______________
G.R. No. 172825 October 11, 2012
SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners,
vs.
ANA MARIE CONCEPCION, Respondent.
D E C I S I O N
PERALTA, J .:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioners spouses Miniano B. Dela Cruz and Leta L. Dela Cruz against respondent Ana Marie
Concepcion are the Court of Appeals (CA) Decision
1
dated March 31, 2005 and Resolution
2

dated May 24, 2006 in CA-G.R. CV No. 83030.
The facts of the case are as follows:
On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell
3
with respondent (as
vendee) involving a house and lot in Cypress St., Phase I, Town and Country Executive Village,
Antipolo City for a consideration of P2,000,000.00 subject to the following terms and conditions:
a) That an earnest money of P100,000.00 shall be paid immediately;
b) That a full down payment of Four Hundred Thousand Pesos (P400,000.00) shall be
paid on February 29, 1996;
c) That Five Hundred Thousand Pesos (P500,000.00) shall be paid on or before May 5,
1996; and
d) That the balance of One Million Pesos (P1,000,000.00) shall be paid on installment
with interest of Eighteen Percent (18%) per annum or One and a half percent (1-1/2 %)
interest per month, based on the diminishing balance, compounded monthly, effective
May 6, 1996. The interest shall continue to run until the whole obligation shall have been
fully paid. The whole One Million Pesos shall be paid within three years from May 6,
1996;
e) That the agreed monthly amortization of Fifty Thousand Pesos (P50,000.00), principal
and interest included, must be paid to the Vendors, without need of prior demand, on or
before May 6, 1996, and every month thereafter. Failure to pay the monthly amortization
on time, a penalty equal to Five Percent (5%) of the amount due shall be imposed, until
the account is updated. In addition, a penalty of One Hundred Pesos per day shall be
imposed until the account is updated;
f) That after receipt of the full payment, the Vendors shall execute the necessary Absolute
Deed of Sale covering the house and lot mentioned above x x x
4

Respondent made the following payments, to wit: (1) P500,000.00 by way of downpayment; (2)
P500,000.00 on May 30, 1996; (3) P500,000.00 paid on January 22, 1997; and (4) P500,000.00
bounced check dated June 30, 1997 which was subsequently replaced by another check of the
same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of
P2,000,000.00.
5

Before respondent issued the P500,000.00 replacement check, she told petitioners that based on
the computation of her accountant as of July 6, 1997, her unpaid obligation which includes
interests and penalties was only P200,000.00.
6
Petitioners agreed with respondent and said "if
P200,000.00 is the correct balance, it is okay with us."
7

Meanwhile, the title to the property was transferred to respondent. Petitioners later reminded
respondent to pay P209,000.00 within three months.
8
They claimed that the said amount
remained unpaid, despite the transfer of the title to the property to respondent. Several months
later, petitioners made further demands stating the supposed correct computation of respondents
liabilities.
9
Despite repeated demands, petitioners failed to collect the amounts they claimed from
respondent. Hence, the Complaint for Sum of Money With Damages
10
filed with the Regional
Trial Court (RTC)
11
of Antipolo, Rizal. The case was docketed as Civil Case No. 98-4716.
In her Answer with Compulsory Counterclaim,
12
respondent claimed that her unpaid obligation
to petitioners is only P200,000.00 as earlier confirmed by petitioners and not P487,384.15 as
later alleged in the complaint. Respondent thus prayed for the dismissal of the complaint. By
way of counterclaim, respondent prayed for the payment of moral damages and attorneys fees.
During the presentation of the parties evidence, in addition to documents showing the statement
of her paid obligations, respondent presented a receipt purportedly indicating payment of the
remaining balance of P200,000.00 to Adoracion Losloso (Losloso) who allegedly received the
same on behalf of petitioners.
13

On March 8, 2004, the RTC rendered a Decision
14
in favor of respondent, the dispositive portion
of which reads:
WHEREFORE, premises considered, this case is hereby DISMISSED. The plaintiff is hereby
ordered to pay the defendants counterclaim, amounting to wit:
a) P300,000 as moral damages; and
b) P100,000 plus P2,000 per court appearance as attorneys fees.
SO ORDERED.
15

The RTC noted that the evidence formally offered by petitioners have not actually been marked
as none of the markings were recorded. Thus, it found no basis to grant their claims, especially
since the amount claimed in the complaint is different from that testified to. The court, on the
other hand, granted respondents counterclaim.
16

On appeal, the CA affirmed the decision with modification by deleting the award of moral
damages and attorneys fees in favor of respondent.
17
It agreed with the RTC that the evidence
presented by petitioners cannot be given credence in determining the correct liability of
respondent.
18
Considering that the purchase price had been fully paid by respondent ahead of the
scheduled date agreed upon by the parties, petitioners were not awarded the excessive penalties
and interests.
19
The CA thus maintained that respondents liability is limited to P200,000.00 as
claimed by respondent and originally admitted by petitioners.
20
This amount, however, had
already been paid by respondent and received by petitioners representative.
21
Finally, the CA
pointed out that the RTC did not explain in its decision why moral damages and attorneys fees
were awarded. Considering also that bad faith cannot be attributed to petitioners when they
instituted the collection suit, the CA deleted the grant of their counterclaims.
22

Aggrieved, petitioners come before the Court in this petition for review on certiorari under Rule
45 of the Rules of Court raising the following errors:
I.
"THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE
GROUND THAT PLAINTIFF FAILED TO FORMALLY OFFER THEIR EVIDENCE
AS DEFENDANT JUDICIALLY ADMITTED IN HER ANSWER WITH
COMPULS[O]RY COUNTERCLAIM HER OUTSTANDING OBLIGATION STILL
DUE TO PLAINTIFFS AND NEED NO PROOF.
II.
THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT FOR ALLEGED
FAILURE OF PLAINTIFFS TO PRESENT COMPUTATION OF THE AMOUNT
BEING CLAIMED AS DEFENDANT JUDICIALLY ADMITTED HAVING
RECEIVED THE DEMAND LETTER DATED OCTOBER 22, 1997 WITH
COMPUTATION OF THE BALANCE DUE.
III.
THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE
GROUND THAT THE DEFENDANT FULLY PAID THE CLAIMS OF PLAINTIFFS
BASED ON THE ALLEGED RECEIPT OF PAYMENT BY ADORACION LOSLOSO
FROM ANA MARIE CONCEPCION MAGLASANG WHICH HAS NOTHING TO DO
WITH THE JUDICIALLY ADMITTED OBLIGATION OF APPELLEE."
23

Invoking the rule on judicial admission, petitioners insist that respondent admitted in her Answer
with Compulsory Counterclaim that she had paid only a total amount of P2 million and that her
unpaid obligation amounts to P200,000.00.
24
They thus maintain that the RTC and the CA erred
in concluding that said amount had already been paid by respondent. Petitioners add that
respondents total liability as shown in the latters statement of account was erroneously
computed for failure to compound the monthly interest agreed upon.
25
Petitioners also claim that
the RTC and the CA erred in giving credence to the receipt presented by respondent to show that
her unpaid obligation had already been paid having been allegedly given to a person who was not
armed with authority to receive payment.
26

It is undisputed that the parties entered into a contract to sell a house and lot for a total
consideration of P2 million. Considering that the property was payable in installment, they
likewise agreed on the payment of interest as well as penalty in case of default. It is likewise
settled that respondent was able to pay the total purchase price of P2 million ahead of the agreed
term. Afterwhich, they agreed on the remaining balance by way of interest and penalties which is
P200,000.00. Considering that the term of payment was not strictly followed and the purchase
price had already been fully paid by respondent, the latter presented to petitioners her
computation of her liabilities for interests and penalties which was agreed to by petitioners.
Petitioners also manifested their conformity to the statement of account prepared by respondent.
In paragraph (9) of petitioners Complaint, they stated that:
9) That the Plaintiffs answered the Defendant as follows: "if P200,000 is the correct balance, it is
okay with us." x x x.
27

But in paragraph (17) thereof, petitioners claimed that defendants outstanding liability as of
November 6, 1997 was P487,384.15.
28
Different amounts, however, were claimed in their
demand letter and in their testimony in court.
With the foregoing factual antecedents, petitioners cannot be permitted to assert a different
computation of the correct amount of respondents liability.
It is noteworthy that in answer to petitioners claim of her purported unpaid obligation,
respondent admitted in her Answer with Compulsory Counterclaim that she paid a total amount
of P2 million representing the purchase price of the subject house and lot. She then manifested to
petitioners and conformed to by respondent that her only balance was P200,000.00. Nowhere in
her Answer did she allege the defense of payment. However, during the presentation of her
evidence, respondent submitted a receipt to prove that she had already paid the remaining
balance. Both the RTC and the CA concluded that respondent had already paid the remaining
balance of P200,000.00. Petitioners now assail this, insisting that the court should have
maintained the judicial admissions of respondent in her Answer with Compulsory Counterclaim,
especially as to their agreed stipulations on interests and penalties as well as the existence of
outstanding obligations.
It is, thus, necessary to discuss the effect of failure of respondent to plead payment of its
obligations.
Section 1, Rule 9 of the Rules of Court states that "defenses and objections not pleaded either in
a motion to dismiss or in the answer are deemed waived." Hence, respondent should have been
barred from raising the defense of payment of the unpaid P200,000.00. However, Section 5, Rule
10 of the Rules of Court allows the amendment to conform to or authorize presentation of
evidence, to wit:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of the merits of the action and
the ends of substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made.
The foregoing provision envisions two scenarios, namely, when evidence is introduced in an
issue not alleged in the pleadings and no objection was interjected; and when evidence is offered
on an issue not alleged in the pleadings but this time an objection was raised.
29
When the issue is
tried without the objection of the parties, it should be treated in all respects as if it had been
raised in the pleadings.
30
On the other hand, when there is an objection, the evidence may be
admitted where its admission will not prejudice him.
31

Thus, while respondent judicially admitted in her Answer that she only paid P2 million and that
she still owed petitioners P200,000.00, respondent claimed later and, in fact, submitted an
evidence to show that she already paid the whole amount of her unpaid obligation. It is
noteworthy that when respondent presented the evidence of payment, petitioners did not object
thereto. When the receipt was formally offered as evidence, petitioners did not manifest their
objection to the admissibility of said document on the ground that payment was not an issue.
Apparently, petitioners only denied receipt of said payment and assailed the authority of Losloso
to receive payment. Since there was an implied consent on the part of petitioners to try the issue
of payment, even if no motion was filed and no amendment of the pleading has been ordered,
32

the RTC cannot be faulted for admitting respondents testimonial and documentary evidence to
prove payment.
33

As stressed by the Court in Royal Cargo Corporation v. DFS Sports Unlimited, Inc.,
34

The failure of a party to amend a pleading to conform to the evidence adduced during trial does
not preclude adjudication by the court on the basis of such evidence which may embody new
issues not raised in the pleadings. x x x Although, the pleading may not have been amended to
conform to the evidence submitted during trial, judgment may nonetheless be rendered, not
simply on the basis of the issues alleged but also on the issues discussed and the assertions of
fact proved in the course of the trial. The court may treat the pleading as if it had been amended
to conform to the evidence, although it had not been actually amended. x x x Clearly, a court
may rule and render judgment on the basis of the evidence before it even though the relevant
pleading had not been previously amended, so long as no surprise or prejudice is thereby caused
to the adverse party. Put a little differently, so long as the basic requirements of fair play had
been met, as where the litigants were given full opportunity to support their respective
contentions and to object to or refute each other's evidence, the court may validly treat the
pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on
the basis of all the evidence before it. (Emphasis supplied)
35

To be sure, petitioners were given ample opportunity to refute the fact of and present evidence to
prove payment.
With the evidence presented by the contending parties, the more important question to resolve is
whether or not respondents obligation had already been extinguished by payment.
We rule in the affirmative as aptly held by the RTC and the CA.
Respondents obligation consists of payment of a sum of money. In order to extinguish said
obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil
Code, to wit:
Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. (Emphasis
supplied)
The Court explained in Cambroon v. City of Butuan,
36
cited in Republic v. De Guzman,
37
to
whom payment should be made in order to extinguish an obligation:
Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor who is without fault or negligence
even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or
through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be made to the
proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.
38

Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors
themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims that Losloso
was the authorized agent of petitioners, but the latter dispute it.
Loslosos authority to receive payment was embodied in petitioners Letter
39
addressed to
respondent, dated August 7, 1997, where they informed respondent of the amounts they
advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded
respondent of her remaining balance, together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, petitioners advised the latter to leave the payment
to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an express
authority given to Losloso to receive payment.
Moreover, as correctly held by the CA:
Furthermore, that Adoracion Losloso was indeed an agent of the appellant spouses is borne out
by the following admissions of plaintiff-appellant Atty. Miniano dela Cruz, to wit:
Q: You would agree with me that you have authorized this Doiry Losloso to receive payment of
whatever balance is due you coming from Ana Marie Concepcion, that is correct?
A: In one or two times but not total authority, sir.
Q: Yes, but you have authorized her to receive payment?
A: One or two times, yes x x x. (TSN, June 28, 1999, pp. 16-17)
40

Thus, as shown in the receipt signed by petitioners agent and pursuant to the authority granted
by petitioners to Losloso, payment made to the latter is deemed payment to petitioners. We find
no reason to depart from the RTC and the CA conclusion that payment had already been made
and that it extinguished respondent's obligations.
WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of
Appeals Decision dated March 31, 2005 and Resolution dated May 24, 2006 in CA-G.R. CV No.
83030, are AFFIRMED.
SO ORDERED.
__________
G.R. No. 195640 December 4, 2012
SUGAR REGULATORY ADMINISTRATION, represented by its Administrator,
Petitioner,
vs.
ENCARNACION B. TORMON, EDGARDO B. ALISAJE, LOURDES M. DOBLE,
TERESITA Q. LIM, EDMUNDO R. JORNADAL, JIMMY C. VILLANUEVA , DEANNA
M. JANCE, HENRY G. DOBLE, REYNALDO D. LUZANA, MEDELYN P. TOQUILLO,
SEVERINO A. ORLIDO, RHODERICK V. ALIPOON, JONATHAN CORDERO,
DANILO B. BISCOCHO, BELLO C. LUCASAN, LUBERT V. TIVE, and the
COMMISSION ON AUDIT, Respondents.
D E C I S I O N
PERALTA, J .:
Assailed in this petition for certiorari under Rule 64, in relation to Rule 65 of the Rules of Court,
is Decision No. 2010-146
1
dated December 30,2010 of the Commission on Audit (COA).
The antecedent facts are as follows:
Private respondents, namely: Encarnacion B. Tormon, Edgardo B. Alisaje, Lourdes M. Doble,
Teresita Q. Lim, Edmundo R. Jornadal, Jimmy C. Villanueva , Deanna M. Jance, Henry G.
Doble, Reynaldo D. Luzana, Medelyn P. Toquillo, Severino A. Orlido, Rhoderick V. Alipoon,
Jonathan Cordero, Danilo B. Biscocho, Bello C. Lucasan, Lubert V. Tive, were former
employees of Philippine Sugar Institute (PHILSUGIN) and the Sugar Quota Administration
(SQA). On February 2, 1974, Presidential Decree (P.D.) No. 388 was issued creating the
Philippine Sugar Commission (PHILSUCOM). Under the said decree, PHILSUGIN and SQA
shall be abolished upon the organization of PHILSUCOM and all the former's assets, liabilities
and records shall be transferred to the latter and the personnel of the abolished agencies who may
not be retained shall be entitled to retirement/gratuity and incentive benefits.
In September 1977, PHILSUGIN and SQA were abolished and private respondents were
separated from the service; thus, they were paid their retirement/gratuity and incentive benefits.
In the same year, private respondents were reinstated by PHILSUCOM subject to the condition
that the former would refund in full the retirement/gratuity and incentive benefits they received
from PHILSUGIN or SQA. PHILSUCOM Consultant, Eduardo F. Gamboa, wrote:
We have received orders from the Main Office to require you to refund in full the unexpired
portion of the money value of the retirement or lay-off gratuity you received as called for in
Office Memorandum No. 4, series of 1977, dated December 5, 1977, in view of your
reinstatement in the service.
x x x x
In connection herewith, you are therefore directed to make the necessary refund of the above-
mentioned amount to our Local Accounting Department and to inform the Personnel
Department, when refund is made. Failure on your part to make the necessary refund will
constrain us to recommend corrective measures.
2

On May 28, 1986, Executive Order (E.O.) No. 18, series of 1986 was issued wherein the Sugar
Regulatory Administration (petitioner SRA) replaced PHILSUCOM. PHILSUCOM's assets and
records were all transferred to petitioner SRA which also retained some of the former's personnel
which included the private respondents.
On July 29, 2004, E.O. No. 339 was issued, otherwise known as Mandating the Rationalization
of the Operations and Organization of the SRA, for the purpose of strengthening its vital services
and refocusing its resources to priority programs and activities, and reducing its personnel with
the payment of retirement gratuity and incentives for those who opted to retire from the service.
Among those separated from the service were private respondents. Under the SRA
Rationalization Program, petitioner computed its employees' incentives and terminal leave
benefits based on their creditable years of service contained in their respective service records on
file with petitioner and validated by the Government Service and Insurance System (GSIS). The
computation was then submitted to the Department of Budget and Management (DBM) for
approval and request of funds. The DBM approved the same and released the disbursement
vouchers for processing of the incentive benefits.
However, in the course of the implementation of its rationalization plan, petitioner found out that
there was no showing that private respondents had refunded their gratuity benefits received from
PHILSUGIN or SQA. Hence, petitioner considered private respondents' length of service as
having been interrupted which commenced only at the time they were re-employed by
PHILSUCOM in 1977. Petitioner then recomputed private respondents' retirement and incentive
benefits and paid only the 75% equivalent of the originally computed benefits and withheld the
remaining 25% in view of the latter's inability to prove the refund.
Private respondents requested petitioner to compute their incentive benefits based on their length
of service to include their years of service with PHILSUGIN or SQA taking into consideration
their refund of gratuity benefits to PHILSUCOM at the time of their re-employment in 1977. On
January 4, 2007, then petitioner's Administrator, James C. Ledesma, issued a memorandum
3

declaring the services of its employees affected by the Rationalization Program, which included
private respondents, terminated effective on January 15, 2007. Under Board Resolution No.
2007-055
4
dated June 14, 2007, petitioner denied private respondents' requests for the latter's
failure to submit proofs of refund of gratuity received from PHILSUGIN or SQA.
On September 6, 2007, private respondents wrote a letter
5
addressed to then Commission on
Audit (COA) Chairman, Guillermo N. Carague, asking the COA to order petitioner to pay the
balance representing the 25% of their retirement and incentive benefits withheld by petitioner.
They claimed that they had already refunded the full amount of the incentive benefits through
salary deductions and since petitioner could no longer find the PHILSUCOM payrolls reflecting
those deductions, private respondents submitted the affidavits of Messrs. Hilario T. Cordova
6

and Nicolas L. Meneses Jr.,
7
petitioner's Chief, Administrative Division, and Manager,
Administrative and Finance Department, respectively, both executed in March 2007, attesting to
the fact of refund.
Petitioner filed its Answer
8
thereto contending among others that since private respondents
alleged payment, they were duty-bound to present evidence substantiating the said refund; that
no records of payments existed to clearly establish their claim, thus, their resort to secondary
evidence which were the sworn affidavits of petitioner's former officials were insufficient to
prove the fact of the alleged payment.
On October 14, 2009, the COA rendered Decision No. 2009 -100,
9
with the following dispositive
portion, to wit:
WHEREFORE, foregoing premises considered, this Commission rules that the affidavits
presented by claimants are insufficient proofs that they have refunded to PHILSUCOM the
gratuity/incentive benefits they received from PHILSUGIN/SQA.
Evidence other than the affidavits must be presented to substantially prove their claims. Also, all
the benefits, gratuity, incentive and retirement they received upon their separation from
PHILSUGIN or SQA must be accounted for and refunded to SRA before the requested incentive
benefit is computed based on their length of government service reckoned from the time they
were employed with PHILSUGIN or SQA.
10

In so ruling, the COA found that since private respondents alleged payment, they had the burden
of proving the same by clear and positive evidence; that the affidavits of Messrs. Cordova and
Meneses, Jr. stating that private respondents had refunded to PHILSUCOM the benefits they
received from PHILSUGIN/SQA were not the best evidence of such refunds; that an affidavit
was made without notice to the adverse party or opportunity to cross examine; and that the
contents of these affidavits were too general and did not state private respondents respective
final payments.
Private respondents filed their motion for reconsideration which was opposed by petitioner.
On December 30, 2010, the COA rendered Decision No. 2010-146 granting private respondents'
motion for reconsideration, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant Motion for Reconsideration is hereby
GRANTED. Accordingly, COA Decision No. 2009-100 is hereby REVERSED and [SET]
ASIDE. The SRA is directed to release to movants the amount representing the 25% balance of
their incentive and terminal leave benefits.
11

In its decision, the COA observed that private respondents had filed a separate but related
complaint with the Civil Service Commission (CSC). It found that while their complaint with the
CSC was denominated as illegal termination/backwages and entitlements, the main thrust of their
complaint was to compel the payment of the 25% balance of their total incentives and terminal
leave benefits withheld by petitioner, which was the same demand made in their letter to
Chairman Carague whose decision is the subject of the motion for reconsideration, thus, forum
shopping existed. The COA also noted that in their Supplement to Motion for
Reconsideration/Manifestation filed on November 24, 2009, private respondents mentioned the
ruling of the CSC
12
in their favor and they now disputed the COAs jurisdiction to rule on their
demand contending that it is the CSC which has jurisdiction over cases involving government
reorganization; and that the CSC had issued a Resolution granting private respondents' motion
for execution of the CSC resolution. Notwithstanding, however, the COA found that it did not
lose jurisdiction over the present case and went on to decide the claim on the merits and
disregarded the CSC Resolution.
The COA ruled that the affidavits submitted were not secondary evidence within the context of
Section 5, Rule 130 of the Rules of Court, hence, admissible in evidence, since technical rules of
procedure and evidence are not strictly applied in administrative proceedings. The COA found in
the records certain significant circumstances which, when taken together with the affidavits,
established that indeed private respondents had refunded the incentives in question. Since private
respondents had discharged their burden of proof, it was incumbent on petitioner to discharge the
burden of evidence that respondents had not paid the said incentives; that it was the
PHILSUCOM, then petitioner, being the successor of PHILSUGIN and SQA, that had been
tasked with the official custody of all the records and books of their predecessors, as mandated
under Section 10 of Presidential Decree No. 388; that if petitioner's Accounting Division cannot
issue a certification because it has no records, it is never an excuse to shift the burden to the
employees.
Petitioner is now before us raising the following issues, to wit:
1. Whether or not respondent Commission erred and gravely abused its discretion when it
gave credence to the affidavits of Mr. Hilario T. Cordova, then Chief, Administrative
Division, SRA, and Mr. Nicolas L. Meneses, Jr., then Manager, Administrative and
Finance Department plainly alleging that the gratuity/incentives have been refunded by
the private respondents.
2. Whether or not public respondent Commission on Audit erred and gravely abused its
discretion in making assumptions or suppositions out of certain circumstances which
were not even alleged by private respondents and in arriving at a conclusion out of the
same in favor of private respondents.
3. Whether or not public respondent Commission on Audit erred and gravely abused its
discretion in finding substantial evidence that private respondents refunded the gratuity
incentives in question.
13

The issue for resolution is whether the COA committed grave abuse of discretion amounting to
lack of jurisdiction in directing petitioner to pay the 25% balance of private respondents'
incentive and terminal leave benefits withheld from the submitted computation of petitioner and
duly funded by the DBM.
We find no merit in the petition.
Petitioner withheld 25% of private respondents' incentive and terminal leave benefits because of
their failure to present evidence of refund of the amounts of retirement and incentive benefits
earlier received from PHILSUGIN/SQA. On the other hand, private respondents claim that they
had already refunded these benefits through salary deduction, therefore, they are entitled to the
payment of the amounts withheld by petitioner. The burden of proof is on private respondents to
prove such refund. One who pleads payment has the burden of proving it.
14
Even where the
creditor alleges non-payment, the general rule is that the onus rests on the debtor to prove
payment, rather than on the creditor to prove non-payment.
15
The debtor has the burden of
showing with legal certainty that the obligation has been discharged by payment.
16

Well settled also is the rule that a receipt of payment is the best evidence of the fact of
payment.
17
In Monfort v. Aguinaldo,
18
the receipts of payment, although not exclusive, were
deemed to be the best evidence. Private respondents, however, could not present any receipt
since they alleged that their payments were made through salary deductions and the payrolls
which supposedly contained such deductions were in petitioner's possession which had not been
produced. In order to prove their allegations of refund, private respondents submitted the
affidavits of Messrs. Cordova and Meneses, Jr., which we successively quote in part, to wit:
Mr. Cordova states:
That I was the Administrative Officer II of the defunct Philippine Sugar Institute when it was
abolished in 1977; that I hold the same position when the Philippine Sugar Commission took
over the functions of PHILSUGIN from that year up to 1986;
That I continued to be the head of Personnel Division when Sugar Regulatory Administration
replaced PHILSUCOM in 1986 and retired as Division Chief II of the Administrative Division
on July 31, 2003;
That during my incumbency in said positions, I have personal knowledge of the paymen/refund
of ex-PHILSUGIN employees separated from service but reinstated in PHILSUCOM by way of
salary deduction through payroll;
That Ms. Encarnacion Tormon, et al., upon return to service with PHILSUCOM, refunded the
amount of the gratuities they received from PHILSUGIN in the months following/succeeding
upon their appointment as reinstated employees of PHILSUCOM;
That their status as reinstated employees are officially marked in their individual service records
duly authenticated by myself as Chief of Personnel Division and validated by the Government
Service Insurance System as proven by GSIS computation of their creditable years.
19

On the other hand, Mr. Meneses Jr., states:
That I was the Chief Internal Auditor of the defunct Philippine Sugar Institute when it was
abolished in 1977; that I hold a key position in the Budget and Accounting Division when the
Philippine Sugar Commission took over the functions of PHILSUGIN from that year up to 1986;
That I later became Division Chief I of [the] Budget Division in the Sugar Regulatory
Administration in 1988 and retired as Manager of the Administrative and Finance Department on
July 31, 2003;
That during my incumbency in said positions, I have personal knowledge of the payment/refund
of ex-PHILSUGIN employees separated from service and reinstated in PHILSUCOM;
That Ms. Encarnacion Tormon et al., upon return to service with PHILSUCOM, refunded the
amount of the gratuities they received from PHILSUGIN;
That their status as reinstated employees are officially marked in their individual service records
duly authenticated by the Chief of Personnel Division and validated by GSIS.
20

Messrs. Cordova, being petitioner's head of the Personnel Department, and Meneses, Jr., as
petitioner's Chief of Budget Division, and later Manager of the Administrative and Finance
Department, were in the best positions to attest to the fact of private respondents' refund through
salary deductions of the amounts of retirement and incentive benefits previously received,
especially since these officials were in those departments since PHILSUCOM took over in 1977
and later with petitioner until their retirement in 2003. There was nothing on record to show that
Messrs. Cordova and Meneses, Jr. were actuated with any ill motive in the execution of their
affidavits attesting to the fact of refund.
The general rule is that administrative agencies are not bound by the technical rules of evidence.
It can accept documents which cannot be admitted in a judicial proceeding where the Rules of
Court are strictly observed. It can choose to give weight or disregard such evidence, depending
on its trustworthiness.
21
Here, we find no grave abuse of discretion committed by the COA when
it admitted the affidavits of Messrs. Cordova and Meneses, Jr. and gave weight to them in the
light of the other circumstances established by the records which will be shown later in the
decision.
Petitioner claims that the affiants attested on a matter which happened 30 years ago; thus, how
could they recall that each of the 16 employees had actually refunded the gratuity/incentives way
back in 1977; that each of the private respondents held different positions with salaries different
from each other and the dates when they respectively re-assumed service in the government
differed from each other; that it may not even be entirely correct that all 16 respondents refunded
the gratuity incentives in question by salary deduction.
We are not persuaded.
Significantly, Messrs. Cordova and Meneses, Jr. were petitioner's former officials who held key
positions in the two divisions, namely, Personnel and Accounting Divisions, where private
respondents were directed by then petitioner's Consultant Gamboa to make the necessary refunds
for their retirement and incentive pay. Thus, if no refunds were made, these officials could have
reported the same to Gamboa, who would have taken corrective measures as he threatened to do
so if private respondents failed to make the necessary refunds. Notably, there is no showing that
corrective measures had been taken. Moreover, as we said, while the COA admitted the
affidavits, it did not rely solely on those affidavits to conclude that refunds were already made by
private respondents. The matter of refund was proven by several circumstances which the COA
found extant in the records of the case. We find apropos to quote the COA findings in this wise:
First, movants were reemployed by PHILSUCOM with the condition that they must return the
benefits they had already received. In his 16 March 1978 letter, Mr. Eduardo F. Gamboa,
directed Ms. Tormon to refund the amount and to inform the Personnel Department when the
refund was made. He warned Ms. Tormon to make the refund or they will be constrained to
recommend corrective measures. The fact was that claimants were reinstated. That management
did not take any corrective measures to compel the refund except perhaps, the enforced salary
deduction which claimants said was the mode of refund undertaken - is a point in favor of
claimants. It would be unbelievable that in all these years, from 1977 to 2007, the SRA
management, indubitably having the higher authority, just slept on its right to enforce the refund
and did nothing about it. The natural and expected action that SRA ought to have taken was to
enforce the refund through salary deduction, not through voluntary direct payment since the
latter option does not carry with it the mandatory character of an automatic salary deduction.
Second, a certain Mr. Henry Doble, one of the movants, was promoted from Emergency
Employee, a temporary status, to senior machine cutting operator with permanent status. If Mr.
Doble had not refunded his gratuity, it was more reasonable to suppose that SRA would not have
promoted him.
Third, COA Directors Rosemarie L. Lerio and Divina M. Alagon, CGS and SRA ATL
22
Antonio
M. Malit, to whom the case was coursed through for comments, did not mention, even in
passing, of any audit finding in the Annual Audit Reports (AARS) regarding the unrefunded
incentives received by claimants The silence of the AARs for 30 years would only lend credence
that theses refunds were made.
Fourth, under the SRA Rationalization program, the affected employees' incentive and terminal
leave benefits were computed based on their creditable years of services as contained in their
respective service records with the agency as validated by the GSIS. Accordingly, SRA
computed movants' incentive and terminal leave benefits as of December 31, 2006 which was
approved by the Department of Budget and Management (DBM) Secretary Rolando Andaya.
This only showed that even the SRA was convinced that movants had no more financial
accountability with the SRA at the time.1wphi1
Fifth, then SRA Administrator James C. Ledesma informed movants that not one of the records
of the payments they claimed was available at the office; thus, the SRA could not be definite as
to the actual payments made by them and the equivalent periods corresponding thereto, Also,
Ms. Amelita A. Papasin, Accountant IV, Accounting Unit, SRA, Bacolod, stated that they could
not find any record showing payments made as claimed by Ms. Tormon, et al., to refund the
severance gratuities paid to them during their termination on September 30, 1977. Indeed, the
SRA could not comply with the request of Mr. Antonio M. Malit, Audit Team leader (ATL),
SRA, to produce copies of payroll or index of payments, or any accounting records covering the
32-year period which would have shown whether movants paid or did not pay the required
refund. These payrolls and other records would have conclusively established the fact of
payment or non-payment, But then all the SRA could say was there is no record of such
payment. Absence of record is different from saying there was no payment.
23

Factual findings of administrative bodies charged with their specific field of expertise, are
afforded great weight by the courts, and in the absence of substantial showing that such findings
were made from an erroneous estimation of the evidence presented, they are conclusive, and in
the interest of stability of the governmental structure, should not be disturbed.
24

Petitioner's claim that the COA made its own assumptions which were not even based on the
allegations made by private respondents in any of their pleadings is devoid of merit. In their
Reply to petitioner's Supplemental Comment/Opposition to private respondents' motion for
reconsideration, private respondents had alleged some of these above- mentioned circumstances
to support their claim that refunds had already been made. We also find that the records of the
case support the above-quoted circumstances enumerated by the COA.
Considering that private respondents had introduced evidence that they had refunded their
retirement and incentive benefits through salary deduction, the burden of going forward with the
evidence- as distinct from the general burden of proof- shifts to the petitioner, who is then under
a duty of producing some evidence to show non-payment.
25
However, the payroll to establish
whether or not deductions had been made from the salary of private respondents were in
petitioner's custody, but petitioner failed to present the same due to the considerable lapse of
time.
All told, we find no grave abuse of discretion amounting to lack or excess of jurisdiction
committed by the COA in rendering its assailed decision. There is grave abuse of discretion
when there is an evasion of a positive duty or a virtual refusal to perform a duty enjoined by law
or to act in contemplation of law as when the judgment rendered is not based on law and
evidence but on caprice, whim and despotism,
26
which is wanting in this case.
WHEREFORE, the petition is DISMISSED. Decision No. 2010-146 dated December 30, 2010
of the Commission on Audit is hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
____________
G.R. No. 187425 March 28, 2011
COMMISSIONER OF CUSTOMS, Petitioner,
vs.
AGFHA INCORPORATED, Respondent.
D E C I S I O N
MENDOZA, J .:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
February 25, 2009 Decision
1
of the Court of Tax Appeals En Banc (CTA-En Banc), in CTA EB
Case No. 136, which affirmed the October 18, 2005 Resolution
2
of its Second Division (CTA-
Second Division), in CTA Case No. 5290, finding petitioner, the Commissioner of Customs
(Commissioner), liable to pay respondent AGFHA Incorporated (AGFHA) the amount of
US$160,348.08 for the value of the seized shipment which was lost while in petitioners custody.
On December 12, 1993, a shipment containing bales of textile grey cloth arrived at the Manila
International Container Port (MICP). The Commissioner, however, held the subject shipment
because its owner/consignee was allegedly fictitious. AGFHA intervened and alleged that it was
the owner and actual consignee of the subject shipment.
On September 5, 1994, after seizure and forfeiture proceedings took place, the District Collector
of Customs, MICP, rendered a decision
3
ordering the forfeiture of the subject shipment in favor
of the government.
AGFHA filed an appeal. On August 25, 1995, the Commissioner rendered a decision
4
dismissing
it.
On November 4, 1996, the CTA-Second Division reversed the Commissioners August 25, 1995
Decision and ordered the immediate release of the subject shipment to AGFHA. The dispositive
portion of the CTA-Second Division Decision
5
reads:
WHEREFORE, in view of the foregoing premises, the instant Petition for Review is hereby
GRANTED. Accordingly, the decision of the respondent in Customs Case No. 94-017, dated
August 25, 1995, affirming the decision of the MICP Collector, dated September 5, 1994, which
decreed the forfeiture of the subject shipments in favor of the government, is hereby
REVERSED and SET ASIDE. Respondent is hereby ORDERED to effect the immediate
RELEASE of the subject shipment of goods in favor of the petitioner. No costs.
SO ORDERED.
On November 27, 1996, the CTA-Second Division issued an entry of judgment declaring the
above-mentioned decision final and executory.
6

Thereafter, on May 20, 1997, AGFHA filed a motion for execution.
In its June 4, 1997 Resolution, the CTA-Second Division held in abeyance its action on
AGFHAs motion for execution in view of the Commissioners appeal with the Court of Appeals
(CA), docketed as CA-G.R. SP No. 42590 and entitled "Commissioner of Custom v. The Court of
Tax Appeals and AGFHA, Incorporated."
On May 31, 1999, the CA denied due course to the Commissioners appeal for lack of merit in a
decision,
7
WHEREFORE, the instant petition is hereby DENIED DUE COURSE and DISMISSED for lack
of merit. Accordingly, the Commissioner of Customs is hereby ordered to effect the immediate
release of the shipment of AGFHA, Incorporated described as "2 x 40" Cont. No. NYKU-
6772906 and NYKU-6632117 STA 197 Bales of Textile Grey Cloth" placed under Hold Order
No. H/CI/01/2293/01 dated 22 January 1993.
No costs.
SO ORDERED.
Thereafter, the Commissioner elevated the aforesaid CA Decision to this Court via a petition for
review on certiorari, docketed as G.R. No. 139050 and entitled "Republic of the Philippines
represented by the Commissioner of Customs v. The Court of Tax Appeals and AGFHA, Inc."
On October 2, 2001, the Court dismissed the petition.
8

On January 14, 2002, the Court denied with finality the Commissioners motion for
reconsideration of its October 2, 2001 Decision.
On March 18, 2002, the Entry of Judgment was issued by the Court declaring its aforesaid
decision final and executory as of February 5, 2002.
In view thereof, the CTA-Second Division issued the Writ of Execution, dated October 16, 2002,
directing the Commissioner and his authorized subordinate or representative to effect the
immediate release of the subject shipment. It further ordered the sheriff to see to it that the writ
would be carried out by the Commissioner and to make a report thereon within thirty (30) days
after receipt of the writ. The writ, however, was returned unsatisfied.
On July 23, 2003, the CTA-Second Division received a copy of AGFHAs Motion to Show
Cause dated July 21, 2003.
Acting on the motion, the CTA-Second Division issued a notice setting it for hearing on August
1, 2003 at 9:00 oclock in the morning.
In its August 13, 2003 Resolution, the CTA-Second Division granted AGFHAs motion and
ordered the Commissioner to show cause within fifteen (15) days from receipt of said resolution
why he should not be disciplinary dealt with for his failure to comply with the writ of execution.
On September 1, 2003, Commissioners counsel filed a Manifestation and Motion, dated August
28, 2003, attaching therewith a copy of an Explanation (With Motion for Clarification) dated
August 11, 2003 stating, inter alia, that despite diligent efforts to obtain the necessary
information and considering the length of time that had elapsed since the subject shipment
arrived at the Bureau of Customs, the Chief of the Auction and Cargo Disposal Division of the
MICP could not determine the status, whereabouts and disposition of said shipment.
Consequently, AGFHA filed its Motion to Cite Petitioner in Contempt of Court dated September
13, 2003. After a series of pleadings, on November 17, 2003, the CTA-Second Division denied,
among others, AGFHAs motion to cite petitioner in contempt for lack of merit. It, however,
stressed that the denial was without prejudice to other legal remedies available to AGFHA.
On August 13, 2004, the Commissioner received AGFHAs Motion to Set Case for Hearing,
dated April 12, 2004, allegedly to determine: (1) whether its shipment was actually lost; (2) the
cause and/or circumstances surrounding the loss; and (3) the amount the Commissioner should
pay or indemnify AGFHA should the latters shipment be found to have been actually lost.
On May 17, 2005, after the parties had submitted their respective memoranda, the CTA-Second
Division adjudged the Commissioner liable to AGFHA. Specifically, the dispositive portion of
the resolution reads:
WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to petitioner
AGFHA, INC. for the value of the subject shipment in the amount of ONE HUNDERED SIXTY
THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US DOLLARS
(US$160,348.08). The Bureau of Customs liability may be paid in Philippine Currency,
computed at the exchange rate prevailing at the time of actual payment, with legal interests
thereon at the rate of 6% per annum computed from February 1993 up to the finality of this
Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon
finality of this Resolution until the value of the subject shipment is fully paid.
The payment shall be taken from the sale or sales of the goods or properties which were seized or
forfeited by the Bureau of Customs in other cases.
SO ORDERED.
9

On June 10, 2005, the Commissioner filed his Motion for Partial Reconsideration arguing that (a)
the enforcement and satisfaction of respondents money claim must be pursued and filed with the
Commission on Audit pursuant to Presidential Decree (P.D.) No. 1445; (b) respondent is entitled
to recover only the value of the lost shipment based on its acquisition cost at the time of
importation; and (c) taxes and duties on the subject shipment must be deducted from the amount
recoverable by respondent.
On the same day, the Commissioner received AGFHAs Motion for Partial Reconsideration
claiming that the 12% interest rate should be computed from the time its shipment was lost on
June 15, 1999 considering that from such date, petitioners obligation to release their shipment
was converted into a payment for a sum of money.
On October 18, 2005, after the filing of several pleadings, the CTA-Second Division
promulgated a resolution which reads:
WHEREFORE, premises considered, respondent Commissioner of Customs "Motion for Partial
Reconsideration" is hereby PARTIALLY GRANTED. The Resolution dated May 17, 2005 is
hereby MODIFIED but only insofar as the Court did not impose the payment of the proper duties
and taxes on the subject shipment. Accordingly, the dispositive portion of Our Resolution, dated
May 17, 2005, is hereby MODIFIED to read as follows:
WHEREFORE, premises considered, the Bureau of Customs is adjudged liable to petitioner
AGFHA, INC. for the value of the subject shipment in the amount of ONE HUNDRED SIXTY
THOUSAND THREE HUNDRED FORTY EIGHT AND 08/100 US DOLLARS
(US$160,348.08), subject however, to the payment of the prescribed taxes and duties, at the time
of the importation. The Bureau of Customs liability may be paid in Philippine Currency,
computed at the exchange rate prevailing at the time of actual payment, with legal interests
thereon at the rate of 6% per annum computed from February 1993 up to the finality of this
Resolution. In lieu of the 6% interest, the rate of legal interest shall be 12% per annum upon
finality of this Resolution until the value of the subject shipment is fully paid.
The payment shall be taken from the sale or sales of the goods or properties which were seized or
forfeited by the Bureau of Customs in other cases.
SO ORDERED.
Petitioner AGFHA, Inc.s "Motion for Partial Reconsideration" is hereby DENIED for lack of
merit.
SO ORDERED.
10

Consequently, the Commissioner elevated the above-quoted resolution to the CTA-En Banc.
On February 25, 2009, the CTA-En Banc promulgated the subject decision dismissing the
petition for lack of merit and affirming in toto the decision of the CTA-Second Division.
On March 18, 2009, the Commissioner filed his Motion for Reconsideration, but it was denied
by the CTA-En Banc in its April 13, 2009 Resolution.
Hence, this petition.
ISSUE
Whether or not the Court of Tax Appeals was correct in awarding the respondent the amount of
US$160,348.08, as payment for the value of the subject lost shipment that was in the custody of
the petitioner.
In his petition, the Commissioner basically argues two (2) points: 1] the respondent is entitled to
recover the value of the lost shipment based only on its acquisition cost at the time of
importation; and 2] the present action has been theoretically transformed into a suit against the
State, hence, the enforcement/satisfaction of petitioners claim must be pursued in another
proceeding consistent with the rule laid down in P.D. No. 1445.
He further argues that the basis for the exchange rate of its liability lacks basis. Based on the
Memorandum, dated August 27, 2002, of the Customs Operations Officers, the true value of the
subject shipment is US$160,340.00 based on its commercial invoices which have been found to
be spurious. The subject shipment arrived at the MICP on December 12, 1992 and the peso-
dollar exchange rate was P20.00 per US$1.00. Thus, this conversion rate must be applied in the
computation of the total land cost of the subject shipment being claimed by AGFHA or
P3,206,961.60 plus interest.
The Commissioner further contends that based on Executive Order No. 688 (The 1999 Tariff and
Customs Code of the Philippines), the proceeds from any legitimate transaction, conveyance or
sale of seized and/or forfeited items for importations or exportations by the customs bureau
cannot be lawfully disposed of by the petitioner to satisfy respondents money judgment. EO 688
mandates that the unclaimed proceeds from the sale of forfeited goods by the Bureau of Customs
(BOC) will be considered as customs receipts to be deposited with the Bureau of Treasury and
shall form part of the general funds of the government. Any disposition of the said unclaimed
proceeds from the sale of forfeited goods will be violative of the Constitution, which provides
that "No money shall be paid out of the Treasury except in pursuance of an appropriation made
by law."
11

Thus, the Commissioner posits that this case has been transformed into a suit against the State
because the satisfaction of AGFHAs claim will have to be taken from the national coffers. The
State may not be sued without its consent. The BOC enjoys immunity from suit since it is
invested with an inherent power of sovereignty which is taxation.
To recover the alleged loss of the subject shipment, AGFHAs remedy here is to file a money
claim with the Commission on Audit (COA) pursuant to Act No. 3083 (An Act Defining the
Condition under which the Government of the Philippine Island may be Sued) and
Commonwealth Act No. 327 (An Act Fixing the Time within which the Auditor General shall
render his Decisions and Prescribing the Manner of Appeal therefrom, as amended by P.D. No.
1445). Upon the determination of State liability, the prosecution, enforcement or satisfaction
thereof must still be pursued in accordance with the rules and procedures laid down in P.D. No.
1445, otherwise known as the Government Auditing Code of the Philippines.
On the other hand, AGFHA counters that, in line with prevailing jurisprudence, the applicable
peso-dollar exchange rate should be the one prevailing at the time of actual payment in order to
preserve the real value of the subject shipment to the date of its payment. The CTA-En Banc
Decision does not constitute a money claim against the State. The Commissioners obligation to
return the subject shipment did not arise from an import-export contract but from a quasi-
contract particularly solutio indebiti under Article 2154 of the Civil Code. The payment of the
value of the subject lost shipment was in accordance with Article 2159 of the Civil Code. The
doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an
injustice on a citizen. When the State violates its own laws, it cannot invoke the doctrine of state
immunity to evade liability. The commission of an unlawful or illegal act on the part of the State
is equivalent to implied consent.
THE COURTS RULING
The petition lacks merit.
The Court agrees with the ruling of the CTA that AGFHA is entitled to recover the value of its
lost shipment based on the acquisition cost at the time of payment.
In the case of C.F. Sharp and Co., Inc. v. Northwest Airlines, Inc. the Court ruled that the rate of
exchange for the conversion in the peso equivalent should be the prevailing rate at the time of
payment:
In ruling that the applicable conversion rate of petitioner's liability is the rate at the time of
payment, the Court of Appeals cited the case of Zagala v. Jimenez, interpreting the provisions of
Republic Act No. 529, as amended by R.A. No. 4100. Under this law, stipulations on the
satisfaction of obligations in foreign currency are void. Payments of monetary obligations,
subject to certain exceptions, shall be discharged in the currency which is the legal tender in the
Philippines. But since R.A. No. 529 does not provide for the rate of exchange for the payment of
foreign currency obligations incurred after its enactment, the Court held in a number of cases that
the rate of exchange for the conversion in the peso equivalent should be the prevailing rate
at the time of payment.
12
[Emphases supplied]
Likewise, in the case of Republic of the Philippines represented by the Commissioner of Customs
v. UNIMEX Micro-Electronics GmBH,
13
which involved the seizure and detention of a shipment
of computer game items which disappeared while in the custody of the Bureau of Customs, the
Court upheld the decision of the CA holding that petitioners liability may be paid in Philippine
currency, computed at the exchange rate prevailing at the time of actual payment.
On the issue regarding the state immunity doctrine, the Commissioner cannot escape liability for
the lost shipment of goods. This was clearly discussed in the UNIMEX Micro-Electronics GmBH
decision, where the Court wrote:
Finally, petitioner argues that a money judgment or any charge against the government requires a
corresponding appropriation and cannot be decreed by mere judicial order.
Although it may be gainsaid that the satisfaction of respondent's demand will ultimately fall on
the government, and that, under the political doctrine of "state immunity," it cannot be held liable
for governmental acts (jus imperii), we still hold that petitioner cannot escape its liability. The
circumstances of this case warrant its exclusion from the purview of the state immunity doctrine.
As previously discussed, the Court cannot turn a blind eye to BOC's ineptitude and gross
negligence in the safekeeping of respondent's goods. We are not likewise unaware of its
lackadaisical attitude in failing to provide a cogent explanation on the goods'
disappearance, considering that they were in its custody and that they were in fact the
subject of litigation. The situation does not allow us to reject respondent's claim on the
mere invocation of the doctrine of state immunity. Succinctly, the doctrine must be fairly
observed and the State should not avail itself of this prerogative to take undue advantage of
parties that may have legitimate claims against it.
In Department of Health v. C.V. Canchela & Associates, we enunciated that this Court, as the
staunch guardian of the people's rights and welfare, cannot sanction an injustice so patent in its
face, and allow itself to be an instrument in the perpetration thereof. Over time, courts have
recognized with almost pedantic adherence that what is inconvenient and contrary to reason is
not allowed in law. Justice and equity now demand that the State's cloak of invincibility against
suit and liability be shredded.1awphi1
Accordingly, we agree with the lower courts' directive that, upon payment of the necessary
customs duties by respondent, petitioner's "payment shall be taken from the sale or sales of
goods or properties seized or forfeited by the Bureau of Customs."
WHEREFORE, the assailed decisions of the Court of Appeals in CA-G.R. SP Nos. 75359 and
75366 are hereby AFFIRMED with MODIFICATION. Petitioner Republic of the Philippines,
represented by the Commissioner of the Bureau of Customs, upon payment of the necessary
customs duties by respondent Unimex Micro-Electronics GmBH, is hereby ordered to pay
respondent the value of the subject shipment in the amount of Euro 669,982.565. Petitioner's
liability may be paid in Philippine currency, computed at the exchange rate prevailing at the
time of actual payment.
SO ORDERED.
14
[Emphases supplied]
In line with the ruling in UNIMEX Micro-Electronics GmBH, the Commissioner of Customs
should pay AGFHA the value of the subject lost shipment in the amount of US$160,348.08
which liability may be paid in Philippine currency computed at the exchange rate prevailing at
the time of the actual payment.
WHEREFORE, the February 25, 2009 Decision of the Court of Tax Appeals En Banc, in CTA
EB Case No. 136, is AFFIRMED. The Commissioner of Customs is hereby ordered to pay, in
accordance with law, the value of the subject lost shipment in the amount of US$160,348.08,
computed at the exchange rate prevailing at the time of actual payment after payment of the
necessary customs duties.
SO ORDERED.
_________

4.3 Application of Payments
G.R. No. L-18411 December 17, 1966
MAGDALENA ESTATES, INC., plaintiff-appellee,
vs.
ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, defendants-appellants.
Roxas and Sarmiento for plaintiff-appelle.
Somero, Baclig and Savello for defendants-appellants.
REGALA, J .:
Appeal from the decision of the Court of First Instance of Manila ordering the defendants-
appellants to pay jointly and severally to the plaintiff-appellee the sum of P655.89, plus legal
interest thereon from date of the judicial demand, the sum of P100.00 as attorney's fees, and to
pay the costs.
The appellants bought from the appellee a parcel of land in Quezon City known as Lot 7-K-2-G,
Psd-26193. In view of an unpaid balance of P5,000.00 on account of the purchase price of the
lot, the appellants executed on January 4, 1957, the following promissory note representing the
said account:
PROMISSORY NOTE
P5,000.00
Manila, January 4, 1957
We, the Spouses ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, jointly and
severally promise to pay the Magdalena Estates, Inc., or order, at its offices in the City of Manila,
without any demand the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine currency, with
interest at the rate of Nine Per Cent 9% per annum, within sixty (60) days from January 7, 1957. The
sum of P5,000.00 represents the balance of the purchase price of the parcel of land known as Lot 7-
K-2-G, Psd. 26193, containing an area of 2,191 square meters, Quezon City.
(Sgd.) Antonio A.
Rodriguez
( T ) ANTONIO A.
RODRIGUEZ

(Sgd.) Herminia C.
Rodriguez
( T ) HERMINIA C.
RODRIGUEZ
Signed in the Presence of:
(Sgd.) ILLEGIBLE

(Sgd.) ILLEGIBLE
On the same date, the appellants and the Luzon Surety Co., Inc. executed a bond in favor of the
appellee, the undertaking thereof being embodied therein as follows:
. . . comply with the obligation to pay the amount of P5,000.00 representing balance of
the purchase price of a parcel of land known as Lot 7-K-2-G, Psd-26193, with an area of
2191 square meters, Quezon City, covered by Transfer Certificate of Title No. 13 (6947),
Quezon City, within a period of sixty (60) days from January 7, 1957; That the Surety
shall be notified in writing within Ten (10) days from moment of default otherwise, this
undertaking is automatically null and void.
On June 20, 1958, when the obligation of the appellants became due and demandable, the Luzon
Surety Co., Inc. paid to the appellee the sum of P5,000.00. Subsequently, the appellee demanded
from the appellants the payment of P655.89 corresponding to the alleged accumulated interests
on the principal of P5,000.00. Due to the refusal of the appellants to pay the said interest, the
appellee started this suit in the Municipal Court of Manila to enforce the collection thereof. The
said court, on February 5, 1959, rendered judgment in favor of the appellee and against the
appellants, ordering the latter to pay jointly and severally the appellee the sum of P655.89 with
interest thereon at the legal rate from November 10, 1958, the date of the filing of the complaint,
until the whole amount is fully paid. Not satisfied with that judgment, appellants appealed to the
Court of First Instance of Manila, where the case was submitted for decision on the pleadings.
The Court of First Instance of Manila rendered the judgment stated at the outset of this decision.
On appeal directly to this Court, the following errors are assigned:
I. The lower court erred in concluding as a fact from the pleadings that the plaintiff-
appellee demanded, and the Luzon Surety Co., Inc. refused, the payment of interest in the
amount of P655.89, and in not finding and declaring that said plaintiff-appellee waived or
condoned the said interests.
II. The lower court erred in not finding and declaring that the obligation of the
defendants-appellants in favor of the plaintiff-appellee was totally extinguished by
payment and/or condonation.
III. The lower court erred in not finding and declaring that the promissory note executed
by the defendants-appellants in favor of the plaintiff-appellee was, insofar as the said
document provided for the payment of interests, novated when the plaintiff-appellee
unqualifiedly accepted the surety bond which merely guaranteed payment of the principal
in the sum of P5,000.00.
Appellants claim that the pleadings do not show that there was demand made by the appellee for
the payment of accrued interest and what could be deduced therefrom was merely that the
appellee demanded from the Luzon Surety Co., Inc., in the capacity of the latter as surety, the
payment of the obligation of the appellants, and said appellee accepted unqualifiedly the amount
of P5,000.00 as performance by the obligor and/or obligors of the obligation in its favor. It is
further claimed that the unqualified acceptance of payment made by the Luzon Surety Co., Inc.
of P5,000.00 or only the amount of the principal obligation and without exercising its
(appellee's) right to apply a portion of P655.89 thereof to the payment of the alleged interest due
despite its presumed knowledge of its right to do so, the appellee showed that it waived or
condoned the interests due, because Articles 1235 and 1253 of the Civil Code provide:
ART. 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed
fully complied with.
ART. 1253. If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been recovered.
We do not agree with the contention of the appellants. It is very clear in the promissory note that
the principal obligation is the balance of the purchase price of the parcel of land known as Lot 7-
K-2-G, Psd-26193, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety Co.,
Inc. undertook "to pay the amount of P5,000.00 representing balance of the purchase price of a
parcel of land known as Lot 7-K-2-G, Psd-26193, . . . ." The appellee did not protest nor object
when it accepted the payment of P5,000.00 because it knew that that was the complete amount
undertaken by the surety as appearing in the contract. The liability of a surety is not extended, by
implication, beyond the terms of his contract.
1
It is for the same reason that the appellee cannot
apply a part of the P5,000.00 as payment for the accrued interest. Appellants are relying on
Article 1253 of the Civil Code, but the rules contained in Articles 1252 to 1254 of the Civil Code
apply to a person owing several debts of the same kind of a single creditor. They cannot be made
applicable to a person whose obligation as a mere surety is both contingent and singular; his
liability is confined to such obligation, and he is entitled to have all payments made applied
exclusively to said application and to no other.
2
Besides, Article 1253 of the Civil Code is merely
directory, and not mandatory.
3
Inasmuch as the appellee cannot protest for non-payment of the
interest when it accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a
part of that amount as payment for the interest, we cannot now say that there was a waiver or
condonation on the interest due.
It is claimed that there was a novation and/or modification of the obligation of the appellants in
favor of the appellee because the appellee accepted without reservation the subsequent
agreement set forth in the surety bond despite its failure to provide that it also guaranteed
payment of accruing interest.
The rule is settled that novation by presumption has never been favored. To be sustained, it needs
to be established that the old and new contracts are incompatible in all points, or that the will to
novate appears by express agreement of the parties or in acts of similar import.
4

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is
ratified, by changing only the terms of payment and adding other obligations not incompatible
with the old one,
5
or wherein the old contract is merely supplemented by the new one.
6
The mere
fact that the creditor receives a guaranty or accepts payments from a third person who has agreed
to assume the obligation, when there is no agreement that the first debtor shall be released from
responsibility does not constitute a novation, and the creditor can still enforce the obligation
against the original debtor. (Straight v. Haskel, 49 Phil. 614; Pacific Commercial Co. v. Sotto, 34
Phil. 237; Estate of Mota v. Serra, 47 Phil. 464; Dugo v. Lopena, supra ). In the instant case, the
surety bond is not a new and separate contract but an accessory of the promissory note.
WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs
against the appellants.
___________
4.4 Payment by cession
G.R. No. 118342 January 5, 1998
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and LYDIA CUBA, respondents.
G.R. No. 118367 January 5, 1998
LYDIA P. CUBA, petitioner,
vs.
COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents.

DAVIDE, JR., J .:
These two consolidated cases stemmed from a complaint
1
filed against the Development Bank of the Philippines
(hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the
Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of
DBP's appropriation of CUBA's rights, title, and interests over a 44-hectares fishpond located in Bolinao,
Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of
Conditional Sale executed in her favor by DBP; (3) the annulment of DBP's sale of the subject fishpond to
Caperal; (4) the restoration of her rights, title, and interests over the fishpond; and (5) the recovery of
damages, attorney's fees, and expenses of litigation.
After the joinder of issues following the filing by the parties of their respective pleadings, the trial court
conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the
pre-trial order:
2

1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new)
dated May 13, 1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in
the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of
her Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the
terms of the Promissory Notes;
5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP
appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;
6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba
over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional
Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in
question;
7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the
Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP
thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated
February 1, 1982;
8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new
Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry
of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband;
9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of
Conditional Sale;
10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of
Conditional Sale, she entered with the DBP a temporary arrangement whereby in
consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale,
plaintiff Lydia Cuba promised to make certain payments as stated in temporary
Arrangement dated February 23, 1982;
11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March
13, 1984, and which was received by plaintiff Lydia Cuba;
12. After the Notice of Rescission, defendant DBP took possession of the Leasehold
Rights of the fishpond in question;
13. That after defendant DBP took possession of the Leasehold Rights over the fishpond
in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24,
1984, to dispose of the property;
14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant
Agripina Caperal on August 16, 1984;
15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A
on December 28, 1984 by the Ministry of Agriculture and Food.
Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order.
3

Trial was thereafter had on other matters.
The principal issue presented was whether the act of DBP in appropriating to itself CUBA's leasehold
rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the
Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely
exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of
mortgage. Defendant Caperal sided with DBP.
The trial court resolved the issue in favor of CUBA by declaring that DBP's taking possession and
ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which
provides as follows:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.
It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of mortgage
because (1) they were given as security for loans, (2) although the "fishpond land" in question is still a
public land, CUBA's leasehold rights and interest thereon are alienable rights which can be the proper
subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of
Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBA's default, DBP's only
right was to foreclose the Assignment in accordance with law.
The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a
clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the
Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBA's leasehold rights,
all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional
Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of
defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP,
were also void and ineffective.
As to damages, the trial court found "ample evidence on record" that in 1984 the representatives of DBP
ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house;
and that when CUBA's son and caretaker went there on 15 September 1985, they found the said house
unoccupied and destroyed and CUBA's personal belongings, machineries, equipment, tools, and other
articles used in fishpond operation which were kept in the house were missing. The missing items were
valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first
time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which
died because the DBP representatives prevented CUBA's men from feeding the fish. At the conservative
price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value
as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the
aggregate of the actual damages sustained by CUBA at P1,067,500.
The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of
Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights. Such representation induced the
said Bureau to terminate CUBA's leasehold rights and to approve the Deed of Conditional Sale in favor of
CUBA. And considering that by reason of her unlawful ejectment by DBP, CUBA "suffered moral shock,
degradation, social humiliation, and serious anxieties for which she became sick and had to be
hospitalized" the trial court found her entitled to moral and exemplary damages. The trial court also held
that CUBA was entitled to P100,000 attorney's fees in view of the considerable expenses she incurred for
lawyers' fees and in view of the finding that she was entitled to exemplary damages.
In its decision of 31 January 1990,
4
the trial court disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff:
1. DECLARING null and void and without any legal effect the act of defendant
Development Bank of the Philippines in appropriating for its own interest, without any
judicial or extra-judicial foreclosure, plaintiff's leasehold rights and interest over the
fishpond land in question under her Fishpond Lease Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between
the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and
the acts of notarial rescission of the Development Bank of the Philippines relative to said
sale (Exhs. 16 and 26) as void and ineffective;
3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the
Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh.
21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant
Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12,
1985 executed by defendant Agripina Caperal in favor of the defendant Development
Bank of the Philippines (Exh. 24) as void ab initio;
4. ORDERING defendant Development Bank of the Philippines and defendant Agripina
Caperal, jointly and severally, to restore to plaintiff the latter's leasehold rights and
interests and right of possession over the fishpond land in question, without prejudice to
the right of defendant Development Bank of the Philippines to foreclose the securities
given by plaintiff;
5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the
following amounts:
a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE
HUNDRED PESOS (P1,067,500.00), as and for actual damages;
b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as
moral damages;
c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for
exemplary damages;
d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS,
as and for attorney's fees;
6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay
to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS
(P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to
defendant Development Bank of the Philippines under their Deed of Conditional Sale.
CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former
sought an increase in the amount of damages, while the latter questioned the findings of fact and law of
the lower court.
In its decision
5
of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that
the deed of assignment was null and void and that defendant Caperal could not validly acquire the
leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was not a cession under
Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA cession
presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of
CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the
promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the
assignment of the leasehold rights, since she agreed to repurchase the said rights under a deed of
conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA
for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss
of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It,
however, deleted the amount of exemplary damages and reduced the award of moral damages from
P100,000 to P50,000 and attorney's fees, from P100,000 to P50,000.
The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba's
leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment
executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the
deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal,
and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn
over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the
following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as
attorney's fees.
Since their motions for reconsideration were denied,
6
DBP and CUBA filed separate petitions for review.
In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorney's fees
in favor of CUBA.
Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred
(1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article
2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory
notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment
when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing
the amounts of moral damages and attorney's fees, in deleting the award of exemplary damages, and in
not increasing the amount of damages.
We agree with CUBA that the assignment of leasehold rights was a mortgage contract.
It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which
was covered by a promissory note. In all of these notes, there was a provision that: "In the event of
foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves, jointly and severally,
to pay the deficiency, if any."
7

Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights"
8

where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the
improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the
assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself,
as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that "failure to
comply with the terms and condition of any of the loans shall cause all other loans to become due and
demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if "foreclosure is
actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation
shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended.
Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for
the payment of the loans; thus:
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of
her Leasehold Rights.
In People's Bank & Trust Co. vs. Odom,
9
this Court had the occasion to rule that an assignment to
guarantee an obligation is in effect a mortgage.
We find no merit in DBP's contention that the assignment novated the promissory notes in that the
obligation to pay a sum of money the loans (under the promissory notes) was substituted by the
assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by
CUBA, the said assignment merely complemented or supplemented the notes; both could stand together.
The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a
sum of money remained, and the assignment merely served as security for the loans covered by the
promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed
on the same dates the loans were granted. Also, the last paragraph of the assignment stated: "The
assignor further reiterates and states all terms, covenants, and conditions stipulated in the promissory
note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and
purposes, an integral part hereof."
Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the
plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the
existence of two or more creditors and involves the assignment of all the debtor's property.
Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads:
"Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall
be governed by the law on sales." It bears stressing that the assignment, being in its essence a
mortgage, was but a security and not a satisfaction of indebtedness.
10

We do not, however, buy CUBA's argument that condition no. 12 of the deed of assignment constituted
pactum commissorium. Said condition reads:
12. That effective upon the breach of any condition of this assignment, the Assignor
hereby appoints the Assignee his Attorney-in-fact with full power and authority to take
actual possession of the property above-described, together with all improvements
thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to
lease the same or any portion thereof and collect rentals, to make repairs or
improvements thereon and pay the same, to sell or otherwise dispose of whatever rights
the Assignor has or might have over said property and/or its improvements and perform
any other act which the Assignee may deem convenient to protect its interest. All
expenses advanced by the Assignee in connection with purpose above indicated which
shall bear the same rate of interest aforementioned are also guaranteed by this
Assignment. Any amount received from rents, administration, sale or disposal of said
property may be supplied by the Assignee to the payment of repairs, improvements,
taxes, assessments and other incidental expenses and obligations and the balance, if
any, to the payment of interest and then on the capital of the indebtedness secured
hereby. If after disposal or sale of said property and upon application of total amounts
received there shall remain a deficiency, said Assignor hereby binds himself to pay the
same to the Assignee upon demand, together with all interest thereon until fully paid. The
power herein granted shall not be revoked as long as the Assignor is indebted to the
Assignee and all acts that may be executed by the Assignee by virtue of said power are
hereby ratified.
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.
11

Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to
DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as
attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in
case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a
standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which
authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment
of the principal obligation.
DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted
by it during the pre-trial, it had "[w]ithout foreclosure proceedings, whether judicial or extrajudicial, . . .
appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question." Its contention
that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional
sale it executed in favor of CUBA. The deed stated:
WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by
the herein vendees [Cuba spouses] the former acquired all the right and interest of the
latter over the above-described property;
xxx xxx xxx
The title to the real estate property [sic] and all improvements thereon shall remain in the
name of the Vendor until after the purchase price, advances and interest shall have been
fully paid. (Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of
CUBA's leasehold rights merely on the strength of the deed of assignment.
DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the
leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default would operate to
vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the
present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on
the assignee.
12

At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil
Code, which forbids a credit or from appropriating, or disposing of, the thing given as security for the
payment of a debt.
The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her
from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As held by this Court in
some cases,
13
estoppel cannot give validity to an act that is prohibited by law or against public policy.
Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to
public policy, cannot be deemed validated by estoppel.
Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have
foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as
admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to
the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of
Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the
assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their
loan amortizations."
14
This only goes to show that DBP was aware of the necessity of foreclosure
proceedings.
In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of
Fisheries cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a
new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as
the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set
aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code.
Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the
consequent auction sale for failure to comply with the requirements laid down by law, such as Act No.
3135, as amended.
15
With more reason that the sale of property given as security for the payment of a
debt be set aside if there was no prior fore closure proceeding.
Hence, DBP should render an accounting of the income derived from the operation of the fishpond in
question and apply the said income in accordance with condition no. 12 of the deed of assignment which
provided: "Any amount received from rents, administration, . . . may be applied to the payment of repairs,
improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any,
to the payment of interest and then on the capital of the indebtedness. . ."
We shall now take up the issue of damages.
Article 2199 provides:
Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation
is referred to as actual or compensatory damages.
Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of
certainty.
16
A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have been suffered by the injured party and
on the best obtainable evidence of the actual amount thereof.
17
It must point out specific facts which
could afford a basis for measuring whatever compensatory or actual damages are borne.
18

In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of
P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which
represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected
CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and equipment was not proved by clear evidence.
Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those
items before DBP took over the fishpond in question. As pointed out by DBP, there was not "inventory of
the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is
left to the care of other persons." Neither was a single receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the
damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her
son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged
loss of several articles. Such claim for "losses of property," having been made before knowledge of the
alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or
subterfuge to justify her claim for actual damages.
With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus
which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such
loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after
the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged
loss. In fact, in her letter dated 24 October 1979,
19
she declared:
1. That from February to May 1978, I was then seriously ill in Manila and within the same
period I neglected the management and supervision of the cultivation and harvest of the
produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce
of the same in the amount of about P500,000.00 to my great damage and prejudice due
to fraudulent acts of some of my fishpond workers.
Nowhere in the said letter, which was written seven months after DBP took possession of the fishpond,
did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces of bangus, but all of
which died because of DBP's representatives prevented her men from feeding the fish.
The award of actual damages should, therefore, be struck down for lack of sufficient basis.
In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and
public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources
that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order
conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective
damages in the amount of P25,000 should likewise be awarded by way of example or correction for the
public good.
20
There being an award of exemplary damages, attorney's fees are also recoverable.
21

WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby
REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31
January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is
MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum
commissorium and the award of actual damages; and by reducing the amounts of moral damages from
P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorney's fees, from
P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an
accounting of the income derived from the operation of the fishpond in question.
Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well
as the statement of the account of Lydia P. Cuba, and for the determination of each party's financial
obligation to one another.
SO ORDERED.
_________
4.5 Tender of Payment and consignation
G.R. No. 134219 June 08, 2005
SPOUSES MARIO AND ELIZABETH TORCUATOR, petitioners,
vs.
SPOUSES REMEGIO AND GLORIA BERNABE and SPOUSES DIOSDADO and
LOURDES SALVADOR, respondents.
D E C I S I O N
TINGA, J .:
In the instant Petition,
1
spouses Mario and Elizabeth Torcuator assail the D E C I S I O N
2
of the
Court of Appeals in C.A.-G.R. CV No. 36427, which affirmed the trial courts dismissal of their
complaint for specific performance,
3
and its Resolution
4
which denied their motion for
reconsideration.
The facts as summarized by the Court of Appeals are as follows:
The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village, Muntinlupa, Metro-
Manila, with an area of 569 square meters and covered by TCT No. S-79773. The lower court
found that the above parcel of land was purchased by the spouses Diosdado and Lourdes
Salvador (Salvadors, for short) from the developers of Ayala Alabang subject, among others, to
the following conditions:--
"It is part of the condition of buying a lot in Ayala Alabang Village (a) that the lot buyer shall
deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors) which shall be
refunded to him if he builds a residence thereon within two (2) years of purchase, otherwise the
deposit shall be forfeited, (b) architectural plans for any improvement shall be approved by
Ayala Corporation, and (c) no lot may be resold by the buyer unless a residential house has been
constructed thereon (Ayala Corporation keeps the Torrens Title in their [sic] possession).
(p. 5, RTC Decision)
Evidences on record further reveal that on December 18, 1980, the Salvadors sold the parcel of
land to the spouses Remigio and Gloria Bernabe (Bernabes, for expediency). Given the above
restrictions, the Salvadors concomitantly executed a special power of attorney authorizing the
Bernabes to construct a residential house on the lot and to transfer the title of the property in their
names.
The Bernabes, on the other hand, without making any improvement, contracted to sell the parcel
of land to the spouses Mario and Elizabeth Torcuator (Torcuators, for brevity) sometime in
September of 1986. Then again, confronted by the Ayala Alabang restrictions, the parties agreed
to cause the sale between the Salvadors and the Bernabes cancelled (Exhibit "D"), in favor of (a)
a new deed of sale from the Salvadors directly to the Torcuators; (b) a new Irrevocable Special
Power of Attorney (Exhibit F) executed by the Salvadors to the Torcuators in order for the latter
to build a house on the land in question; and (c) an Irrevocable Special Power of Attorney
(Exhibit E) from the Salvadors to the Bernabes authorizing the latter to sell, transfer and convey,
with power of substitution, the subject lot.
The Torcuators thereafter had the plans of their house prepared and offered to pay the Bernabes
for the land upon delivery of the sale contract. For one reason or another, the deed of sale was
never consummated nor was payment on the said sale ever effected. Subseuqently, the Bernabes
sold the subject land to Leonardo Angeles, a brother-in-law (Exh. "7"). The document however is
not notarized. As a result, the Torcuators commenced the instant action against the Bernabes and
Salvadors for Specific Performance or Rescission with Damages.
After trial, the court a quo rendered its decision, the decretal portion reads:--
"From all the foregoing disquisition, especially since the plaintiffs did not suffer any real damage
(by January, 1987 they could have purchased another lot in Ayala Alabang, and the architectural
plans they commissioned Arch. Selga to prepare could then be used by the plaintiffs), the
complaint filed by the plaintiff spouses is dismissed. Since the plaintiff acted with sincerity and
without delay in asserting what they believed to be their prerogatives, i.e., without any malice or
desire to take advantage of another, the counter-claim interposed by the Bernabes against the
Torcuator spouses is similarly dismissed.
Makati, Metro-Manila, August 20, 1991.
5

The Court of Appeals dismissed the appeal, ruling that the sale between the Bernabes and the
Torcuators was tainted with serious irregularities and bad faith. The appellate court agreed with
the trial courts conclusion that the parties entered into the contract with the intention of reneging
on the stipulation disallowing the sale or transfer of vacant lots in Ayala Alabang Village.
It also ruled that the parties deprived the government of taxes when they made it appear that the
property was sold directly by the Salvadors to the Torcuators. Since there were actually two
sales, i.e., the first sale between the Salvadors and the Bernabes and the second between the
Bernabes and Torcuators, taxes should have been paid for both transfers.
6

The Court of Appeals denied petitioners motion for reconsideration in its Resolution
7
dated June
15, 1998.
Petitioners then filed the instant petition, averring that the appellate court erred in dismissing
their appeal on the strength of issues which were neither pleaded nor proved. The conditions
allegedly imposed by Ayala Corporation on the sale of lots in Ayala Alabang Village were: "(a)
that the lot-buyer shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the
Salvadors) which shall be refunded to him if he builds a residence thereon within two (2) years
of purchase, otherwise the deposit shall be forfeited; (b) architectural plans for any improvement
shall be approved by Ayala Corporation; and (c) no lot may be resold by the buyer unless a
residential house has been constructed thereon (Ayala Corporation keeps the Torrens title in their
(sic) possession.)"
8

According to petitioners, the stipulation prohibiting the sale of vacant lots in Ayala Alabang
Village, adverted to by the appellate court in its decision as evidence that the sale between the
Bernabes and the Torcuators was tainted with serious irregularities, was never presented or
offered in evidence by any of the parties. Without such stipulation having been presented,
marked and offered in evidence, the trial court and the appellate court should not have
considered the same.
The appellate court allegedly also erred in declaring that the contract of sale subject of the case is
void, as it was intended to deprive the government of revenue since the matter of taxes was not
even mentioned in the appealed decision of the trial court.
Further, petitioners assert that the contract was a perfected contract of sale not a mere contract to
sell. The trial court thus erred in declaring that the contract was void due only to petitioners
failure to deliver the agreed consideration. Likewise, the fact that the contract calls for the
payment of the agreed purchase price in United States Dollars does not result in the contract
being void. The most that could be demanded, in accordance with jurisprudence, is to pay the
obligation in Philippine currency.
Petitioners also dispute the trial courts finding that they did not suffer any real damage as a
result of the transaction. On the contrary, they claim that respondents refusal to transfer the
property caused them actual and moral damages.
Respondents filed their Comment/Opposition (To the Petition for Certiorari)
9
dated November 4,
1998 countering that petitioners knew of the condition prohibiting the sale of vacant lots in
Ayala Alabang Village as the same was annotated on the title of the property which was
submitted and adopted by both parties as their evidence. The fact that the agreement required
petitioners to construct a house in the name of the Salvadors shows that petitioners themselves
knew of the condition and acknowledged its validity.
As regards petitioners contention that the Court of Appeals should not have ruled on the matter
of taxes due the government, respondents assert that the appellate court has the power to review
the entire case to determine the validity of the judgment of the lower court. Thus, it may review
even matters which were not raised on appeal.
Respondents refer to the circumstances surrounding the transaction as proof that the parties
entered into a mere contract to sell and not a contract of sale. Allegedly, the memorandum
containing the agreement of the parties merely used the term "offer." The payment of the
purchase price was ostensibly a condition sine qua non to the execution of the deed of sale in
favor of petitioners, especially since the Bernabes came to the Philippines with the express
purpose of selling the property and were leaving for the United States as soon as they were paid.
Moreover, petitioners were required to construct a residential house on the property before it
could be sold to them in accordance with the condition imposed by Ayala Corporation.
Further, respondents maintain that the transaction was not consummated due to the fault of
petitioners who failed not only to prepare the necessary documentation but also to pay the
purchase price for the property. They also argue that the special power of attorney executed by
the Salvadors in favor of petitioners merely granted the latter the right to construct a residential
house on the property in the name of the Salvadors. The original document was not even given to
the Torcuators precisely because they have not paid the purchase price.
Petitioners filed a Reply
10
dated January 20, 1999 in reiteration of their arguments.
In the Resolution
11
dated February 10, 1999, the parties were required to file their respective
memoranda. Accordingly, petitioners filed their Memorandum
12
on April 19, 1999. On the other
hand, in view of respondents disappearance without notice, the Court resolved to dispense with
their memorandum.
13

The trial court denied petitioners complaint on three (3) grounds, namely: (1) the alleged nullity
of the contract between the parties as it violated Ayala Corporations condition that the
construction of a house is a prerequisite to any sale of lots in Ayala Alabang Village; (2) non-
payment of the purchase price; and (3) the nullity of the contract as it called for payment in
United States Dollars. To these reasons, the Court of Appeals added a fourth basis for denying
petitioners appeal and that is the alleged nullity of the agreement because it deprived the
government of taxes.
An analysis of the facts obtaining in this case leads us to affirm the assailed decisions although
from a slightly different but related thrust.
Let us begin by characterizing the agreement entered into by the parties, i.e., whether the
agreement is a contract to sell as the trial court ruled, or a contract of sale as petitioners insist.
The differences between a contract to sell and a contract of sale are well-settled in jurisprudence.
As early as 1951, we held that in a contract of sale, title passes to the buyer upon delivery of the
thing sold, while in a contract to sell, ownership is reserved in the seller and is not to pass until
the full payment of the purchase price is made. In the first case, non-payment of the price is a
negative resolutory condition; in the second case, full payment is a positive suspensive condition.
Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and
cannot recover the ownership of the land sold until and unless the contract of sale is itself
resolved and set aside. In the second case, however, the title remains in the vendor if the vendee
does not comply with the condition precedent of making payment at the time specified in the
contract.
14

In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the
buyer until full payment of the price or the fulfillment of some other conditions either of which is
a future and uncertain event the non-happening of which is not a breach, casual or serious, but
simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force.
15

We have carefully examined the agreement between the parties and are far from persuaded that it
was a contract of sale.
Firstly, the agreement imposed upon petitioners the obligation to fully pay the agreed purchase
price for the property. That ownership shall not pass to petitioners until they have fully paid the
price is implicit in the agreement. Notably, respondent Remigio Bernabe testified, without
objection on the part of petitioners, that he specifically informed petitioners that the transaction
should be completed, i.e., that he should receive the full payment for the property, before he left
for the United States on October 14, 1986.
16

Moreover, the deed of sale would have been issued only upon full payment of the purchase price,
among other things. Petitioner Mario Torcuator acknowledged this fact when he testified that the
deed of sale and original special power of attorney were only to be delivered upon full payment
of the purchase price.
17

As correctly observed by the trial court, the Salvadors did not execute a deed of sale in favor of
petitioners, and instead executed a special power of attorney authorizing the Bernabes to sell the
property on their behalf, in order to afford the latter a measure of protection that would guarantee
full payment of the purchase price before any deed of sale in favor of petitioners was executed.
Remarkably, the records are bereft of any indication that petitioners ever attempted to tender
payment or consign the purchase price as required by law. The Complaint
18
filed by petitioners
makes no mention at all of a tender of payment or consignation having been made, much less
that petitioners are willing and ready to pay the purchase price. Petitioners averments to the
effect that they have sufficient funds to pay for the property and have even applied for a
telegraphic transfer from their bank account to the Bernabes bank account, uncoupled with
actual tender and consignation, are utterly self- serving.
The trial court correctly noted that petitioners should have consigned the amount due in court
instead of merely sending respondents a letter expressing interest to push through with the
transaction. Mere sending of a letter by the vendee expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment. Consignation of the amount
due in court is essential in order to extinguish the obligation to pay and oblige the vendor to
convey title.
19

On this score, even assuming that the agreement was a contract of sale, respondents may not be
compelled to deliver the property and execute the deed of absolute sale. In cases such as the one
before us, which involve the performance of an obligation and not merely the exercise of a
privilege or right, payment may be effected not by mere tender alone but by both tender and
consignation. The rule is different in cases which involve an exercise of a right or privilege, such
as in an option contract, legal redemption or sale with right to repurchase, wherein mere tender
of payment would be sufficient to preserve the right or privilege.
20
Hence, absent a valid tender
of payment and consignation, petitioners are deemed to have failed to discharge their obligation
to pay.
Secondly, the parties clearly intended the construction of a residential house on the property as
another suspensive condition which had to be fulfilled. Ayala Corporation retained title to the
property and the Salvador spouses were precluded from selling it unless a residence had been
constructed thereon. The Ayala stipulation was a pervasive, albeit unwritten, condition in light of
which the transaction in this case was negotiated. The parties undoubtedly understood that they
had to contend with the Ayala stipulation which is why they resorted to the execution of a special
power of attorney authorizing petitioners to construct a residential building on the property in the
name of the Salvadors. Had the agreement been a contract of sale as petitioners would impress
upon the Court, the special power of attorney would have been entirely unnecessary as
petitioners would have had the right to compel the Salvadors to transfer ownership to them.
21

Thirdly, there was neither actual nor constructive delivery of the property to petitioners. Apart
from the fact that no public document evidencing the sale was executed, which would have been
considered equivalent to delivery, petitioners did not take actual, physical possession of the
property. The special power of attorney, which petitioners count on as evidence that they took
possession of the property, can by no means be interpreted as delivery or conveyance of
ownership over the property. Taken by itself, in fact, the special power of attorney can be
interpreted as tied up with any number of property arrangements, such as a contract of lease or a
joint venture. That is why respondents, especially the Salvadors, never intended to deliver the
title to petitioners and conformably with that they executed only a special power of attorney.
Indeed, continuously looming large as an essentiality in their judgment to dispose of their
valuable property is the prior or contemporaneous receipt of the commensurate price therefor.
This brings us to the application of the Statute of Frauds. Article 1403 of the Civil Code
provides:
Art. 1403. The following contracts are unenforceable unless they are ratified:

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the same,
or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by
his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property
or an interest therein;
. . . .
The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts,
such as agreements for the sale of real property, to be in writing. It does not deprive the parties
the right to contract with respect to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable. The purpose of the statute is to
prevent fraud and perjury in the enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be
evidenced by a writing signed by the party to be charged.
22
The written note or memorandum, as
contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.
23

In the instant case, petitioners present as written evidence of the agreement the special power of
attorney executed in their favor by the Salvadors and the summary of agreement
24
allegedly
initialed by respondent Remigio Bernabe. These documents do not suffice as notes or
memoranda as contemplated by Article 1403 of the Civil Code.
The special power of attorney does not contain the essential elements of the purported contract
and, more tellingly, does not even refer to any agreement for the sale of the property. In any case,
it was rendered virtually inoperable as a consequence of the Salvadors adamant refusal to part
with their title to the property.
The summary of agreement, on the other hand, is fatally deficient in the fundamentals and
ambiguous in the rest of its terms. For one, it does not mention when the alleged consideration
should be paid and transfer of ownership effected. The document does not even refer to a
particular property as the object thereof. For another, it is unclear whether the supposed purchase
price is P600.00, P590.00 or P570.00/square meter. The other conditions, such as payment of
documentary stamp taxes, capital gains tax and other registration expenses, are likewise
uncertain.
Conformably with Article 1405
25
of the Civil Code, however, respondents acceptance of the
agreement foisted by petitioners on them is deemed to have arisen from their failure to object to
the testimony of petitioner Mario Torcuator on the matter
26
and their cross-examination of said
petitioner thereon.
27

Be that as it may, considering our ruling that the agreement was a contract to sell, respondents
were not obliged to convey title to the property before the happening of two (2) suspensive
conditions, namely: full payment of the purchase price and construction of a residence on the
property. They were acting perfectly within their right when they considered the agreement
cancelled after unsuccessfully demanding payment from petitioners.
That said, the question of whether the transaction violated the Uniform Currency Act, Republic
Act No. 529, is already moot. The contract having been cancelled, any resolution regarding the
validity of the stipulation requiring payment of the purchase price in foreign currency would not
serve any further purpose.
Petitioners next insist that the condition requiring the construction of a house on any residential
lot located in Ayala Alabang Village before it can be sold was never submitted in evidence and
was never testified to by any of the witnesses presented during the trial. Hence, the trial court
and the Court of Appeals should not have used this as basis for its denial of petitioners cause.
This assertion, however, is completely untrue. While the Formal Offer of Evidence
28
of
petitioners, respondents Offer of Exhibits,
29
and the Formal Offer of Evidence (On Rebuttal)
30
of
petitioners make no mention of any stipulation prohibiting the sale of vacant lots in Ayala
Alabang Village, respondents maintain that petitioners are fully aware of the prohibition as the
conditions imposed by Ayala Corporation on the sale of Ayala Alabang lots are inscribed on the
title of the property which was submitted in evidence by both parties.
Despite petitioners remonstration that the inscriptions on the title are "hardly legible,"
31
we are
inclined to give credence to respondents account. It is quite implausible that a lawyer such as
petitioner Mario Torcuator would not take the precaution of checking the original title of the
property with the Registry of Deeds to ascertain whether there are annotations therein that would
prejudice his position.
More importantly, petitioner Mario Torcuator himself testified on the existence of the condition
prohibiting the sale of vacant lots in Ayala Alabang Village, viz:
ATTY. J. DE DIOS, JR.
Q -Mr. witness aside from this summary of agreement which has been marked as Exhibit "J" do
you still have a document relating to his transaction between you and the defendant?
A -Yes, sir, as I indicated in my earlier testimony there was supposed to be a letter addressed to
Ayala Corporation which defendant Salvador should sign in order to request Ayala to deliver to
me the TCT covering the lot subject of the transaction.
Q -This letter that you are referring to do you still have a copy of that letter?
A -Yes, sir.
Q -I am showing to you a xerox copy of a letter addressed to Ayala Corporation and signed by
Diosdado and Lourdes Salvador, can you please explain to this Court what is the relation of this
document with what you are referring to executed by the defendant Diosdado Salvador and
Lourdes Salvador addressed to Ayala Corporation?
A -This is the letter of Mr. Salvador, sir, signed in my presence.
Q -Can you tell the Court where is the original of this document?
A -All of the original copies of that letter are with the defendant Bernabe, sir.
Q -Can you tell the Court how did you come to have a xerox copy of this document?
A -Yes, because as soon as the copies of the documents for the transaction were signed by Mrs.
Salvador who was then in New York, they were sent by the spouses to the daughter of Mr.
Salvador who in turn told me that all the originals are supposed to be delivered to Mr. Bernabe
and I was given a xerox copy of the same.
- And which for purpose of identification, your Honor, may we request that this letter addressed
to Ayala Corporation and signed by Diosdado Salvador and Lourdes Salvador be marked as
Exhibit "K" for the plaintiff, your Honor.
COURT
- Mark it.
. . .
- Mr. Witness, this letter appears to be, does it contain any date? Can you tell this Court why this
document does not contain the date?
ATTY. A. MAGNO
- Incompetent, your Honor, because he was not the one who made that document.
COURT
- Let him explain.
ATTY. MAGNO
- Yes, your Honor.
- Because, your Honor, there is a requirement by Ayala Corporation that no lot or property
may be transferred until there is a complete building or structure built on the lot and so
what I was supposed to get only from Mr. Salvador, aside from the deed of absolute sale, is
merely a special power of attorney to authorize me to construct my house in the lot and
upon completion of the house that is the time that I would be allowed by Ayala
Corporation to transfer the property in my name. Therefore, the letter requesting Ayala
Corporation to release the title in the name of Mr. Salvador to was deliberately undated because
it would be only dated when I completed the house.
32
[Emphasis supplied]
The fact that petitioners agreed to construct a residential house on the property in the name of the
Salvadors further proves that they knew that a direct sale to them of a vacant lot would
contravene the condition imposed by Ayala Corporation on the original buyers of lots in Ayala
Alabang Village. Hence, they agreed on the elaborate plan whereby the Salvador spouses, in
whose names the property was registered, would execute a special power of attorney in favor of
petitioners authorizing the latter to construct a residential house on the property in the name of
the Salvadors. The records even indicate that the documents to effectuate this plan were prepared
by petitioner Mario Torcuator himself.
In his testimony, for instance, petitioner Mario Torcuator stated that: "[B]ased on our discussion,
your Honor, from the P600 per square meter price, we agreed upon, they agreed to give me a
rebate of 5% in the form of discount because there was a problem in the documentation which I
tried to solve which are the papers in favor of Bernabe missing. I suggested to Mr. Bernabe that
we prepare a new set of document which will be signed by Mr. Salvador as the previous owner
and because of that I will be getting in effect a 5% discount as my commission."
33

This was confirmed by respondent Remigio Bernabe:
Q - Now, where there any documents presented to you during that
occasion?
A - Yes, sir.
Q - By whom?
A - Mr. Torcuator prepared some documents for me to sign.
Q - And do you recall what was that documents?
A - Yes, sir. Mr. Torcuator prepared a documents for cancellation
of the deed of sale of Mr. Salvador to Remigio Bernabe, and cancellation also of the irrevocable
power of attorney of Salvador to Bernabe, and power of attorney of Salvador authorizing
Remigio Bernabe to sell the property and power of attorney of Salvador given to Mr.
Torcuator.
34

Petitioners therefore cannot feign ignorance of the condition imposed by Ayala Corporation.
We do not agree, however, with the trial court and appellate courts ruling that the transaction
between the parties was void for being contrary to good customs and morals.
35

In order to declare the agreement void for being contrary to good customs and morals, it must
first be shown that the object, cause or purpose thereof contravenes the generally accepted
principles of morality which have received some kind of social and practical confirmation.
36

We are not inclined to rule that the transaction in this case offended good customs and morals. It
should be emphasized that the proscription imposed by Ayala Corporation was on the resale of
the property without a residential house having been constructed thereon. The condition did not
require that the original lot buyer should himself construct a residential house on the property,
only that the original buyer may not resell a vacant lot. In view of our finding that the agreement
between the parties was a mere contract to sell, no violation of the condition may be inferred
from the transaction as no transfer of ownership was made. In fact, the agreement in this case
that petitioners will construct a residential house on the property in the name of the Salvadors
(who retained ownership of the property until the fulfillment of the twin conditions of payment
and construction of a residence) was actually in compliance with or obeisance to the condition.
Finally, the issue of whether the agreement violated the law as it deprived the government of
capital gains tax is wholly irrelevant. Capital gains taxes, after all, are only imposed on gains
presumed to have been realized from sales, exchanges or dispositions of property. Having
declared that the contract to sell in this case was aborted by petitioners failure to comply with
the twin suspensive conditions of full payment and construction of a residence, the obligation to
pay taxes never arose. Hence, any error the appellate court may have committed when it passed
upon the issue of taxes despite the fact that no evidence on the matter was pleaded, adduced or
proved is rather innocuous and does not warrant reversal of the decisions under review.
WHEREFORE, the instant petition is DENIED. Costs against petitioners.
SO ORDERED.
_________
G.R. No. 169501 June 8, 2007
B.E. SAN DIEGO, INC., petitioner,
vs.
ROSARIO T. ALZUL, respondent.
D E C I S I O N
VELASCO, JR., J .:
The Case
This Petition for Review on Certiorari
1
under Rule 45 questions the February 18, 2005 Decision
2

of the Court of Appeals (CA) in CA-G.R. SP No. 81341, which granted respondent Alzul the
right to pay the balance of the purchase price within five (5) days from receipt of the CA
Decision despite the lapse of the original period given to said party through the final Resolution
of this Court in an earlier case. The CA ruling reversed the September 18, 2003 Resolution
3
and
December 2, 2003 Order
4
of the Office of the President (OP) in O.P. Case No. 01-1-097, which
upheld the dismissal of respondent Alzuls complaint for consignation and specific performance
before the Housing and Land Use Regulatory Board (HLURB) in HLURB Case No. REM-A-
99097-0167. Likewise challenged is the August 31, 2005 CA Resolution
5
rejecting petitioners
Motion for Reconsideration.
The Facts
The facts culled by the CA are as follows:
On February 10, 1975, [respondent] Rosario T. Alzul purchased from [petitioner] B.E. San
Diego, Inc. four (4) subdivision lots with an aggregate area of 1,275 square meters located at
Aurora Subdivision, Maysilo, Malabon. These lots, which are now subject of this petition, were
bought through installment under Contract to Sell No. 867 at One Hundred Pesos (100.00) per
square meter, with a downpayment [sic] of Twelve Thousand Seven Hundred Fifty Pesos
(12,750.00), and monthly installments of One Thousand Two Hundred Forty-Nine Pesos
(1,249.50). The interest agreed upon was 12 percent (12%) per annum until fully paid, thus,
the total purchase price was Two Hundred Thirty Seven Thousand Six Hundred Sixty Pesos
(237,660.00).
[Respondent] took immediate possession of the subject property, setting up a perimeter fence and
constructing a house thereon.
On July 25, 1977, [respondent] signed a "Conditional Deed of Assignment and Transfer of
Rights" which assigned to a certain Wilson P. Yu her rights under the Contract to Sell.
[Petitioner] was notified of the execution of such deed. Later on, the Contract to Sell in
[respondents] name was cancelled, and [petitioner] issued a new one in favor of Yu although it
was also denominated as "Contract to Sell No. 867".
On July 4, 1979, [respondent] informed [petitioner] about Yus failure and refusal to pay the
amounts due under the conditional deed. She also manifested that she would be the one to pay
the installments due to respondent on account of Yus default.
On August 25, 1980, [respondent] commenced an action for rescission of the conditional deed of
assignment against Yu before the Regional Trial Court of Caloocan City. Subsequently, on
September 30, 1985, [respondent] caused the annotation of notices of lis pendens on the titles
covering the subject lots.
The trial court ruled in [respondents] favor in the rescission case. The decision was even
affirmed by this [appellate] Court. Yu brought his cause before the Supreme Court in a Petition
for Review, but this was likewise denied.
On February 17, 1989, [petitioner] notified [respondent] that Contract to Sell No. 867 was
declared rescinded and cancelled. On April 28, 1989, the subject lots were sold to spouses Carlos
and Sandra Ventura who were allegedly surprised to find the annotation of lis pendens in their
owners duplicate title.
On May 8, 1990, the Ventura spouses filed an action for Quieting of Title with Prayer for
Cancellation of Annotation and Damages before the Regional Trial Court of Malabon. The trial
court ruled in favor of the Ventura spouses. On appeal before this [appellate] Court, however, the
decision was reversed on November 27, 1992, as follows:
"WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE, and the
complaint therein is ordered dismissed. Transfer Certificates of Title Nos. N-1922, N-1923, N-
1924, and N-1925, all of the Register of Deeds of Metro Manila, District III, Malabon Branch, in
the names of plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby declared
null and void, and the titles of ownership reinstated in the name of B.E. San Diego, Inc. with the
corresponding notices of lis pendens therein annotated in favor of defendant-appellant until such
time that ownership of the subject parcels of land is transferred to herein defendant-appellant
Rosario Alzul. Costs against plaintiff-appellees.
SO ORDERED."
Upon filing of an appeal to the Supreme Court docketed as GR No. 109078, the above decision
was affirmed on December 26, 1995. A motion for reconsideration was filed, but this was denied
by the Highest Tribunal on February 5, 1996.
On June 17, 1996, a resolution was issued by the Supreme Court, ordering, as follows:
"We, however, agree with the observation made by movants that no time limit was set by the
respondent Court of Appeals in its assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc. the original owner of the properties in litigation. To rectify
such oversight, private respondent Rosario T. Alzul is hereby given a non-extendible period of
thirty (30) days from entry of judgment, within which to make full payment for the properties in
question. xxx" (Emphasis supplied.)
On July 12, 1996, an Entry of Judgment was issued. In an attempt to comply with the Supreme
Courts directive, herein [respondent] tried to serve payment upon [petitioner] on August 29,
1996, August 30, 1996 and September 28, 1996. On all these dates, however, [petitioner]
allegedly refused to accept payment from [respondent].
On November 11, 1996, [respondent] filed a Manifestation in GR No. 109078 informing the
Supreme Court that [petitioner], on three (3) occasions, refused to accept [her] payment of the
balance in the amount of 187,380.00. On January 29, 1997, a Resolution was issued by the
Supreme Court referring the case to the court of origin for appropriate action, on account of
[respondents] manifestation.
On October 21, 1997, [respondents] counsel wrote a letter to [petitioner] citing the latters
refusal to accept her payment on several occasions. It was also mentioned therein that due to its
refusal, [respondent] would just consign the balance due to [petitioner] before the proper judicial
authority.
On January 14, 1998, a reply was sent by [petitioner] through a certain Flora San Diego.
[Respondents] request was rejected on account of the following:
1. We have long legally rescinded the sale in her favor in view of her failure to pay the monthly
amortization as per contract.
2. She sold her rights to Mr. Wilson Yu who failed to pay his monthly amortizations, too.
3. We are not and have never been a part of the case you are alluding to hence we cannot be
bound by the same.
4. The property in question is now under process to be reconveyed to us as ordered by the court
by virtue of a compromised (sic) agreement entered into in Civil Case No. 2655 MN of the
Malabon RTC Branch entitled Spouses Carlos Ventura and Sandra Ventura vs. B.E. San Diego,
Inc. xxx
Thinking that an action for consignation alone would not be sufficient to allow for the execution
of a final judgment in her favor, [respondent] decided to file an action for consignation and
specific performance against [petitioner] before the Housing and Land Use Regulatory Board on
March 12, 1998. The complaint, docketed as REM-031298-10039, prayed that a) [respondent] be
considered to have fully paid the total purchase price of the subject properties; b) TCT Nos. N-
155545 to 48 which were declared void in CA GR No. L-109078 be cancelled; c) new
certificates of title over the subject properties be issued in the name of [respondent]; and d)
[petitioner] be ordered to reimburse [respondent] the sum of Fifty Thousand Pesos (50,000.00)
as attorneys fees and litigation expenses.
On July 12, 1999, a decision was rendered by the HLURB through Housing and Land Use
Arbiter Dunstan T. San Vicente. It was held, thus:
"The purported "consignation" in this case is thus of no moment, inasmuch as the amount
allegedly due was not even deposited or placed at the disposal of this Office by the complainant.
In any event, we agree with [petitioner] that even if the complainant had actually made the
consignation of the amount, such consignation is still ineffective and void for having been done
long after the expiration of the non-extendible period set forth in the 17 June 1996 Supreme
Court Resolution that expired on 20 September 1996.
WHEREFORE, Premises Considered, a judgment is hereby rendered DISMISSING the
complaint. Cost against complainant.
IT (sic) SO ORDERED."
Aggrieved by the above decision, [respondent] filed a Petition for Review before the HLURBs
First Division. On March 17, 2000, a decision was rendered dismissing the petition for lack of
merit, and affirming the decision dated July 12, 1999. [Respondent] filed a Motion for
Reconsideration, but this was denied on July 31, 2001.
[Respondent] then filed an appeal to the Office of the President. This was, however, dismissed
on June 2, 2003 for having been filed out of time. Again, [respondent] moved for its
reconsideration. On September 18, 2003, the Office of the President gave due course to
[respondents] motion, and resolved the motion according to its merits. The single question
resolved was whether or not [respondents] offer of consignation was correctly denied by the
HLURB. Said office ruled in the affirmative, and We quote:
"From the foregoing, it is evident that there was no valid consignation of the balance of the
purchase price. The 30-day non-extendible period set forth in the 17 June 1996 resolution had
already expired on 20 September 1996. The HLURB is therefore justified in refusing the
consignation, otherwise it would be accused of extending the period beyond that provided by the
Supreme Court. A valid consignation is effected when there is an actual consignation of the
amount due within the prescribed period (St. Dominic Corporation vs. Intermediate Appellate
Court, 138 SCRA 242). x x x
WHEREFORE, premises considered, the appeal is hereby DISMISSED for lack of merit. x x x"
[Respondent] filed a Motion for Reconsideration [of] the above Resolution, but this was denied
with finality on December 2, 2003.
6

The Ruling of the Court of Appeals
Respondent Alzul brought before the CA a petition for certiorari docketed as CA-G.R. SP No.
67637, ascribing grave abuse of discretion to the OP in dismissing her appeal in O.P. Case No.
01-1-097 and affirming the March 17, 2000 Decision
7
and July 31, 2001 Resolution
8
of the
HLURB First Division in HLURB Case No. REM-A-990907-0167.
On February 18, 2005, the CA rendered its assailed Decision reversing the September 18, 2003
Resolution and December 2, 2003 Order of the OP, the fallo of which reads:
WHEREFORE, in the higher interest of justice, the assailed Decision, Resolution and Order
dated March 17, 2000, September 18, 2003 and December 2, 2003, respectively, are hereby
REVERSED and SET ASIDE. Accordingly, [respondent Alzul] is hereby ordered to pay
[petitioner B.E. San Diego, Inc.] the balance due for the sale of the subject four parcels of land
within five (5) days from receipt of this decision. [Petitioner B.E. San Diego, Inc.], on the other
hand, is ordered to accept such payment from [respondent Alzul], after which, the corresponding
Deed of Sale must be issued.
SO ORDERED.
9

The CA agreed with the HLURB that no valid consignation was made by respondent but found
that justice would be better served by allowing respondent Alzul to effect the consignation, albeit
belatedly. It cited the respondents right over the disputed lots as confirmed by this Court in G.R.
No. 109078, which, if taken away on account of the delay in completing the payment, would
amount to a grave injustice.
Moreover, the CA pointed out that respondents counsel concededly lacked the vigilance and
competence in defending his clients right when he failed to consign the balance on time;
nonetheless, such may be disregarded in the interest of justice. It considered the failure of
respondents counsel to avail of the remedy of consignation as a procedural lapse, citing the
principle that where a rigid application of the rules will result in a manifest failure or miscarriage
of justice, technicalities can be ignored.
A copy of the February 18, 2005 CA Decision was received by respondent Alzul through her
counsel on February 24, 2005.
On March 4, 2005, respondent filed a Compliance and Motion for Extension of Time to Comply
with the Decision of the [CA]
10
praying that she be given an extension of ten (10) days or from
March 2 to 11, 2005 to comply with the CA Decision. On the other hand, on March 8, 2005,
petitioner filed its Motion for Reconsideration with Opposition to Petitioners "Motion for
Extension of Time to Comply with the Decision of the [CA]."
11

Through its assailed August 31, 2005 Resolution, the CA denied petitioners Motion for
Reconsideration, and finding that respondent duly exerted efforts to comply with its Decision
and a valid consignation was made by respondent, it granted the requested 10-day extension of
time to comply with the February 18, 2005 Decision and her motion for consignation. The fallo
of said Resolution reads:
IN VIEW OF THE FOREGOING, the motion for extension to comply with the Decision is
hereby GRANTED, the motion for reconsideration is DENIED and the motion for consignation
is GRANTED. [Petitioner] B.E. San Diego, Inc. is hereby ordered to receive the payment of
[respondent] Rosario T. Alzul and to issue, in her favor, the corresponding Deed of Sale.
12

The Issues
Hence, before us is the instant petition with the following issues:
1. Whether or not the Court of Appeals, in issuing the assailed 18 February 2005 Decision and
31 August 2005 Resolution in CA-G.R. SP No. 81341, has decided questions of law in a way not
in accord with law and with the applicable decisions of the Honorable Court;
2. Whether or not the Court of Appeals committed patent grave abuse of discretion and/or acted
without or in excess of jurisdiction in granting respondent Alzuls subsequent motion for
extension of time to comply with the 18 February 2005 decision and motion for consignation;
and
3. Whether or not the 18 February 2005 Decision and 31 August 2005 Resolution of the Court of
Appeals in CA-G.R. SP No. 81341 ought to be annulled and set aside, for being contrary to law
and jurisprudence.
13

The Courts Ruling
On the procedural issue, petitioner B.E. San Diego, Inc. assails the sufficiency of respondent
Alzuls CA petition as the latter, in violation of the rules, allegedly lacked the essential and
relevant pleadings filed with the HLURB and the OP.
Section 6 of Rule 43, 1997 Rules of Civil Procedure pertinently provides:
SEC. 6. Contents of the petition.The petition for review shall x x x (c) be accompanied by a
clearly legible duplicate original or a certified true copy of the award, judgment, final order or
resolution appealed from, together with certified true copies of such material portions of the
record referred to therein and other supporting papers; x x x (Emphasis supplied.)
The above proviso explicitly requires the following to be appended to a petition: 1) clearly
legible duplicate original or a certified true copy of the award, judgment, final order, or
resolution appealed from; 2) certified true copies of such material portions of the record referred
to in the petition; and 3) other supporting papers.
Obviously, the main reason for the prescribed attachments is to facilitate the review and
evaluation of the petition by making readily available to the CA all the orders, resolutions,
decisions, pleadings, transcripts, documents, and pieces of evidence that are material and
relevant to the issues presented in the petition without relying on the case records of the lower
court. The rule is the reviewing court can determine the merits of the petition solely on the basis
of the submissions by the parties
14
without the use of the records of the court a quo. It is a fact
that it takes several months before the records are elevated to the higher court, thus the resulting
delay in the review of the petition. The attachment of all essential and necessary papers and
documents is mandatory; otherwise, the petition can be rejected outright under Sec. 7 of Rule 43
of the Rules of Court, which provides:
Effect of failure to comply with requirements.The failure of the petitioner to comply with any
of the foregoing requirements regarding the payment of the docket and other lawful fees, the
deposit for costs, proof of service of the petition, and the contents of and the documents which
should accompany the petition shall be sufficient ground for the dismissal thereof.
To prevent premature dismissals, the requirements under Sec. 6 on the contents of the petition
have to be elucidated.
First, there can be no question that only the award, judgment, or final order or resolution issued
by the lower court or agency and appealed from has to be certified as true.
The second set of attachments refers to the "certified true copies of such material portions of the
record referred to therein."
Material is defined as "important; more or less necessary; having influence or effect; going to the
merits; having to do with matter, as distinguished from form."
15
Thus, material portions of the
records are those parts of the records that are relevant and directly bear on the issues and
arguments raised and discussed in the petition. They may include any of the pleadings that are
subject of any issue, documentary evidence, transcripts of testimonial evidence, and parts of the
records pertinent and relevant to the grounds supporting the petition. The attachment of the
material portions is subject to the qualification that these are referred to or cited in the petition.
Thus, only the material parts specified in the petition have to be appended and that would be
sufficient compliance with the rule as to form.
It would be prudent however for the petitioner to attach all parts of the records which are
relevant, necessary, or important in whatever way to be able to reach the resolution of the issues
of the petition. The availability of such documents to the ponente and members of a Division can
easily provide the substance and support to the merits of the grounds put forward by the
petitioner. Moreover, the processing time for the review and resolution of the petition is greatly
abbreviated, thereby obviating intolerable delays.
Lastly, it has to be explained whether the material portions of the records have to be certified as
true by the clerk of court or his/her duly authorized representative as provided in Sec. 6 of Rule
43. If strictly required, the rule to require attachment of certified true copies of the material
portions will surely make the preparation of the petition more tedious, cumbersome, and
expensive. It should therefore be construed that merely clear and legible copies of the material
portions will suffice. The rules on the different modes of appeal from the lower courts or quasi-
judicial agencies to the CA reveal that it is only Rule 43 that specifically states that the material
portions to be appended to the petition should be certified true copies. Rule 41 of course does not
require attachment of the pertinent records since the entire records are elevated to the CA. Rule
42 on petition for review from the trial court in aid of its appellate jurisdiction to the CA speaks
of plain copies of the material portions of the record as would support the allegations of the
petition.
16
Even Rule 45 on appeal by certiorari from the CA to this Court simply speaks of
material portions of the records without indicating that these should be certified true copies. Rule
46 on original cases to this Court only requires plain copies of the material portions of the
records. Finally, Rule 65 on special civil actions requires only copies of relevant and pertinent
pleadings and documents.
From the foregoing premises, the inescapable conclusion is that only plain and clear copies of the
material portions of the records are required under Sec. 3 of Rule 43. This finding is buttressed
by our ruling in Cadayona v. CA, where it was held that only judgments or final orders of the
lower courts are needed to be certified true copies or duplicate originals.
17
There is no plausible
reason why a different treatment or stricter requirement should be applied to petitions under Rule
43.
The last requirement is the attachment of "other supporting papers." Again, it is only in Rule 43
that we encounter the requirement of annexing "supporting papers" to the petition. This can be
interpreted to mean other documents, pictures, and pieces of evidence not forming parts of the
records of the lower court or agency that can bolster and shore up the petition. While not so
specified in Sec. 3 of Rule 43, it is inarguable that said papers must also be relevant and material
to the petition; otherwise, the attachments would be mere surplusages and devoid of use and
value.
Petitioner claims respondents petition in CA-G.R. SP No. 81341 failed to attach material
documents of the records of the HLURB and the OP. They cry foul that none of the pleadings
filed with the HLURB and the OP found their way into the CA petition. It prays that the CA
petition should have been dismissed under Sec. 7 of Rule 43 due to the lack of needed
attachments.
Petitioners postulation must fail.
Sec. 7 of Rule 43 does not prescribe outright rejection of the petition if it is not accompanied by
the required documents but simply gives the discretion to the CA to determine whether such
breach constitutes a "sufficient ground" for dismissal. Apparently, petitioner was not able to
convince the CA that the alleged missing attachments deprived said court of the full opportunity
and facility in examining and resolving the petition. It has not been satisfactorily shown that the
pleadings filed by petitioner with the quasi-judicial agencies have material bearing or importance
to the CA petition. Such pleadings could have been attached to the comment of respondent and
hence, no prejudice would be suffered. Thus, the CA did not exercise its discretion in an
arbitrary or oppressive manner by giving due course to the petition.
In addition, it was noted in Cusi-Hernandez v. Diaz that the CA Revised Internal Rules provide
certain flexibility in the submission of additional documents:
When a petition does not have the complete annexes or the required number of copies, the Chief
of the Judicial Records Division shall require the petitioner to complete the annexes or file the
necessary number of copies of the petition before docketing the case. Pleadings improperly filed
in court shall be returned to the sender by the Chief of the Judicial Records Division.
18

In Rosa Yap Paras, et al. v. Judge Ismael O. Baldado, et al., the Court preferred the
determination of cases on the merits over technicality or procedural imperfections so that the
ends of justice would be served better, thus:
At the same time, the Rules of Court encourage a reading of the procedural requirements in a
manner that will help secure and not defeat justice. Thus:
Section 6. Construction.These Rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and proceeding.
As expressed in Alberto vs. Court of Appeals, "(w)hat should guide judicial action is the
principle that a party-litigant is to be given the fullest opportunity to establish the merits of his
complaint or defense rather than for him to lose life, liberty, honor or property on technicalities.
x x x (T)he rules of procedure should be viewed as mere tools designed to facilitate the
attainment of justice. Their strict and rigid application, which would result in technicalities that
tend to frustrate rather than promote substantial justice, must always be eschewed."
19

Now we will address the main issuewhether respondent Alzul is still entitled to consignation
despite the lapse of the period provided by the Court in G.R. No. 109078 entitled Yu v. Court of
Appeals.
Petitioner stresses the fact that respondent Alzul did not comply with this Courts June 17, 1996
Resolution
20
which gave a non-extendible period of thirty (30) days from entry of judgment
within which to make full payment for the subject properties. The entry of judgment shows that
the December 26, 1995 Resolution
21
in G.R. No. 109078 became final and executory on July 2,
1996. Respondent Alzul received through counsel a copy of the entry of judgment on August 21,
1996. Thus, respondent had until September 20, 1996 within which to make the full payment.
After three (3) unsuccessful tenders of payment, respondent Alzul made no consignation of the
amount to the court of origin. It was only on March 12, 1998 or about a year and a half later that
respondent offered to consign said amount in an action for consignment before the HLURB.
Relying on the case of St. Dominic Corporation v. Intermediate Appellate Court,
22
petitioner
strongly asserts that upon its refusal to accept the tendered payment, respondent ought to have
consigned it with the court of origin also within the 30-day period or within a reasonable time
thereafter. Respondent failed to do this as she waited for a year and a half before instituting the
instant action for specific performance and consignment before the HLURB.
Moreover, petitioner argues that respondents delay of a year and a half to pursue full payment
must be regarded as a waiver on her part to claim whatever residual remedies she might still have
for the enforcement of the June 17, 1996 Resolution in G.R. No. 109078.
Petitioner further contends that even if the action before the HLURB was made on time, that is,
within the 30-day period, still it is fatally defective as respondent did not deposit any amount
with the HLURB which violated the rules for consignment which require actual deposit of the
amount allegedly due with the proper judicial authority.
Premised upon these considerations, petitioner faults the appellate court for its grant of
respondents petition for review which nullified the denial by the HLURB Arbiter, HLURB First
Division, and the OP of respondents action.
On the other hand, respondent contends that the June 17, 1996 Resolution of this Court should
not be construed against her inability to effect payment due to the obstinate and unjust refusal by
petitionera supervening circumstance beyond her control. Respondent underscores that within
the 30-day period, she repeatedly attempted to effect the payment to no avail. Moreover, the
much delayed response of petitioner embodied in its January 14, 1998 letter
23
confirming its
refusal was based on untenable, baseless, and contrived grounds.
Moreover, she argues that the December 26, 1995 Resolution in G.R. No. 109078 granting her
proprietary rights over the subject lots has long become final and executory.
Anent the issue of laches and estoppel, respondent strongly contends that such do not apply in
the instant case as incontrovertible circumstances show that she has relentlessly pursued the
protection and enforcement of her rights over the disputed lots for over a quarter of a century.
After a careful study of the factual milieu, applicable laws, and jurisprudence, we find the
petition meritorious.
Respondent Alzul was accorded legal rights over subject properties
In G.R. No. 109078, finding no reversible error on the part of the CA, we denied Wilson P. Yus
petition and affirmed the appellate courts ruling that as between Wilson P. Yu, the Ventura
spouses, petitioner B.E. San Diego, Inc., and respondent Alzul, respondent has inchoate
proprietary rights over the disputed lots. We upheld the CA ruling declaring as "null and void"
the titles issued in the name of the Ventura spouses and reinstating them in the name of B.E. San
Diego, Inc., with the corresponding notices of lis pendens annotated on them in favor of
respondent until such time that ownership of the subject parcels of land is transferred to
respondent Rosario Alzul.
It is thus clear that we accorded respondent Alzul expectant rights over the disputed lots, but
such is conditioned on the payment of the balance of the purchase price. Having been conceded
such rights, respondent had the obligation to pay the remaining balance to vest absolute title and
rights of ownership in his name over the subject properties.
In our June 17, 1996 Resolution, we clearly specified thirty (30) days from entry of judgment for
respondent to promptly effect the full payment of the balance of the purchase price for the
subject properties, thus:
We however agree with the observation made by movants that no time limit was set by the
respondent Court of Appeals in its assailed Decision for the private respondent herein, Rosario
Alzul, to pay B.E. San Diego, Inc., the original owner of the properties in litigation. To rectify
such oversight, private respondent Rosario T. Alzul is hereby given a non-extendible period of
thirty (30) days from entry of judgment, within which to make full payment for the properties in
question.
24
(Emphasis supplied.)
The non-compliance with our June 17, 1996 Resolution is fatal to respondent Alzuls action for
consignation and specific performance
Unfortunately, respondent failed to effect such full payment of the balance of the purchase price
for the subject properties.
No consignation within the 30-day period or at a reasonable time thereafter
It is clear as day that respondent did not attempt nor pursue consignation within the 30-day
period given to her in accordance with the prescribed legal procedure. She received a copy of the
entry of judgment on August 21, 1996 and had 30 days or until September 20, 1996 to pay the
balance of the purchase price to petitioner. She made a tender of payment on August 29, 1996,
August 30, 1996, and September 28, 1996, all of which were refused by petitioner possibly
because the latter is of the view that it is not bound by the November 27, 1992 Decision in CA-
G.R. CV No. 33619 nor the December 26, 1995 Resolution in G.R. No. 109078, and the fact that
respondent has forfeited her rights to the lots because of her failure to pay the monthly
amortizations.
It must be borne in mind however that a mere tender of payment is not enough to extinguish an
obligation. In Meat Packing Corporation of the Philippines v. Sandiganbayan, we distinguished
consignation from tender of payment and reiterated the rule that both must be validly done in
order to effect the extinguishment of the obligation, thus:
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a prior tender of
payment. It should be distinguished from tender of payment. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. Tender and consignation, where validly made, produces the effect of
payment and extinguishes the obligation.
25
There is no dispute that a valid tender of payment had been made by respondent. Absent
however a valid consignation, mere tender will not suffice to extinguish her obligation and
consummate the acquisition of the subject properties.
In St. Dominic Corporation involving the payment of the installment balance for the purchase of
a lot similar to the case at bar, where a period has been judicially directed to effect the payment,
the Court held that a valid consignation is made when the amount is consigned with the court
within the required period or within a reasonable time thereafter. We ruled as follows:
First of all, the decision of the then Court of Appeals which was promulgated on October 21,
1981, is quite clear when it ordered the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof" meaning from the receipt of the decision by the
respondents. It is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the payment. Upon refusal
by the petitioner to receive such payment, the proper procedure was for the respondent to
consign the same with the court also within the 60-day period or within a reasonable time
thereafter.
26
The records also reveal that respondent failed to effect consignation within a reasonable time
after the 30-day period which expired on September 20, 1996. Instead of consigning the amount
with the court of origin, respondent filed her November 11, 1996 Manifestation informing this
Court of petitioners unjust refusal of the tender of payment. We acted favorably to it by issuing
our January 28, 1997 Resolution which ordered, thus:
Considering the manifestation, dated November 11, 1996, filed by counsel for private respondent
Rosario T. Alzul, stating that private respondent tendered to B.E. San Diego, Inc. the payment of
the sum of P187,380.00 representing the balance of the purchase price of the properties which
are the subject of this litigation, but B.E. San Diego, Inc., refused to accept the same, the Court
resolved to REFER the case to the court of origin, for appropriate action.
27

Respondent still failed to take the cue by her inaction to consign the amount with the court of
origin. Undoubtedly, pursuing the action for consignation on March 12, 1998 or over a year after
the Court issued its January 28, 1997 Resolution is way beyond a "reasonable time thereafter."
Indeed, we have accorded respondent, through said Resolution, all the opportunity to pursue
consignation with the court of origin and yet, respondent failed to make a valid consignation.
This is already inexcusable neglect on the part of respondent.
No valid consignation made
We agree with petitioners assertion that even granting arguendo that the instant case for
consignation was instituted within the 30-day period or within a reasonable time thereafter, it
would still not accord respondent relief as no valid consignation was made. Certainly, the records
show that there was no valid consignation made by respondent before the HLURB as she did not
deposit the amount with the quasi-judicial body as required by law and the rules.
Pertinently, the first paragraph of Article 1258 of the Civil Code provides that "[c]onsignation
shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in
other cases (emphasis supplied)."
It is true enough that respondent tendered payment to petitioner three (3) times through a
Solidbank Managers Check No. 1146 in the amount of PhP 187,380
28
on August 29 and 30,
1996 and September 28, 1996. It is true likewise that petitioner refused to accept it but not
without good reasons. Petitioner was not impleaded as a party by the Ventura spouses in the
Malabon City RTC case for quieting of title against Wilson Yu nor in the appealed case to the
CA nor in G.R. No. 109078.
Petitioner is of the view that there was no jurisdiction acquired over its person and hence, it is
not bound by the final judgment and June 17, 1996 Resolution in G.R. No. 109078. Secondly,
petitioner believed that respondent Alzul has lost her rights over the subject lot by the rescission
of the sale in her favor due to the latters failure to pay the installments and also as a result of her
transferees failure to pay the agreed amortizations. And even in the face of the refusal by
petitioner to accept tender of payment, respondent is not left without a remedy. It is basic that
consignation is an available remedy, and respondent, with the aid of her counsel, could have
easily availed of such course of action sanctioned under the Civil Code.
Considering the tenor of our June 17, 1996 Resolution, respondent ought to have consigned the
amount with the court of origin within the non-extendible period of 30 days that was accorded
her or within a reasonable time thereafter.
As cited earlier, consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it generally
requires a prior tender of payment.
29
It is of no moment if the refusal to accept payment be
reasonable or not. Indeed, consignation is the remedy for an unjust refusal to accept payment.
The first paragraph of Art. 1256 of the Civil Code precisely provides that "[i]f the creditor to
whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due (emphasis
supplied)."
The proper and valid consignation of the amount due with the court of origin, which shall
judicially pronounce the validity of the consignation and declare the debtor to be released from
his/her responsibility, shall extinguish the corresponding obligation.
Moreover, in order that consignation may be effective, the debtor must show that: (1) there was a
debt due; (2) the consignation of the obligation had been made because the creditor to whom
tender of payment was made refused to accept it, or because s/he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due or because the title to
the obligation had been lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at the disposal of
the court; and (5) after the consignation had been made, the person interested was notified of the
action.
30

Respondent did not comply with the provisions of law particularly with the fourth and fifth
requirements specified above for a valid consignation. In her complaint for consignation and
specific performance, respondent only prayed that she be allowed to make the consignation
without placing or depositing the amount due at the disposal of the court of origin. Verily,
respondent made no valid consignation.
The rights of petitioner and respondent over the 1,275 square meter lot subject of this petition
will be determined by the significance and effects of the December 26, 1995 Resolution rendered
in G.R. No. 109078 entitled Yu v. Court of Appeals.
31

The subject matter of G.R. No. 109078 is the November 27, 1992 Decision rendered in CA-G.R.
CV No. 33619 entitled Carlos N. Ventura and Sandra L. Ventura v. Rosario T. Alzul, et al., the
fallo of which reads:
WHEREFORE, the appealed decision is hereby REVERSED AND SET ASIDE, and the
complaint therein is ordered dismissed. Transfer Certificates of Title Nos. N-1922, N-1923, N-
1924, and N-1925, all of the Register of Deeds of Metro Manila, District III, Malabon Branch, in
the names of plaintiffs-appellees Carlos N. Ventura and Sandra L. Ventura are hereby declared
null and void, and the titles of ownership reinstated in the name of B.E. San Diego, Inc., with the
corresponding notices of lis pendens therein annotated in favor of defendant-appellant until such
time that ownership of the subject parcels of land is transferred to herein defendant-appellant
Rosario Alzul. Costs against plaintiff-appellees.
SO ORDERED.
32

On December 26, 1995, this Court issued the Resolution in G.R. No. 109078 wherein it found no
reversible error in the actions of the CA in its aforequoted disposition in CA-G.R. CV No.
33619, and resolved to deny the petition for lack of merit. On February 5, 1996, this Court
denied with finality the Motion for Reconsideration filed by petitioner Wilson Yu.
However, on June 17, 1996, this Court, in resolving the Motion for Reconsideration of private
respondents Spouses Carlos and Sandra Ventura, granted respondent Alzul "a non-extendible
period of thirty (30) days from entry of judgment, within which to make full payment for the
properties in question."
33

The question iscan the Court, the CA, or the Malabon City RTC order petitioner B.E. San
Diego, Inc. to accept the tender of payment made by respondent Alzul?
Definitely, they cannot. The reason is that petitioner was not impleaded as a party in the Malabon
City RTC civil case, CA-G.R. CV No. 33619, nor in G.R. No. 109078 and hence is not under the
jurisdiction of said courts. What were determined and decided in the CA Decision in CA-G.R.
CV No. 33619 were the annulment of the titles of spouses Carlos and Sandra Ventura, the
reinstatement of said titles to the name of petitioner, and the declaration that the ownership of the
lots subject of said titles will be transferred to respondent. There is no directive to respondent
granting her the right to pay the balance of the price to petitioner and, more importantly, there is
no order for petitioner to accept the payment. The dispositive or fallo of the decision is what
actually constitutes the judgment or resolution of the court that can be the subject of execution.
Where there is a conflict between the dispositive portion of the decision and its body, the
dispositive portion controls irrespective of what appears in the body of the decision.
34
Such being
the case, petitioner is not duty bound to accept any tender of payment from respondent precisely
because such diktat is absent in the fallo of the CA Decision which was affirmed by this Court in
its December 26, 1995 Resolution in G.R. No. 109078.
The lacuna in the CA Decision was sought to be corrected in its June 17, 1996 Resolution in
G.R. No. 109078 where respondent was given "a non-extendible period of thirty (30) days from
entry of judgment, within which to make full payment for the properties in question." Pursuant to
this Resolution, what was established was the right of respondent to pay the balance of the
purchase price within 30 days. Again, the query iscan this Court, the CA, or the trial court
compel petitioner to accept the tender of payment from respondent?
The answer is no. The reason is obvious as jurisdiction was never acquired over the person of
petitioner. The action for quieting of title is characterized as quasi in rem. In Realty Sales
Enterprise, Inc. v. Intermediate Appellate Court, it was held that:
Suits to quiet title are not technically suits in rem, nor are they, strictly speaking, in personam,
but being against the person in respect of the res, these proceedings are characterized as quasi in
rem. (McDaniel v. McElvy, 108 So. 820 [1926].) The judgment in such proceedings is
conclusive only between the parties. (Emphasis supplied.)
35

Not being impleaded as a necessary or indispensable party, petitioner is not bound by the
dispositions in the CA Decision in CA-G.R. CV No. 33619 and the Resolutions of this Court in
G.R. No. 109078. Moreover, there is no explicit and clear directive for petitioner to accept the
payment of the balance of the price.
It is for this reason that respondent cannot ask for a writ of execution from the trial court where
the complaint was originally instituted as said court has no jurisdiction over the person of
petitioner. Even if a writ is issued, it should conform to the judgment, and the fallo of the CA
Decision does not impose the duty or obligation on the part of petitioner to accept the payment
from respondent. It is the settled doctrine that a writ of execution must conform to the judgment
and if it is different from or exceeds the terms of the judgment, then it is a nullity.
36

In addition, Sec. 10, Rule 39 provides the procedure for execution of judgments for specific acts,
thus:
Sec. 10. Execution of judgments for specific act.(a) Conveyance, delivery of deeds, or other
specific acts; vesting title.If a judgment directs a party to execute a conveyance of land or
personal property, or to deliver deeds or other documents, or to perform any other specific act in
connection therewith, and the party fails to comply within the time specified, the court may
direct the act to be done at the cost of the disobedient party by some other person appointed by
the court and the act when so done shall have like effect as if done by the party. If real or
personal property is situated within the Philippines, the court in lieu of directing a conveyance
thereof may by an order divest the title of any party and vest it in others, which shall have the
force and effect of a conveyance executed in due form of law.
The rule mentions the directive to a "party." It is therefore essential that the person tasked to
perform the specific act is impleaded as a party to the case. Otherwise, the judgment cannot be
executed. In the case at bar, petitioner should have been impleaded as a party so as to compel it
to accept payment and execute the deed of sale over the disputed lots in favor of respondent. As
petitioner was not impleaded as a party, then the CA Decision in CA-G.R. CV No. 33619 as
affirmed in G.R. No. 109078 cannot be enforced against it.
The cause of action available to respondent is to file an action for consignation against petitioner
which she did by registering a complaint for consignation before the HLURB on March 12,
1998. Unfortunately, it was filed way beyond the 30-day period which lapsed on September 20,
1996 or immediately thereafter. Because of the failure of respondent to effect payment to
petitioner within the 30-day period or soon thereafter, her rights to buy the disputed lots have
been forfeited, lost, and extinguished.
In St. Dominic Corporation, which is substantially similar to the case at bar, we explained the
procedure when a party is directed to pay the balance of the purchase price based on a court
decision, thus:
First of all, the decision of the then Court of Appeals which was promulgated on October 21,
1981, is quite clear when it ordered the payment of the balance of the purchase price for the
disputed lot within 60 days "from receipt hereof," meaning from the receipt of the decision by
the respondents. It is an admitted fact that the respondents received a copy of the decision on
October 30, 1981. Hence, they had up to December 29, 1981 to make the payment. Upon refusal
by the petitioner to receive such payment, the proper procedure was for the respondent to
consign the same with the court also within the 60-day period or within a reasonable time
thereafter. The fact that efforts were made by the petitioner to reach an agreement with the
respondents after the promulgation of the decision did not in anyway affect the finality of the
judgment. This was clearly emphasized in the order of the appellate court on May 6, 1982.
Secondly, even if we reckon the 60-day period from the date of the finality of the decision as
interpreted by the appellate court, such finality should be counted from March 5, 1982, which
was the date the decision became final as indicated in the entry of judgment and not from August
26, 1982 which is the date the entry was made. The date of a finality of a decision is entirely
distinct from the date of its entry and the delay in the latter does not affect the effectivity of the
former as such is counted from the expiration of the period to appeal.
37
x x x
In the aforecited case, the lot owner was made a party to the case and the judgment of the court
was for the plaintiff to pay to the lot owner the balance of the purchase price within 60 days from
receipt of the Decision. Even assuming arguendo that petitioner B.E. San Diego, Inc., though not
a party in the complaint for quieting of title, can be compelled to receive the purchase price, still,
the refusal to receive the money requires respondent Alzul to follow the procedure in St.
Dominic Corporation and consign the money with the court of origin. Having failed in this
respect, respondents rights to the property have been forfeited as a result of non-payment within
the prescribed time frame.
The CA relied on justice and equity in granting an additional period of five (5) days from receipt
of the February 18, 2005 Decision in CA-G.R. SP No. 81341 to pay the balance due for the sale
of the four lots.
38
While we commiserate with the plight of respondent, the CA ruling will not
prevail over the established axiom that equity is applied only in the absence of and never against
statutory law or judicial rules of procedure.
39
For all its conceded merits, equity is available only
in the absence of law and not as its replacement.
40
Equity as an exceptional extenuating
circumstance does not favor, nor may it be used to reward, the indolent. This Court will not
allow a party, in guise of equity, to benefit from respondents own negligence.
41

In the light of the foregoing considerations, we find that the grant of respondents petition in CA-
G.R. SP No. 81341 and the recognition of the belated consignation of the amount find no support
nor basis in law, rule, or jurisprudence. The CAs holding that the non-consignation of the
amount due is merely a procedural lapse on the part of respondents counsel is misplaced and is
contrary to settled jurisprudence. Plainly, respondents rights over the subject property are now
lost and forfeited.
Having resolved the core issue on the validity of the consignation, the Court sees no further need
to discuss the remaining issues raised in the petition.
Petitioner to reimburse payments
However, respondent had made payments over the subject properties based on her agreement
with petitioner. So as not to enrich itself at the expense of respondent, petitioner is obliged to
reimburse respondent whatever amount was paid by her in form of monthly amortizations. On
the other hand, if respondent is in possession of the subject properties, she and all persons
claiming under her should surrender the possession to petitioner.
WHEREFORE, the petition is GRANTED, the February 18, 2005 Decision and August 31, 2005
Resolution of the CA are REVERSED and SET ASIDE, and the September 18, 2003 Resolution
and December 2, 2003 Order of the OP are hereby REINSTATED. Petitioner is ORDERED to
reimburse respondent whatever amount the latter has paid for the subject properties per the
Contract to Sell No. 867. Petitioner is DECLARED to be the true and legal owner of Lots Nos. 5,
6, 7, and 8, Block 18, Aurora Subdivision, Maysilo, Malabon City. The Register of Deeds of
Manila, District III, Malabon City Branch is ORDERED to cancel Transfer Certificates of Title
Nos. N-1922, N-1923, N-1924, and N-1925 in the names of spouses Carlos N. Ventura and
Sandra L. Ventura and register the same in the name of petitioner. The lis pendens in favor of
respondent annotated on the Transfer Certificates of Title over the subject properties is hereby
LIFTED, and the Register of Deeds for Metro Manila, District III is DIRECTED to CANCEL
said lis pendens. Respondent and all persons claiming under her are ORDERED to vacate the
subject properties and surrender them to petitioner within sixty (60) days from finality of this
judgment. No pronouncement as to costs.
SO ORDERED.
________
G.R. No. 172259 December 5, 2006
SPS. JAIME BENOS and MARINA BENOS, petitioners,
vs.
SPS. GREGORIO LAWILAO and JANICE GAIL LAWILAO, respondents.

D E C I S I O N

This petition for review under Rule 45 of the Rules of Court assails the December 5, 2005
Decision
1
of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment
2
dated July
1, 2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No.
1091. The Regional Trial Court reversed the Decision
3
dated November 14, 2002 of the
Municipal Circuit Trial Court of Bauko, Mountain Province in Civil Case No. 314, and ordered
the consolidation of ownership of subject property in the name of respondent-spouses Gregorio
and Janice Gail Lawilao. Also assailed is the March 17, 2006 Resolution
4
denying petitioners
motion for reconsideration.
On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the Benos spouses") and
respondent-spouses Gregorio and Janice Gail Lawilao ("the Lawilao spouses") executed a Pacto
de Retro Sale
5
where the Benos spouses sold their lot covered by Tax Declaration No. 25300 and
the building erected thereon for P300,000.00, one half of which was to be paid in cash to the
Benos spouses and the other half to be paid to the bank to pay off the loan of the Benos spouses
which was secured by the same lot and building. Under the contract, the Benos spouses could
redeem the property within 18 months from date of execution by returning the contract price,
otherwise, the sale would become irrevocable without necessity of a final deed to consolidate
ownership over the property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took possession of the property
and leased out the building thereon. However, instead of paying the loan to the bank, Janice
Lawilao restructured it twice. Eventually, the loan became due and demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00 representing the
principal and interest. On the same day, the Lawilao spouses also went to the bank and offered to
pay the loan, but the bank refused to accept the payment. The Lawilao spouses then filed with
the Municipal Circuit Trial Court a petition
6
docketed as Civil Case No. 310 for consignation
against the bank and simultaneously deposited the amount of P159,000.00. Upon the banks
motion, the court dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court a complaint
docketed as Civil Case No. 314, for consolidation of ownership. This complaint is the precursor
of the instant petition. The Benos spouses moved to dismiss on grounds of lack of jurisdiction
and lack of cause of action but it was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in favor of the
Benos spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal and factual basis to
demand consolidation of ownership over the subject property, the above-entitled case is
hereby ordered dismissed.
No pronouncement as to damages on the ground that no premium should be assessed on
the right to litigate.
No costs.
SO ORDERED.
7

The Lawilao spouses appealed before the Regional Trial Court which reversed the Municipal
Circuit Trial Court and declared the ownership of the subject property consolidated in favor of
the Lawilao spouses.
8

The Benos spouses appealed to the Court of Appeals which affirmed the Regional Trial Court on
December 5, 2005. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review is DISMISSED for lack of sufficient merit. The
decision rendered by the Regional Trial Court, Branch 35, Bontoc, Mountain Province in
Civil Case No. 1091 on 1 July 2003, reversing the decision of the Municipal Circuit Trial
Court of Bauko-Sabangan, Mountain Province in (Civil Case No.) 314, is AFFIRMED.
SO ORDERED.
9

The appellate court denied petitioners motion for reconsideration, hence, the instant petition on
the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the Court of Appeals to
rule that respondents can consolidate ownership over the subject property.
4.1. It was likewise error for said lower courts not to have ruled that the contract between
the parties is actually an equitable mortgage.
10

The Benos spouses argue that consolidation is not proper because the Lawilao spouses violated
the terms of the contract by not paying the bank loan; that having breached the terms of the
contract, the Lawilao spouses cannot insist on the performance thereof by the Benos spouses;
that the contract was actually an equitable mortgage as shown by the inadequacy of the
consideration for the subject property; and that respondent-spouses remedy should have been for
recovery of the loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale reflected the parties
true agreement; that the Benos spouses cannot vary its terms and conditions because they did not
put in issue in their pleadings its ambiguity, mistake or imperfection as well as its failure to
express the parties true intention; that the Benos spouses admitted its genuineness and due
execution; and that the delivery of the property to the Lawilao spouses after the execution of the
contract shows that the agreement was a sale with a right of repurchase and not an equitable
mortgage.
The Lawilao spouses also claim that they complied with their obligation when they offered to
pay the loan to the bank and filed a petition for consignation; and that because of the failure of
the Benos spouses to redeem the property, the title and ownership thereof immediately vested in
them (Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate ownership over the
subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro sale was perfected
because the parties voluntarily agreed upon the object thereof and the price; (2) the Lawilao
spouses acquired possession over the property immediately after execution of the pacto de retro
sale; (3) the pacto de retro sale does not provide for automatic rescission in case the Lawilao
spouses fail to pay the full price; (4) the Benos spouses did not rescind the contract after the
Lawilao spouses failed to pay the P150,000.00 loan; (5) Janice Lawilao offered to pay the loan
and deposited P150,000.00 to the bank although the period for payment had expired thus,
complying with Article 1592 of the Civil Code allowing payment even after expiration of the
period as long as no demand for rescission of the contract had been made either judicially or by a
notarial act; (6) the title and ownership of the Lawilao spouses became absolute when the Benos
spouses failed to repurchase the lot within the redemption period; and (7) the payment by the
Benos spouses son of P159,000.00 to the bank does not amount to a repurchase as it violates
Article 1616 of the Civil Code requiring the vendor to return to the vendee the price of the sale,
the expenses of the contract and other necessary and useful expenses.
11

Contrary to the aforesaid findings, the evidence shows that the Lawilao spouses did not make a
valid tender of payment and consignation of the balance of the contract price. As correctly found
by the Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation of the P150,000.00
which the Appellant (Lawilaos) still owes the Appellee (Benos) has been effected by the
former. The amount of P159,000.00 deposited with the MCTC is in relation to Civil Case
No. 310 earlier dismissed by said court, and not to the instant action. Hence, this Court
cannot automatically apply such sum in satisfaction of the aforesaid debt of the Appellant
and order the Appellee creditor to accept the same.
12
(Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has become final and binding on them.
Although they had repeatedly alleged in their pleadings that the amount of P159,000.00 was still
with the trial court which the Benos spouses could withdraw anytime, they never made any step
to withdraw the amount and thereafter consign it. Compliance with the requirements of tender
and consignation to have the effect of payment are mandatory. Thus
Tender of payment is the manifestation by debtors of their desire to comply with or to
pay their obligation. If the creditor refuses the tender of payment without just cause, the
debtors are discharged from the obligation by the consignation of the sum due.
Consignation is made by depositing the proper amount to the judicial authority, before
whom the tender of payment and the announcement of the consignation shall be proved.
All interested parties are to be notified of the consignation. Compliance with these
requisites is mandatory.
13
(Emphasis supplied)
In the instant case, records show that the Lawilao spouses filed the petition for consignation
against the bank in Civil Case No. 310 without notifying the Benos spouses. The petition was
dismissed for lack of cause of action against the bank. Hence, the Lawilao spouses failed to
prove their offer to pay the balance of the purchase price and consignation. In fact, even before
the filing of the consignation case, the Lawilao spouses never notified the Benos spouses of their
offer to pay.
Thus, as far as the Benos are concerned, there was no full and complete payment of the contract
price, which gives them the right to rescind the contract pursuant to Articles 1191 in relation to
Article 1592 of the Civil Code, which provide:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 of the Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a new term.
In the instant case, while the Benos spouses did not rescind the Pacto de Retro Sale through a
notarial act, they nevertheless rescinded the same in their Answer with Counterclaim where they
stated that:
14. Plaintiffs did not perform their obligation as spelled out in the Pacto de Retro Sale
(ANNEX "A"), particularly the assumption of the obligation of defendants to the Rural
Bank of Bontoc. Defendants were the ones who paid their loan through their son,
ZALDY BENOS. As a result, ANNEX "A" is rendered null and of no effect. Therefore,
the VENDEE a retro who is one of plaintiffs herein cannot consolidate her ownership
over the property subject of the null and ineffective instrument.
15. Since plaintiffs did not perform their corresponding obligation under ANNEX "A",
defendants have been all too willing to return the amount of ON[E] HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) and reasonable interest thereon to plaintiffs. But
plaintiffs refused to accept the same.
With the filing of this answer, defendants pray that this serves as a notice of tender of
payment, and they shall consign the amount with the proper court as soon as it is legally
feasible.
14

They also prayed that the Municipal Circuit Trial Court render judgment "[d]eclaring the Pacto
de Retro Sale rescinded or ineffective or void for lack of, or insufficient consideration."
15

In Iringan v. Court of Appeals,
16
we ruled that "even a crossclaim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of the law." Similarly,
the counterclaim of the Benos spouses in their answer satisfied the requisites for the judicial
rescission of the subject Pacto de Retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the complaint for consolidation of
ownership filed by the Lawilao spouses for their failure to comply with the conditions of the
Pacto de Retro Sale. Nevertheless, it refused to declare the rescission of the Pacto de Retro Sale
as prayed for in the counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to either party by virtue of the Pacto
de Retro Sale? This, the court opines that it can not delve into without overstepping the
limits of his functions there being appropriate remedies. It is hornbook in our
jurisprudence that a right in law may be enforced and a wrong way be remedied but
always through the appropriate action.
17

The issue of rescission having been put in issue in the answer and the same having been litigated
upon without objections by the Lawilao spouses on grounds of jurisdiction, the Municipal Circuit
Trial Court should have ruled on the same and wrote finis to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao spouses breached the terms of the
Pacto de Retro Sale, the Municipal Circuit Trial Court should have rescinded the Pacto de Retro
Sale and directed the Benos spouses to return P150,000.00 to the Lawilao spouses, pursuant to
our ruling in Cannu v. Galang,
18
to wit:
Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the
right to unilaterally rescind the sale under the Deed of Sale with Assumption of
Mortgage, they should have first asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan with the NHMFC. They claim
that such payment is a unilateral act of rescission which violates existing jurisprudence.
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of
the obligors should not comply with what is incumbent upon him is clear from a
reading of the Civil Code provisions. However, it is equally settled that, in the
absence of a stipulation to the contrary, this power must be invoked judicially; it
cannot be exercised solely on a partys own judgment that the other has
committed a breach of the obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort to the courts, the
petitioners action in unilaterally terminating the contract in this case is
unjustified.
It is evident that the contract under consideration does not contain a provision authorizing
its extrajudicial rescission in case one of the parties fails to comply with what is
incumbent upon him. This being the case, respondents-spouses should have asked for
judicial intervention to obtain a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses Answer (with affirmative defenses) with
Counterclaim seeks for the rescission of the Deed of Sale with Assumption of Mortgage,
it behooves the court to settle the matter once and for all than to have the case re-litigated
again on an issue already heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the Deed of Sale
with Assumption of Mortgage, it is the duty of the court to require the parties to surrender
whatever they may have received from the other. The parties should be restored to their
original situation.
The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of
the P120,000.00 agreed upon. They also made payments to NHMFC amounting to
P55,312.47. As to the petitioners alleged payment to CERF Realty of P46,616.70, except
for petitioner Leticia Cannus bare allegation, we find the same not to be supported by
competent evidence. As a general rule, one who pleads payment has the burden of
proving it. However, since it has been admitted in respondents-spouses Answer that
petitioners shall assume the second mortgage with CERF Realty in the amount of
P35,000.00, and that Adelina Timbang, respondents-spouses very own witness, testified
that same has been paid, it is but proper to return this amount to petitioners. The three
amounts total P165,312.47 -- the sum to be returned to petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005 and
Resolution dated March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845, affirming
the Judgment dated July 1, 2003 of the Regional Trial Court of Bontoc, Mountain Province,
Branch 35, in Civil Case No. 1091, are REVERSED and SET ASIDE. The Decision dated
November 14, 2002 of the Municipal Circuit Trial Court of Bauko, Mountain Province in Civil
Case No. No. 314 dismissing respondents complaint for consolidation of ownership and
damages is REINSTATED WITH THE MODIFICATION that the Pacto de Retro Sale dated
February 11, 1999 is declared rescinded and petitioners are ordered to return the amount of
P150,000.00 to respondents. No costs.
SO ORDERED.
_______
JESPAJO REALTY CORPORATION, petitioner, vs. HON. COURT OF APPEALS, TAN TE
GUTIERREZ and CO TONG, respondents.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
review and set aside the decision of the Court of Appeals promulgated on January 26, 1994 in
CA-G.R. SP No. 27312i[1] which reversed the decision of the Regional Trial Court in Civil Case
No. 91-57757ii[2] and reinstated the Metropolitan Trial Court rulings in Civil Case No. 134022-
CV, entitled, Jespajo Realty Corp., Plaintiff, vs. Tan Te Gutierrez and Co Tong,
Defendants.iii[3]
The uncontroverted facts of the case as found by the Court of Appeals are as follows:
The subject of this controversy is an apartment building located at 619 Asuncion Street,
Binondo, Manila and owned by Jespajo Realty Corporation. On February 1, 1985, said
corporation, represented by its President, Jesus L. Uy, entered into separate contracts of lease
with Tan Te Gutierrez and Co Tong.xxx Pursuant to the contract, Tan Te occupied room No. 217
of the subject building at a monthly rent of P847.00 while Co Teng occupied the Penthouse at a
monthly rent of P910.00xxx The terms of the contract among others are the following:
PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall
continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly
rentals. The LESSEE may, at his option, terminate this contract any time by giving sixty (60)
days prior written notice of termination to the LESSOR.
However, violation of any of the terms and conditions of this contract shall be a sufficient
ground for termination thereof by the LESSOR.
xxx xxx xxx
RENT INCREASE - For the duration of this contract, the LESSEE agrees to an automatic 20%
yearly increase in the monthly rentals.
Since the effectivity of the lease agreement on February 1985, the lessees religiously paid their
respective monthly rentals together with the 20% yearly increased (sic) in the monthly rentals as
stipulated in the contract. On January 2, 1990, the lessor corporation sent a written notice to the
lessees informing them of the formers intention to increase the monthly rentals on the occupied
premises to P3,500.00 monthly effective February 1, 1990. The lessees through its counsel in a
letter dated March 10, 1990 xxx manifested their opposition alleging that the same is in
contravention of the terms of the contract of lease as agreed upon. Due to the opposition and the
failure of the lessees to pay the increased monthly rentals in the amount of P3,500.00, the lessor
through its counsel in a letter dated April 10,1990 xxx demanded that the lessees vacate the
premises and pay the amount of P7,000.00 corresponding to the months of February and March,
1990.
The lessees exerted effort to pay the rentals due for the months of February and March 1990 at
the monthly rate stipulated in the contract but was refused by the lessor so that on May 2, 1990,
they instituted before the Metropolitan Trial Court of Manila, Branch 16 a case for consignation
xxx
In the said complaint, plaintiffs alleged that the amount of P2,107.60 and P2,264.40 are the
monthly rental obligations of Tan Te and Co Tong respectively. They sought to consign with the
court their monthly rental obligations at the rate above mentioned for the months of February up
to April 1990. Additionally, they prayed that the court issue an order directing the defendant to
honor the terms and conditions of the lease.
It is to be noted that on February 6, 1991, the trial judge in the consignation case issued an order
allowing the plaintiffs therein to deposit with the City Treasurer of Manila the amount of
P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez representing their
respective rentals for thirteen (13) months from February, 1990 to January, 1991. This order
however is without prejudice to the final outcome of the case. Plaintiffs duly complied with the
order as evidenced by an official receipts (sic) xxx in the name of Tan Te Gutierrez and Co
Tong, respectively, issued by the City Treasurer on February 11, 1991.
On November 15, 1990, or more than six (6) months from the filing of the case for
consignation, the lessor instituted an ejectment suit against the lessees before the Metropolitan
Trial Court of Manila Branch 20 xxx. The court in its decision dated May 10, 1991 rendered a
decision dismissing the ejectment suit for lack of merit. xxxiv[4]
Portions of the MTC decision read:
Furthermore, it appears that the plaintiff realizing that it had virtually surrendered certain
aspects of its rights of ownership over the subject premises in stipulating that the lease shall
continue for an indefinite period provided the LESSEE is up-to-date in the payment of his
monthly rentals, has raised the monthly rental to P3,500.00 which is much higher than the
correct rental in accordance with their stipulated 20% automatic increase annually. This was
done by the plaintiff apparently in order to create an artificial cause of action, as when the
LESSEES would refuse, as in fact they refused, to pay the monthly rentals at the increase rate.
This pretext of the plaintiff cannot be countenanced by law.
Anent the final issue as to whether or not the defendants are already in arrears in the payment of
rentals on the premises, it is noteworthy that the instant case for Unlawful Detainer was filed by
the plaintiff-LESSOR herein only on November 15, 1990, while the LESSEES consignation
case against the LESSOR-plaintiff herein based on the latters refusal to accept the rentals have
been pending with Branch XVI of this Court since May 2, 1990. And, in accordance with the
consignation case, the LESSEES, upon proper motion approved by the Court, deposited the
amounts of P33,480.28 covered by O.R. No. B-578503 (for CO TONG) and P32,710.32
covered by O.R. B-578502 (for TAN TE GUTIERREZ) both receipts dated February 11, 1991.
IN VIEW OF THE FOREGOING, and after careful scrutiny of the entire record including all
documentary evidence adduced by both parties, this Court is of the opinion and so holds that the
plaintiff (Jespajo Realty Corporation) has failed to establish its claims by preponderance of
evidence.
WHEREFORE, this case is hereby dismissed for utter lack of merit. The counterclaim is
likewise dismissed for lack of evidence to support the same. No pronouncement as to costs.
SO ORDERED.v[5]
Jespajo Realty Corporation then appealed to the Regional Trial Court which ruled in its favor,
thus:
The Court is fully convinced that the sum demanded by appellant as increase in appellees
monthly rentals to the premises which they are renting from appellant is very reasonable
considering that the leased premises are located in the commercial and business section of
Manila in Binondo. It is also undisputed that appellant has a 24-hour security unit over the
property as well as parking spaces and provisions for electricity, water and telephone services.
In the light of the foregoing, the Court is constrained to reverse the appealed decision and
hereby orders another judgment to be entered in favor of appellant.
WHEREFORE, PREMISES CONSIDERED, judgment is rendered as follows:
1. Reversing the decision of the court a quo insofar as it dismissed appellants complaint;
2. Declaring the termination or revocation [of the] lease contracts Annexes A and A-1,
Complaint executed between appellant and appellees;
3. Ordering appellees, their heirs and all other persons acting for and in their behalf to
vacate and surrender immediately the lease premises to appellant;
4. Adjudging appellees to pay unto appellant their rental arrearages of P57,426.45 for
appellee (Tan Te Gutierrez) and P56,153.75 for appellee (Co Tong) as of April 30, 1991 and
thereafter each appellee is ordered to pay also appellant the sum of P3,500.00 every month
starting May 1, 1991 until they shall have fully vacated and surrendered the leased premises;
5. Appellees are likewise adjudged to pay the sum of P10,000.00 as and for attorneys fees,
and
6. The costs of suit.
SO ORDERED.vi[6]
However, said RTC decision was reversed by the Court of Appeals in the herein assailed
decision, portions of which read:
Be that as it may, We find that it was the private respondent who, in fact, violated the lease
agreement by charging petitioners a monthly rental of P3,500.00, well in excess of the rental
stipulated in the lease contract. We see in the refusal of private respondent to accept the rental
being offered by petitioners, a scheme to place petitioners in default of their rental payments.
However, said scheme was waylaid by petitioners consignation of the rentals due from them.
In view of the foregoing discussion, We find no more necessity in discussing the last two (2)
errors raised in the petition. We likewise find that the respondent court committed an error of
fact and law in reversing the decision of the Metropolitan Trial Court of Manila and in arriving at
the decision under review.
WHEREFORE, the decision under review is hereby REVERSED and SET ASIDE. The
decision dated May 10, 1991 of the Metropolitan Trial Court of Manila, Branch XX which
dismissed Civil Case No. 134022 CV for lack of merit is hereby REINSTATED. No
pronouncement as to costs.
SO ORDERED.vii[7]
Petitioner comes before this Court with the following questions:
I
WHEN THE PARTIES TO A CONTRACT OF LEASE STIPULATED FOR AN
INDEFINITE PERIOD AND SHALL CONTINUE FOR AS LONG AS THE LESSEE IS
PAYING THE RENT, IS THE SAID CONTRACT INTERMINABLE EVEN BY THE
LESSOR?
II
WHEN THERE IS A DISAGREEMENT ON THE RENTALS TO BE PAID, SHOULD IT BE
RESOLVED IN A CONSIGNATION CASE OR IN AN EJECTMENT CASE?viii[8]
Petitioner claims that the contracts of lease entered into between the petitioner and private
respondents did not provide for a definite period, hence, Art. 1687 of the New Civil Code
applies. Said Article reads:
Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year,
if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if
the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a
monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for
the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the
courts may likewise determine a longer period after the lessee has been in possession for over six
months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed
in the place for over one month.
Petitioner cited Yek Seng Co. vs. Court of Appeals,ix[9] where this Court held that:
[c]onformably, we hold that as the rental in the case at bar was paid monthly and the term was
not expressly agreed upon, the lease was understood under Article 1687 of the Civil Code to be
terminable from month to month.x[10]
On the premise that the lease contract was effective on a monthly basis, petitioner claims that the
contract of lease with respondent has been terminated, without being renewed, after respondents
refused to comply with the increased monthly rate of P3,500.00 and that this refusal even after
receiving a notice of termination and a final demand letter is a valid cause of action for unlawful
detainer.xi[11]
As to the second issue, petitioner argues that the Court of Appeals erred in ruling that their
allegation of respondents non-payment of rentals in the complaint for ejectment was false.
Petitioner insists that when it filed the case of ejectment, private respondents had failed and
refused to pay the demanded P3,500.00 monthly rentals. Thus, petitioner correctly alleged non-
payment of this rental as another ground for ejectment aside from the basic allegation of
termination of the lease contract. Petitioner also contends that the issue of whether or not the
P3,500.00 monthly rental should be the correct rental to be paid by the private respondents
cannot properly be determined in the consignation case earlier filed by private respondents since
the issue can be resolved only in the ejectment case.xii[12]
Crucial in the resolution of this case is the construction of the lease agreement, particularly the
portion on the period of lease, which reads:
PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and shall
continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly
rentals. xxx
Petitioner insists that the subject contract of lease did not provide for a definite period hence it
falls under the ambit of Art. 1687 of the NCC, making the agreement effective on a month-to-
month basis since rental payments are made monthly.
The Court of Appeals opined otherwise. It reasoned that the application of Art. 1687 in this case
is misplaced because when there is a fixed period for the lease, whether the period be definite or
indefinite or when the period of the lease is expressly left to the will of the lessee, Art. 1687 will
not applyxiii[13], citing Eleizagui vs. Manila Lawn Tennis Club, 2 Phil 309.
We agree with the ruling of the Court of Appeals. Art. 1687 finds no application in the case at
bar.
The lease contract between petitioner and respondents is with a period subject to a resolutory
condition. The wording of the agreement is unequivocal: The lease period xxx shall continue
for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals.
The condition imposed in order that the contract shall remain effective is that the lessee is up-to-
date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong religiously
paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the
lessees are therefore still subsisting, with the original terms and conditions agreed upon, when
the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month.
Petitioner cites Puahay Lao vs. Suarezxiv[14] where it said that the Court in the earlier case of
Singson v. Baldomar,xv[15] rejected the theory that a lease could continue for an indefinite term so
long as the lessee paid the rent, because then its continuance and fulfillment would depend solely
on the free and uncontrolled choice of the tenant between continuing to pay rentals or not,
thereby depriving the lessors of all say in the matter as it would be contrary to the spirit of
Article 1256 of the Old Civil Code, now Article 1308 of the New Civil Code of the Philippines
which provides that validity or compliance of contracts can not be left to the will of one of the
parties.xvi[16]
A review of the Puahay and Singson cases shows that the factual backgrounds therein are not the
same as in the case at bar. In those cases, the lessees were actually in arrears with their rental
payments. The Court, in the Puahay case, ruled that the lessor had the right to terminate the
lease under par. 3, Art. 1673 of the Civil Code, declaring that the lessor may judicially eject the
lessee for violation of any of the conditions agreed upon in the contract.xvii[17] In the case of
Singson, the lease contract was expressly on a month-to-month basis.
The contention of the petitioner that a provision in a contract that the lease period shall subsist
for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals
is contrary to Art. 1308 of the Civil Code is not plausible. As expounded by the Court in the
case of Philippine Banking Corporation vs. Lui She:xviii[18]
We have had occasion to delineate the scope and application of article 1308 in the early case of
Taylor v. Uy Tieng Piao.xix[19] We said in that case:
Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the
insertion in a contract for personal service of a resolutory condition permitting the cancellation of
the contract by one of the parties. Such a stipulation, as can be readily seen, does not make
either the validity or the fulfillment of the contract dependent upon the will of the party to whom
is conceded the privilege of cancellation; for where the contracting parties have agreed that such
option shall exist, the exercise of the option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement. xxx.xx[20]
Also held in the recent case of Allied Banking Corp. vs. CAxxi[21] where this Court upheld the
validity of a contract provision in favor of the lessee:
xxx Article 1308 of the Civil Code expresses what is known in law as the principle of mutuality
of contracts. xxx This binding effect of a contract on both parties is based on the principle that
the obligations arising from contracts have the force of law between the contracting parties, and
there must be mutuality between them based essentially on their equality under which it is
repugnant to have one party bound by the contract while leaving the other free therefrom. The
ultimate purpose is to render void a contract containing a condition which makes its fulfillment
dependent solely upon the uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to renew the lease is frequent and
subject to statutory restrictions, valid and binding on the parties. This option, which is provided
in the same lease agreement, is fundamentally part of the consideration in the contract and is no
different from any other provision of the lease carrying an undertaking on the part of the lessor to
act conditioned on the performance by the lessee. xxx
The fact that such option is binding only on the lessor and can be exercised only by the
lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not
to give the option to the lessee. And while the lessee has a right to elect whether to continue
with the lease or not, once he exercises his option to continue and the lessor accepts, both
parties are thereafter bound by the new lease agreement. Their rights and obligations
become mutually fixed, and the lessee is entitled to retain possession of the property for the
duration of the new lease, and the lessor may hold him liable for the rent therefor. The
lessee cannot thereafter escape liability even if he should subsequently decide to abandon
the premises. Mutuality obtains in such a contract and equality exists between the lessor
and the lessee since they remain with the same faculties in respect to fulfillment.xxii[22]
(Emphasis supplied)
As correctly ruled by the MTC in its decision, the grant of benefit of the period in favor of the
lessee was given in exchange for no less than an automatic 20% yearly increase in monthly
rentals. This additional condition was not present in the Puahay and Singson cases.
Moreover, the express provision in the lease agreement of the parties that violation of any of the
terms and conditions of the contract shall be sufficient ground for termination thereof by the
lessor, removes the contract from the application of Article 1308.
Lastly, after having the lessees believe that their lease contract is one with an indefinite period
subject only to prompt payment of the monthly rentals by the lessees, we agree with private
respondents that the lessor is estopped from claiming otherwise.xxiii[23]
In the case of Opulencia vs. Court of Appeals,xxiv[24] this Court held that petitioner is estopped
from backing out of her representations in the contract with respondent, that is, she may not
renege on her own acts and representations, to the prejudice of the respondents who relied on
them. We have held in a long line of cases that neither the law nor the courts will extricate a
party from an unwise or undesirable contract he or she entered into with all the required
formalities and will full awareness of its consequences.xxv[25]
Anent the second issue, we likewise hold that the contention of petitioner is without merit. The
Court of Appeals found that the petitioners allegation of respondents non-payment is false.
This is a finding of fact which we respect and uphold, absent any showing of arbitrariness or
grave abuse on the part of the court. Furthermore, the statement of petitioner that the correct
amount of rents cannot be considered in a consignation case but only in the ejectment case is
misleading because nowhere in the decision of the appellate court did it state otherwise. This
second issue is clearly just a futile attempt to overthrow the appellate courts ruling.
Nevertheless, suffice it to be stated that under Article 1258 of the Civil Code which provides:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom to tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
the rationale for consignation is to avoid the performance of an obligation becoming more
onerous to the debtor by reason of causes not imputable to him.xxvi[26] Whether or not petitioner
has a cause of action to eject private respondents from the leased premises due to refusal of the
lessees to pay the increased monthly rentals had been duly determined in the ejectment case by
the Municipal Trial Court which was correctly upheld by the Court of Appeals.
WHEREFORE, finding no error in the assailed decision, we DENY the petition for lack of
merit and AFFIRM the decision of the Court of Appeals.
Costs against petitioner.
SO ORDERED.
____________
G.R. No. 142882 May 2, 2006
SPS. RICARDO AND LYDIA LLOBRERA, SPS. BENJAMIN AND ESTHER
LLOBRERA, SPS. MIKE AND RESIDA MALA, SPS. OTOR AND DOLINANG
BAGONTE, SPS. EDUARDO AND DAMIANA ICO, SPS. ANTONIO AND MERLY
SOLOMON, SPS. ANSELMO AND VICKY SOLOMON, SPS. ALEX AND CARMELITA
CALLEJO, SPS. DEMETRIO AND JOSEFINA FERRER, SPS. BENJAMIN AND ANITA
MISLANG, SPS. DOMINGO AND FELICIDAD SANCHEZ, SPS. FERNANDO AND
CARMELITA QUEBRAL, SPS. BERNARDO AND PRISCILLA MOLINA, PRISCILLA
BAGA AND BELEN SEMBRANO, Petitioners,
vs.
JOSEFINA V. FERNANDEZ, Respondent.
D E C I S I O N
GARCIA, J .:
Under consideration is this petition for review on certiorari under Rule 45 of the Rules of Court
to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R. SP No.
48918, to wit:
1. Decision dated June 30, 1999,
1
affirming the Decision dated August 7, 1998 of the
Regional Trial Court (RTC) of Dagupan City, Branch 41, in Civil Case No. 98-02353-D
which affirmed an earlier decision of the Municipal Trial Court in Cities (MTCC),
Dagupan City, Branch 2, in Civil Case No. 10848, entitled "Josefina F. De Venecia
Fernandez vs. Sps. Mariano and Lourdes Melecio, et al.," an action for ejectment.
2. Resolution dated March 27, 2000,
2
denying petitioners motion for reconsideration.
Subject of the controversy is a 1,849 square-meter parcel of land, covered by Transfer Certificate
of Title No. 9042. Respondent Josefina V. Fernandez, as one of the registered co-owners of the
land, served a written demand letter upon petitioners Spouses Llobrera, et al., to vacate the
premises within fifteen (15) days from notice. Receipt of the demand letter notwithstanding,
petitioners refused to vacate, necessitating the filing by the respondent of a formal complaint
against them before the Barangay Captain of Barangay 11, Dagupan City. Upon failure of the
parties to reach any settlement, the Barangay Captain issued the necessary certification to file
action.
Respondent then filed a verified Complaint for ejectment and damages against the petitioners
before the MTCC of Dagupan City, which complaint was raffled to Branch 2 thereof.
By way of defense, petitioners alleged in their Answer that they had been occupying the property
in question beginning the year 1945 onwards, when their predecessors-in-interest, with the
permission of Gualberto de Venecia, one of the other co-owners of said land, developed and
occupied the same on condition that they will pay their monthly rental of P20.00 each. From then
on, they have continuously paid their monthly rentals to Gualberto de Venecia or Rosita de
Venecia or their representatives, such payments being duly acknowledged by receipts. Beginning
sometime June 1996, however, the representative of Gualberto de Venecia refused to accept their
rentals, prompting them to consign the same to Banco San Juan, which bank deposit they
continued to maintain and update with their monthly rental payments.
In a decision dated February 18, 1998, the MTCC rendered judgment for the respondent as
plaintiff, thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:
1. Ordering each of the defendants to vacate the portion of the land in question they
respectively occupy and to restore the possession thereof to the plaintiff and her co-
owners;
2. Ordering each of the defendants to pay to the plaintiff the amount of P300.00 per
month from January 17, 1997 until they vacate the land in question as the reasonable
compensation for the use and occupation of the premises;
3. Ordering the defendants to pay proportionately the amount of P10,000.00 as attorneys
fee and P2,000.00 as litigation expenses, and to pay the cost of suit.
SO ORDERED.
On petitioners appeal to the RTC of Dagupan City, Branch 41 thereof, in its decision of August
7, 1998, affirmed the foregoing judgment.
Therefrom, petitioners went to the CA whereat their recourse was docketed as CA-G.R. SP. No.
48918. As stated at the threshold hereof, the CA, in its Decision of June 30, 1999, affirmed that
of the RTC. With the CAs denial of their motion for reconsideration, in its Resolution of March
27, 2000, petitioners are now before this Court with the following assignment of errors:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN:
A. HOLDING THAT THE OCCUPATION AND POSSESSION oF THE PROPERTY
in question is by mere tolerance of the respondent.
B. holding that the failure of the petitioners (defendants) to vacate the premises after
demands were made upon them is a valid ground for their ejectment.
C. holding that the consignation made by petitioners in contemplation of article 1256 of
the new civil code is not legally tenable.1avvphil.net
D. affirming the decision of the regional trial court dated August 7, 1998 which, likewise
affirmed the decision of the mtcc decision dated February 18, 1998 insofar as the order
for the petitioners (defendants) to pay rental and attorneys fees and litigation expenses.
At the heart of the controversy is the issue of whether petitioners possession of the subject
property is founded on contract or not. This factual issue was resolved by the three (3) courts
below in favor of respondent. As tersely put by the CA in its assailed decision of June 30, 1999:
Petitioners failed to present any written memorandum of the alleged lease arrangements between
them and Gualberto De Venecia. The receipts claimed to have been issued by the owner were not
presented on the excuse that the March 19, 1996 fire burned the same. Simply put, there is a
dearth of evidence to substantiate the averred lessor-lessee relationship. x x x.
3

Consistent with this Courts long-standing policy, when the three courts below have consistently
and unanimously ruled on a factual issue, such ruling is deemed final and conclusive upon this
Court, especially in the absence of any cogent reason to depart therefrom.
From the absence of proof of any contractual basis for petitioners possession of the subject
premises, the only legal implication is that their possession thereof is by mere tolerance. In
Roxas vs. Court of Appeals,
4
we ruled:
A person who occupies the land of another at the latters tolerance or permission, without any
contract between them, is necessarily bound by an implied promise that he will vacate upon
demand, failing which, a summary action for ejectment is the proper remedy against him.
The judgment favoring the ejectment of petitioners being consistent with law and jurisprudence
can only be affirmed. The alleged consignation of the P20.00 monthly rental to a bank account in
respondents name cannot save the day for the petitioners simply because of the absence of any
contractual basis for their claim to rightful possession of the subject property. Consignation
based on Article 1256 of the Civil Code indispensably requires a creditor-debtor relationship
between the parties, in the absence of which, the legal effects thereof cannot be availed of.
Article 1256 pertinently provides:
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due.
Unless there is an unjust refusal by a creditor to accept payment from a debtor, Article 1256
cannot apply. In the present case, the possession of the property by the petitioners being by mere
tolerance as they failed to establish through competent evidence the existence of any contractual
relations between them and the respondent, the latter has no obligation to receive any payment
from them. Since respondent is not a creditor to petitioners as far as the alleged P20.00 monthly
rental payment is concerned, respondent cannot be compelled to receive such payment even
through consignation under Article 1256. The bank deposit made by the petitioners intended as
consignation has no legal effect insofar as the respondent is concerned.
Finally, as regards the damages awarded by the MTCC in favor of the respondent, as affirmed by
both the RTC and the CA, petitioners failed to present any convincing argument for the Court to
modify the same. The facts of the case duly warrant payment by the petitioners to respondent of
actual and compensatory damages for depriving the latter of the beneficial use and possession of
the property. Also, the unjustified refusal to surrender possession of the property by the
petitioners who were fully aware that they cannot present any competent evidence before the
court to prove their claim to rightful possession as against the true owners is a valid legal basis to
award attorneys fees as damages, as well as litigation expenses and cost of suit.
Rule 70 of the Rules of Court relevantly reads:
Sec. 17. Judgment. If after trial the court finds that the allegations of the complaint are true, it
shall render judgment in favor of the plaintiff for the restitution of the premises, the sum justly
due as arrears of rent or as reasonable compensation for the use and occupation of the premises,
attorneys fees and costs. If it finds that said allegations are not true, it shall render judgment for
the defendant to recover his costs. If a counterclaim is established, the court shall render
judgment for the sum found in arrears from either party and award costs as justice requires.
(Emphasis supplied).
There is no doubt whatsoever that it is within the MTCCs competence and jurisdiction to award
attorneys fees and costs in an ejectment case. After thoroughly considering petitioners
arguments in this respect, the Court cannot find any strong and compelling reason to disturb the
unanimous ruling of the three (3) courts below on the matter of damages.
WHEREFORE, the petition is hereby DENIED for lack of merit, with costs against petitioners.
SO ORDERED.
__________
G.R. No. 137815 November 29, 2001
JUANITA T. SERING, petitioner,
vs.
COURT OF APPEALS and CLARITA L. GARCIA, respondents.
PARDO, J .:
The Case
The case under consideration is a petition for review
1
to annul the decision
2
of the Court of
Appeals involving the extra-judicial foreclosure of a real estate mortgage of a parcel of land in
Novaliches, Caloocan City.
The Facts
The facts, as found by the Court of Appeals,
3
are as follows:
On August 6, 1988, spouses Democrito O. Sering and Juanita T. Sering executed a deed of real
estate mortgage
4
in favor of Clarita L. Garcia of a parcel of land with an area of three hundred
square meters located in Novaliches, Caloocan City, as security for a loan obtained from her in
the amount of two hundred thousand (P200,000.00) pesos.
5

On March 10, 1990, Clarita L. Garcia sent a letter to Democrito O. Sering, husband of Juanita,
declaring that since August 6, 1988, Juanita has not paid a single monthly installment on her loan
and demanding payment of two hundred thousand (P200,000.00) pesos on or before April 6,
1990.
6

On April 15, 1992, Clarita L. Garcia wrote another letter to Juanita T. Sering demanding
payment of the amount of two hundred thousand (P200,000.00) pesos within ten days from
notice, otherwise Clarita L. Garcia would cause the extra-judicial foreclosure of the real estate
mortgage.
7

On May 16, 1992, Juanita T. Sering wrote a letter to Clarita L. Garcia's lawyer promising to pay
the amount of two hundred thousand (P200,000.00) pesos on or before May 23, 1992, and that if
she failed to remit the said amount, Clarita L. Garcia would be free to take appropriate action on
the real estate mortgage.
8
Juanita T. Sering failed to pay any amount of the loan.
On January 6, 1993, Clarita L. Garcia filed with the city sheriff of Caloocan a petition for the
extra-judicial foreclosure of the real estate mortgage.
9
The sheriff set the sale at public auction on
February 17, 1993, at 10:00 in the morning.
On February 9, 1993, Juanita T. Sering filed with the Regional Trial Court, Caloocan City a
complaint for injunction against Clarita L. Garcia and the sheriff, for a temporary restraining
order to enjoin the sale at public auction of her property.
10
The trial court did not take any action
on the complaint and the sheriff sold the mortgaged real estate at public auction with Clarita L.
Garcia as the highest bidder.
On October 5, 1993, Juanita T. Sering filed with the trial court an amended complaint praying
that judgment be rendered in her favor and against Clarita L. Garcia; that the mortgage contract
and the foreclosure proceedings be declared void; and that damages be awarded to her.
11
Juanita
Sering alleged that the mortgage contract did not indicate the actual amount of her loan which
was only one hundred thousand (P100,000.00) pesos; that she already paid Clarita L. Garcia two
hundred thousand (P200,00.00) pesos more or less. Hence, the foreclosure of the real estate
mortgage was a nullity.1wphi1.nt
On August 1, 1996, the trial court rendered a decision dismissing the complaint and the
counterclaim of Clarita L. Garcia.
12

On August 13, 1996, Juanita T. Sering filed with the trial court a notice of appeal
13
of the
decision to the Court of Appeals.
14

On February 24, 1999, the Court of Appeals promulgated a decision affirming the decision of the
trial court.
15

Hence, this appeal.
16

The Issue
Whether petitioner has actually paid her loan to respondent as to preclude the foreclosure of the
real estate mortgage to secure the loan.
The Court's Ruling
The issue is factual.
A petition for review on certiorari
17
is limited to questions of law.
18
In such petitions, factual
issues are not reviewable by the Supreme Court.
19
Only errors of law are reviewable by the
Supreme Court on petitions for review.
20
The exceptions to this rule include instances, sans
preclusion: (1) when the conclusion is grounded entirely on speculations, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where
there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the
trial courts; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.
21

We find nothing in the case to warrant a review of the evidence based on any of the exceptions.
Petitioner insists that she has paid her loan but respondent refused to sign the receipts evidencing
monthly installments paid. However, petitioner cannot entirely fault respondent for refusing to
issue a receipt. In case respondent refuses to issue a receipt for payment allegedly made,
petitioner may consign her payment to the court in accordance with the Civil Code.
22
"If the
creditor to whom tender of payment has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the consignation of the thing or sum due."
23

Specifically, a debtor is released from responsibility by the consignation of the sum due when,
without just cause, the creditor refuses to give a receipt.
24

The Judgment
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals
25
in toto.
No costs.
SO ORDERED.
__________________
G.R. No. 156846 February 23, 2004
TEDDY G. PABUGAIS, petitioner
vs.
DAVE P. SAHIJWANI, respondent.
D E C I S I O N
Assailed in this petition for review on certiorari is the January 16, 2003 Amended Decision
1
of
the Court of Appeals
2
in CA-G.R. CV No. 55740 which set aside the November 29, 1996
Decision
3
of the Regional Trial Court of Makati, Branch 64, in Civil Case No. 94-2363.
Pursuant to an "Agreement And Undertaking"
4
dated December 3, 1993, petitioner Teddy G.
Pabugais, in consideration of the amount of Fifteen Million Four Hundred Eighty Seven
Thousand Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P. Sahijwani
a lot containing 1,239 square meters located at Jacaranda Street, North Forbes Park, Makati,
Metro Manila. Respondent paid petitioner the amount of P600,000.00 as option/reservation fee
and the balance of P14,887,500.00 to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate Transfer Certificate of Title in respondents
name the Deed of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and
Clearance on Payment of Association Dues. The parties further agreed that failure on the part of
respondent to pay the balance of the purchase price entitles petitioner to forfeit the P600,000.00
option/reservation fee; while non-delivery by the latter of the necessary documents obliges him
to return to respondent the said option/reservation fee with interest at 18% per annum, thus
5. DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the
purchase price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited,
on the other hand, should the SECOND PARTY [herein petitioner] fail to deliver within the
stipulated period the documents hereby undertaken, the SECOND PARTY shall return the sum
of P600,000.00 with interest at 18% per annum.
5

Petitioner failed to deliver the required documents. In compliance with their agreement, he
returned to respondent the latters P600,000.00 option/reservation fee by way of Far East Bank &
Trust Company Check No. 25AO54252P, which was, however, dishonored.
What transpired thereafter is disputed by both parties. Petitioner claimed that he twice tendered
to respondent, through his counsel, the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August
3, 1994) in the form of Far East Bank & Trust Company Managers Check No. 088498, dated
August 3, 1994, but said counsel refused to accept the same. His first attempt to tender payment
was allegedly made on August 3, 1994 through his messenger;
6
while the second one was on
August 8, 1994,
7
when he sent via DHL Worldwide Services, the managers check attached to a
letter dated August 5, 1994.
8
On August 11, 1994, petitioner wrote a letter to respondent saying
that he is consigning the amount tendered with the Regional Trial Court of Makati City.
9
On
August 15, 1994, petitioner filed a complaint for consignation.
10

Respondents counsel, on the other hand, admitted that his office received petitioners letter
dated August 5, 1994, but claimed that no check was appended thereto.
11
He averred that there
was no valid tender of payment because no check was tendered and the computation of the
amount to be tendered was insufficient,
12
because petitioner verbally promised to pay 3%
monthly interest and 25% attorneys fees as penalty for default, in addition to the interest of 18%
per annum on the P600,000.00 option/reservation fee.
13

On November 29, 1996, the trial court rendered a decision declaring the consignation invalid for
failure to prove that petitioner tendered payment to respondent and that the latter refused to
receive the same. It further held that even assuming that respondent refused the tender, the same
is justified because the managers check allegedly offered by petitioner was not legal tender,
hence, there was no valid tender of payment. The trial court ordered petitioner to pay respondent
the amount of P600,000.00 with interest of 18% per annum from December 3, 1993 until fully
paid, plus moral damages and attorneys fees.
14

Petitioner appealed the decision to the Court of Appeals. Meanwhile, his counsel, Atty.
Wilhelmina V. Joven, died and she was substituted by Atty. Salvador P. De Guzman, Jr.
15
On
December 20, 2001, petitioner executed a "Deed of Assignment"
16
assigning in favor of Atty. De
Guzman, Jr., part of the P672,900.00 consigned with the trial court as partial payment of the
latters attorneys fees.
17
Thereafter, on January 7, 2002, petitioner filed an Ex Parte Motion to
Withdraw Consigned Money.
18
This was followed by a "Motion to Intervene" filed by Atty. De
Guzman, Jr., praying that the amount consigned be released to him by virtue of the Deed of
Assignment.
19

Petitioners motion to withdraw the amount consigned was denied by the Court of Appeals and
the decision of the trial court was affirmed with modification as to the amount of moral damages
and attorneys fees.
20

On a motion for reconsideration, the Court of Appeals declared the consignation as valid in an
Amended Decision dated January 16, 2003. It held that the validity of the consignation had the
effect of extinguishing petitioners obligation to return the option/reservation fee to respondent.
Hence, petitioner can no longer withdraw the same. The decretal portion of the Amended
Decision states:
WHEREFORE, premises considered, our decision dated April 26, 2002 is RECONSIDERED.
The trial courts decision is hereby REVERSED and SET ASIDE, and a new one is entered (1)
DECLARING as valid the consignation by the plaintiff-appellant in favor of defendant-appellee
of the amount of P672,900.00 with the Makati City RTC Clerk of Court and deposited under
Official Receipt No. 379061 dated 15 August 1994 and (2) DECLARING as extinguished
appellants obligation in favor of appellee under paragraph 5 of the parties "AGREEMENT
AND UNDERTAKING". Neither party shall recover costs from the other.
SO ORDERED.
21

Unfazed, petitioner filed the instant petition for review contending, inter alia, that he can
withdraw the amount deposited with the trial court as a matter of right because at the time he
moved for the withdrawal thereof, the Court of Appeals has yet to rule on the consignations
validity and the respondent had not yet accepted the same.
The resolution of the case at bar hinges on the following issues: (1) Was there a valid
consignation? and (2) Can petitioner withdraw the amount consigned as a matter of right?
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of
payment.
22
In order that consignation may be effective, the debtor must show that: (1) there was
a debt due; (2) the consignation of the obligation had been made because the creditor to whom
tender of payment was made refused to accept it, or because he was absent or incapacitated, or
the obligation has been lost; (3) previous notice of the consignation had been given to the person
the court; and (5) after the consignation had been made the person interested was notified
thereof. Failure in any of these requirements is enough ground to render a consignation
ineffective.
23

The issues to be resolved in the instant case concerns one of the important requisites of
consignation, i.e, the existence of a valid tender of payment. As testified by the counsel for
respondent, the reasons why his client did not accept petitioners tender of payment were (1)
the check mentioned in the August 5, 1994 letter of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and (2) the amount tendered was insufficient to
cover the obligation. It is obvious that the reason for respondents non-acceptance of the tender
of payment was the alleged insufficiency thereof and not because the said check was not
tendered to respondent, or because it was in the form of managers check. While it is true that in
general, a managers check is not legal tender, the creditor has the option of refusing or accepting
it.
24
Payment in check by the debtor may be acceptable as valid, if no prompt objection to said
payment is made.
25
Consequently, petitioners tender of payment in the form of managers check
is valid.
Anent the sufficiency of the amount tendered, it appears that only the interest of 18% per annum
on the P600,000.00 option/reservation fee stated in the default clause of the "Agreement And
Undertaking" was agreed upon by the parties, thus
5. DEFAULT In case the FIRST PARTY [herein respondent] fails to pay the balance of the
purchase price within the stipulated due date, the sum of P600,000.00 shall be deemed forfeited,
on the other hand, should the SECOND PARTY [herein petitioner] fail to deliver within the
stipulated period the documents hereby undertaken, the SECOND PARTY shall return the sum
of P600,000.00 with interest at 18% per annum.
26

The managers check in the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3, 1993 to August
3, 1994) which was tendered but refused by respondent, and thereafter consigned with the court,
was enough to satisfy the obligation.
There being a valid tender of payment in an amount sufficient to extinguish the obligation, the
consignation is valid.
As regards petitioners right to withdraw the amount consigned, reliance on Article 1260 of the
Civil Code is misplaced. The said Article provides
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
The amount consigned with the trial court can no longer be withdrawn by petitioner because
respondents prayer in his answer that the amount consigned be awarded to him is equivalent to
an acceptance of the consignation, which has the effect of extinguishing petitioners obligation.
Moreover, petitioner failed to manifest his intention to comply with the "Agreement And
Undertaking" by delivering the necessary documents and the lot subject of the sale to respondent
in exchange for the amount deposited. Withdrawal of the money consigned would enrich
petitioner and unjustly prejudice respondent.
The withdrawal of the amount deposited in order to pay attorneys fees to petitioners counsel,
Atty. De Guzman, Jr., violates Article 1491 of the Civil Code which forbids lawyers from
acquiring by assignment, property and rights which are the object of any litigation in which they
may take part by virtue of their profession.
27
Furthermore, Rule 10 of the Canons of Professional
Ethics provides that "the lawyer should not purchase any interest in the subject matter of the
litigation which he is conducting." The assailed transaction falls within the prohibition because
the Deed assigning the amount of P672,900.00 to Atty. De Guzman, Jr., as part of his attorneys
fees was executed during the pendency of this case with the Court of Appeals. In his Motion to
Intervene, Atty. De Guzman, Jr., not only asserted ownership over said amount, but likewise
prayed that the same be released to him. That petitioner knowingly and voluntarily assigned the
subject amount to his counsel did not remove their agreement within the ambit of the prohibitory
provisions.
28
To grant the withdrawal would be to sanction a void contract.
29

WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED. The
January 16, 2003 Amended Decision of the Court of Appeals in CA-G.R. CV No. 55740, which
declared the consignation by the petitioner in favor of respondent of the amount of P672,900.00
with the Clerk of Court of the Regional Trial Court of Makati City valid, and which declared
petitioners obligation to respondent under paragraph 5 of the "Agreement And Undertaking" as
having been extinguished, is AFFIRMED. No costs.
SO ORDERED.
_____________
G.R. No. 153134 June 27, 2006
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Petitioner,
vs.
ANTONIO G. DIAZ and ELSIE B. DIAZ, Respondents.
D E C I S I O N
CALLEJO, SR., J .:
Before the Court is the Petition for Review on Certiorari filed by Banco Filipino Savings and
Mortgage Bank of the Decision
1
dated November 12, 2001 of the Court of Appeals (CA) in CA-
G.R. SP No. 64475 allowing respondents spouses Antonio and Elsie Diaz to withdraw their
deposit on consignation in the amount of P1,034,600.00
2
held by the Regional Trial Court (RTC)
of Makati City, Branch 61. The assailed decision reversed and set aside the orders of the said
lower court which had denied the respondents' motion to withdraw deposit. Likewise assailed is
the Resolution of April 12, 2002 of the appellate court denying the reconsideration of the
assailed decision.
The present case is an offshoot of the CA Decision
3
of October 31, 1990 in CA-G.R. SP No.
21089 and Decision
4
of November 14, 1997 in CA-G.R. CV No. 42899, both of which had
already become final and executory. As culled therefrom and from the pleadings filed by the
parties in the present case, the factual and procedural antecedents are as follows:
On March 8, 1979, spouses Antonio and Elsie Diaz (the respondents) secured a loan from Banco
Filipino Savings and Mortgage Bank (petitioner bank) in the amount of P400,000.00 bearing an
interest rate of 16% per annum. In November 1982, the said loan was restructured or
consolidated in the increased amount of P3,163,000.00 payable within a period of 20 years at an
interest rate of 21% per annum. The obligation was to be paid in equal monthly amortization of
P56,227.00, and secured by a real estate mortgage over two commercial lots situated at Bolton
and Bonifacio Streets in Davao City. As additional collateral, the respondents assigned the
rentals on the mortgaged properties in favor of petitioner bank.
Despite repeated demands made on them, the respondents defaulted in the payment of their
obligation beginning October 1986. Before petitioner bank could institute the proceedings to
foreclose on the mortgaged properties, the respondents filed with the RTC of Davao City a
complaint for "Declaration of Interest Rates and Penalty Charges as Unconscionable and Its
Reduction, Reformation of Contract, Annulment of Assignment of Rentals, Damages and
Attorney's Fees with Injunction," docketed as Civil Case No. 17840. The RTC of Davao City
(Branch 12) denied the application for the issuance of a writ of preliminary injunction. It held
that, by respondent Antonio Diaz' own admission, the respondents had been remiss in paying the
amortization as agreed upon in the contract; hence, the conditions in the real estate mortgage
contract had been violated. As such, petitioner bank could rightfully foreclose the mortgaged
properties. On appeal by the respondent spouses, the CA, in its Decision of October 31, 1990 in
CA-G.R. SP No. 21089, affirmed the said Order of the RTC of Davao City.
Thereafter, the respondents filed another complaint with the RTC of Makati City for
"Consignation and Declaration of Cancellation of Obligation, with Prayer for Issuance of a
Preliminary Injunction and Temporary Restraining Order." The case was docketed as Civil Case
No. 91-3090, and raffled to Branch 61 of the said RTC. For failure to file its answer, petitioner
bank was declared in default. In addition to the facts established in the previous case, the RTC of
Makati City, based on the ex parte evidence of the respondents, made the finding that during the
period of January 3, 1983 and January 25, 1985, when petitioner bank was ordered closed by the
Central Bank, the respondents paid a total amount of P1,311,308.48. Further, as of January 25,
1985, the respondents' total obligation amounted to P3,391,501.99. The respondents made
additional payments from February 11, 1985 until September 1991 amounting to P2,356,910.00.
If these additional payments were to be applied to the principal, the remaining balance would
only be P1,034,600.00 as of September 16, 1991. The respondents tried to settle their account by
tendering the sum of P1,034,600.00 as full payment of their loan obligation. However, petitioner
bank, through its then Liquidator Ricardo P. Lirio, refused to accept the said amount. According
to petitioner bank, the respondents' obligation at that time amounted to P10,160,649.13.
The respondents then deposited by way of consignation with the RTC of Makati City, a
manager's check dated December 5, 1991, in the amount of P1,034,600.00 as full payment of
their loan obligation. Petitioner bank was duly informed of such consignation.
In its Decision dated March 6, 1992, the RTC of Makati City ruled that the respondents' total
obligation to petitioner bank amounted only to P1,034,600.00 exclusive of interests, and the
latter could not charge and/or collect any interest during the time that it was closed by the
Central Bank as, in fact, banks that were ordered closed by the Central Bank ceased to be liable
for the payment of interests on deposits. It also considered the deposited check as consignation of
the respondents' entire debt and that there was a valid consignation. Accordingly, the
respondents' obligation to petitioner bank was declared as fully paid and/or cancelled.
On appeal by petitioner bank, the CA, in its Decision dated November 14, 1997 in CA-G.R. CV
No. 42899, reversed and set aside the decision of the RTC of Makati City. On the procedural
aspect, the CA found that the lower court erred in denying petitioner bank's motion to lift order
of default. Regarding the substantive issue, the CA held that the lower court likewise erroneously
declared that petitioner bank, during the time that it was ordered closed by the Central Bank,
could not charge or collect interests on the respondents' loan obligation. Citing the principle of
unjust enrichment, the CA posited that it was with more reason that distressed banks, like
petitioner bank, should be allowed to collect interests on the loans that they had extended to their
borrowers. According to the CA, the fact that distressed banks were freed from the obligation to
pay any interest due on deposits when they were closed and ordered to stop operations did not
mean that their borrowers were similarly freed from their contractual obligation to pay interests.
It distinguished the contracts between the banks and their depositors from those between the
banks and their borrowers.
The CA declared that the deposited amount of P1,034,600.00 failed to effect a valid consignation
in law because it did not include all interests due. It ratiocinated that for a valid consignation to
exist, the tender of the principal must be accompanied with the tender of interests which had
accrued; otherwise, the said tender would not be effective. The CA then reversed and set aside
the decision of the RTC of Makati City and entered a new one dismissing Civil Case No. 91-
3090.
The subsequent facts pertain to the case now before the Court:
Upon finality of the decision of the CA in CA-G.R. CV No. 42899, declaring that there was no
valid consignation and dismissing Civil Case No. 91-3090, the respondents filed with the RTC of
Makati City a motion to withdraw deposit. They averred therein that with the finality of the CA
decision dismissing their complaint, they are now withdrawing the amount of P1,034,600.00
which they had deposited by way of consignation with the said lower court. In addition, they
alleged that their loan obligation was eventually settled with the payment of the amount of
P25,000,000.00 through negotiations made with petitioner bank by the brothers James and
Francisco Gaisano as attorneys-in-fact of the respondents. Upon such payment, Corazon L.
Costan, petitioner bank's 2nd Assistant Vice-President and Davao Main Branch Manager, issued
on February 10, 1999 the Cancellation of the Real Estate Mortgage over the respondents'
commercial lots. According to the respondents, there was no longer any obstacle to the
immediate release of their deposit. They prayed that they be allowed to withdraw the money
which they deposited on consignation with the said court (RTC of Makati City).
Petitioner bank opposed the respondents' motion. It alleged that as of December 31, 1998, the
respondents' loan obligation stood at P28,810,330.51. Petitioner bank asserted that the deposit in
question should be released to it as part of the full payment of the respondents' obligation. It
maintained that it accepted the said consignation; hence, the respondents could no longer
withdraw the said amount.
Petitioner bank refuted the respondents' claim that there was already full payment of their
obligation with the payment by the Gaisanos of P25,000,000.00. Petitioner bank stated that it
negotiated with the Gaisanos on January 7, 1999 and the sum agreed thereon was allegedly for
the payment of the respondents' obligation as of December 31, 1998 which amounted to
P28,810,330.51. Petitioner bank added that during this negotiation, it took into account and
deducted from the said total obligation the amounts of P1,462,901.00, representing the payments
made by the respondents in 1990 and 1991, and P1,034,600.00, representing the deposit made by
the respondents with the RTC of Makati City. The net obligation of the respondents after
deducting these amounts stood at P26,312,828.52 and it was this amount that petitioner bank
agreed to be settled with the payment by the Gaisanos of P25,100,000.00, not P25,000,000.00 as
alleged by the respondents.
Petitioner bank accused the respondents of being in bad faith in that while its negotiation with
the Gaisanos had not yet been finalized, the respondents sought to withdraw the deposit in
question - which was part of the consideration that induced petitioner bank to agree to settle the
respondents' obligation with the payment by the Gaisanos of P25,100,000.00 Petitioner bank
prayed that the deposit in question be released to it in order that it could be applied to the
respondents' total loan obligation.
After consideration of the parties' respective arguments, the RTC of Makati City issued the Order
dated July 31, 2000 stating as follows:
Acting on the Motion to Withdraw Deposit mailed by plaintiff[s], [the respondents herein] on 26
January 1999 in Davao City with Opposition thereto filed by defendant Banco Filipino Savings
and Mortgage Bank on 08 February 1999.
It appears on record that the Complaint for Consignation filed by the plaintiff[s] before this
Court, dated 13 December 1991 and was dismissed by the Court of Appeals on 14 November
1997 which found that the deposited amount of P1,034,600.00 did not include the interest due
and was not in full satisfaction of the defendant's claim and there was no valid tender of payment
and consignation.
The dismissal of the complaint for Consignation by the Appellate Court did not absolve the
obligation of plaintiff to apply the consignation to the outstanding obligation to the defendant
and thus, the deposited amount may still be applied for payment of the obligation after due
hearing on the deficiency claim of the defendant against the plaintiff.
WHEREFORE, in view of the foregoing, the MOTION TO WITHDRAW DEPOSIT is hereby
DENIED for lack of merit.
SO ORDERED.
5

The respondents sought the reconsideration thereof but the RTC of Makati City denied their
motion in its Order dated December 14, 2000. They then filed with the CA a Petition for
Certiorari alleging grave abuse of discretion on the part of the presiding judge
6
of the said lower
court in promulgating the orders denying their motion to withdraw deposit.
Acting on the said petition, the CA rendered the Decision dated November 12, 2001 in CA-G.R.
SP No. 64475 reversing and setting aside the Orders dated July 31, 2000 and December 14, 2000
of the RTC of Makati City. It declared that the respondents had the statutory unilateral right to
withdraw their deposit by way of consignation because there was no acceptance of the same by
petitioner bank. On this point, the CA relied on Article 1260 of the Civil Code which provides, in
part, that "[b]efore the creditor has accepted the consignation, or before a judicial declaration that
the consignation has been properly made, the debtor may withdraw the thing or sum deposited,
allowing the obligation to remain in force."
The CA stressed that petitioner bank had not "performed any prior unmistakable and deliberate
act denominating a preemptive acceptance of the deposit in partial settlement of the loan
obligation."
7
The claim of "acceptance" was found to be an afterthought on the part of petitioner
bank and proffered for the sole purpose of opposing the respondents' motion to withdraw deposit.
Even assuming that there was acceptance by petitioner bank, the CA opined that such acceptance
must retroact to December 5, 1991 when the deposit was judicially made. In such a case,
petitioner bank's computation of the respondents' outstanding loan obligation would have to be
modified and reduced accordingly because the interest rate of 21% would then have to be applied
to the reduced loan balance as of December 5, 1991.
The CA strongly condemned the fact that the respondents' original loan of P400,000.00 in 1972
ballooned to P28,810,330.51 as of December 31, 1998 based on petitioner bank's statement of
account. The principal amount plus interests, surcharges, insurance premiums, sheriff's and
attorney's fees, notarization fees, etc., all added up to the respondents' outstanding balance.
According to the CA, the surcharges for missed monthly payments that petitioner bank charged
the respondents amounted to twice as much as the 21% interest rate, resulting in an effective
interest rate of more than 60% per annum. Citing Medel v. Court of Appeals,
8
this rate was
characterized by the CA as "excessive, iniquitous, unconscionable and exorbitant" and likened
petitioner bank to Shylock, the moneylender in William Shakespeare's The Merchant of Venice,
who asked for a literal pound of flesh as payment for the money he lent.
The CA found as credible the respondents' claim that, on their behalf, the Gaisanos had secured a
compromise agreement with petitioner bank with the payment of P25,100,000.00 and,
consequently, the mortgage over the respondents' commercial lots was cancelled. Further, the
auction sale of these properties which was scheduled on January 27, 1999 was cancelled by
petitioner bank itself in its letter to the Sheriff.
The dispositive portion of the assailed decision of the CA reads:
WHEREFORE, the foregoing premises considered, the petitioners' [the respondents herein]
petition for certiorari is GRANTED. The Orders dated July 31, 2000 and December 14, 2000 of
the public court in Civil Case No. 91-3090 are REVERSED and SET ASIDE, and another one
entered allowing the withdrawal by the petitioners of their deposit of P1,034,600.00 held in
custodia legis with said court. No costs.
SO ORDERED.
9

Petitioner bank sought the reconsideration of the said decision but the CA, in its Resolution dated
April 12, 2002, denied its motion. Hence, petitioner bank's recourse to the Court.
The basic contention of petitioner bank is that the CA erred in reversing the Orders dated July
31, 2000 and December 14, 2000 of the RTC
of Makati City which had denied the respondents' motion to withdraw deposit. Petitioner bank
posits that the said lower court did not commit grave abuse of discretion in issuing the said
orders because, as stated in the CA Decision of November 14, 1997 in CA-G.R. CV No. 42899,
there was no valid consignation since the amount tendered (P1,034,600.00) by the respondents
did not include the interests that accrued on the principal and, therefore, was not in full
settlement of their outstanding obligation. Petitioner bank maintains that the dismissal of the
respondents' complaint for consignation in Civil Case No. 91-3090 did not discharge their
obligation to petitioner bank. Hence, the deposited amount may still be applied to the payment of
such obligation.
Petitioner bank claims that it accepted the respondents' deposit on consignation as partial
payment of their obligation after the CA had declared the same to have been improperly made
and ineffective to discharge the respondents of their obligation to petitioner bank. The RTC of
Makati City thus did not allegedly commit grave abuse of discretion in holding that the deposited
amount of P1,034,600.00 may still be applied to the payment of their outstanding obligation of
P28,810,330.51 as of December 31, 1998.
It is likewise petitioner bank's view that respondents erroneously resorted to the remedy of
certiorari in assailing the orders of the RTC of Makati City. By filing their motion to withdraw
deposit with the said lower court, the respondents allegedly recognized its jurisdiction and
assuming arguendo that it committed an error in the exercise thereof, the appropriate remedy to
correct the same was by ordinary appeal, not certiorari.
Petitioner bank emphasizes that it already accepted the deposit of P1,034,600.00 such that it
could no longer be withdrawn by the respondents. It reiterated that as of December 31, 1998, the
respondents' total obligation was P28,810,330.51 and when it negotiated with the Gaisanos in
January 1999, it deducted therefrom the sums of P1,462,901.00, representing previous payments
of the respondents, and P1,034,600.00, representing the deposit in question. After these
deductions, the respondents' net obligation stood at P26,312,828.52, and it was this amount that
petitioner bank agreed to be settled with the payment of P25,100,000.00 by the Gaisanos. This
allegedly showed its acceptance of the deposit in question as it was part of the consideration for
the settlement of the respondents' obligation of P28,810,330.51.
Petitioner bank strongly takes exception to the portion of the assailed CA decision comparing it
to Shylock and characterizing the surcharges and interests as "excessive, iniquitous,
unconscionable and exorbitant." It faults the respondents for being remiss in paying their
amortization. Had they been religious in paying the same, then their obligation would not have
reached the amount of over P28,000,000.00. Petitioner bank denies that it delayed the
foreclosure of the respondents' mortgaged properties in order to allow the loan arrearages to
accumulate. Rather, the delay was allegedly the respondents' doing as they filed with the RTC of
Davao City a complaint to enjoin the said foreclosure. Moreover, petitioner bank points out that
in several cases,
10
the Court recognized that interests and surcharges are two entirely different
things that may be simultaneously collected in connection with loan agreements.
Petitioner bank, thus, prays for the reversal of the Decision dated November 12, 2001 and
Resolution dated April 12, 2002 of the appellate court allowing the respondents to withdraw their
deposit on consignation of P1,034,600.00 held by the RTC of Makati City.
The petition is denied.
The Court shall first address the procedural issue on the propriety of respondents' filing with the
CA of a petition for certiorari in assailing the Orders of the RTC of Makati City denying their
motion to withdraw deposit. Petitioner bank submits that such tack was erroneous, as they should
have filed an appeal. Petitioner bank's submission is not correct.
A special civil action for certiorari may be instituted when any tribunal, board or officer,
exercising judicial or quasi-judicial functions, has acted without or in excess of jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal,
nor any plain, speedy and adequate remedy in the ordinary course of law.
11
To recall, in the
present case, the RTC of Makati City had already rendered its original judgment in Civil Case
No 91-3090 and the same was appealed to the CA. Acting on the appeal, the CA reversed the
judgment of the RTC of Makati City and dismissed the respondents' complaint for consignation.
The CA decision became final and executory. Subsequently, the respondents filed the motion to
withdraw deposit with the RTC of Makati City and which the latter denied in the Orders of July
31, 2000 and December 14, 2000. These orders, issued after the original judgment had already
been rendered, were interlocutory and, therefore, not appealable. Since no appeal was available
against such orders, the respondents properly availed of the remedy of certiorari before the CA.
On the other hand, the only substantive issue for the Court's resolution is whether the appellate
court erred in reversing the Orders dated July 31, 2000 and December 14, 2000 of the RTC of
Makati City which denied the respondents' motion to withdraw deposit and, consequently,
allowing them to withdraw their deposit of P1,034,600.00 held on consignation by the said lower
court.
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of
payment.
12
In order that consignation may be effective, the debtor must show that: (1) there was
a debt due; (2) the consignation of the obligation had been made because the creditor to whom
tender of payment was made refused to accept it, or because he was absent or incapacitated, or
the obligation has been lost; (3) previous notice of the consignation had been given to the person
the court; and (5) after the consignation had been made, the person interested was notified
thereof.
13
As earlier mentioned, the CA, in its Decision of November 14, 1997 in CA-G.R. CV
No. 42899, ruled that there was no valid consignation because the amount tendered as payment
was insufficient. In other words, the element of a valid tender of payment was not satisfied. This
decision became final and executory.
The issue that now confronts the Court relates to the right of the respondents to withdraw the
amount deposited with the RTC of Makati City. Article 1260 of the Civil Code of the Philippines
pertinently provides:
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial confirmation that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
This provision has been explained in this wise:
x x x The right of the debtor to withdraw the thing or amount deposited in court, depends upon
whether or not the consignation has already been accepted or judicially declared proper. Before
that time, the debtor is still the owner, and he may withdraw it; in this case, the obligation will
remain in full force as before the deposit. But once the consignation has been accepted by the
creditor or judicially declared as properly made, the debtor loses his right over the thing or
amount deposited, and he cannot withdraw the same without the consent of the creditor; if the
creditor consents to the withdrawal in such case, the obligation is revived as against the debtor
personally, but all rights of preference of the creditor over the thing and all his actions against
co-debtors, guarantors and sureties are extinguished.
x x x x
x x x We believe, however, that the contrary view is more acceptable. Before the consignation
has been accepted by the creditor or judicially declared as properly made, the debtor is still the
owner of the thing or amount deposited, and, therefore, the other parties liable for the obligation
have no right to oppose his withdrawal of such thing or amount. The debtor merely uses his
right, and unless the law expressly limits that use of his right, it cannot be prevented by the
objections of anyone. Our law grants to the debtor the right to withdraw, without any limitation,
and we should not read a non-existing limitation into the law. Although the other parties liable
for the obligation would have been benefited if the consignation had been allowed to become
effective, before that moment they have not acquired such an interest as would give them a right
to oppose the exercise of the right of the debtor to withdraw the consignation.
Before the consignation has been judicially declared proper, the creditor may prevent the
withdrawal by the debtor, by accepting the consignation, even with reservations. Thus, when the
amount consigned does not cover the entire obligation, the creditor may accept it, reserving his
right to the balance. x x x
14

Thus, under Article 1260 of the Civil Code, the debtor may withdraw, as a matter of right, the
thing or amount deposited on consignation in the following instances:
(1) Before the creditor has accepted the consignation; or
(2) Before a judicial declaration that the consignation has been properly made.
Obviously, in this case, there was no judicial declaration that the consignation had been properly
made. On the contrary, the CA declared that there was no valid consignation. What remains to be
determined then is whether petitioner bank had already accepted the deposit in question so as to
prevent the respondents from exercising their right to withdraw the same.
Petitioner bank insists that it had already done so. In fact, petitioner bank avers, it took into
account and deducted the deposit in question from the respondents' outstanding obligation of
P28,810,330.51 as of December 31, 1998 when it negotiated with the Gaisanos. Deducting the
deposit in question as well as the payments made by the respondents during the period of 1990
and 1991, their net obligation stood at P26,312,828.52. It was this amount that petitioner bank
allegedly agreed to be settled with the payment of P25,100,000.00 by the Gaisanos on behalf of
the respondents.
To prove this claim, petitioner bank relies on the statement of account
15
prepared by its
employees purportedly showing that the deposit in question was deducted from the respondents'
outstanding obligation as of December 31, 1998. This statement of account, however, is self-
serving and has no probative value especially considering that the persons who prepared the
same were not presented in court. Thus, other than its bare allegation, petitioner bank has failed
to establish by convincing evidence that it had made such acceptance of the deposit in question
prior to the respondents' filing of their motion to withdraw deposit as to effectively prevent them
from withdrawing the sum of P1,034,600.00 held by the RTC of Makati City.
On the other hand, in the assailed decision, the CA categorically made the finding that petitioner
bank made no acceptance of the deposit in question, even if only as partial payment of the
respondents' outstanding obligation:
Nor could it be successfully argued with any modicum of persuasion, x x x, that the bank had
performed any prior unmistakable and deliberate act denominating a preemptive acceptance of
the deposit in partial settlement of the loan obligation. Otherwise, it would not have waited until
the petitioners [the respondents herein] filed their motion to withdraw more than a year after this
Court's aforecited decision. The claimed "acceptance" was obviously an afterthought, and
proffered for the sole purpose of opposing the deposit withdrawal.
16

This finding of fact of the CA that petitioner bank had not accepted the deposit in question, even
with reservation, is accorded respect by this Court following the salutary rule that findings of
facts of the appellate court are generally conclusive on the Supreme Court.
17
It is significant to
note that the RTC of Makati City never made any factual finding on whether or not there had
been acceptance of the deposit in question by petitioner bank.
18
The said lower court did not
even apply Article 1260 of the Civil Code when it denied the respondents' motion to withdraw
deposit.
With the finding that petitioner bank had not made any prior acceptance of the deposit in
question, the CA accordingly did not commit reversible error in setting aside the Orders of the
RTC of Makati City which had denied the respondents' motion to withdraw deposit. Indeed,
absent this prior acceptance by petitioner bank or a judicial declaration that the consignation had
been properly made, the respondents remain the owners of the sum of P1,034,600.00 deposited
with the RTC of Makati City. When they filed their motion to withdraw the deposit, they did so
in the exercise of their right.
At this point, it bears mentioning that it is not disputed that the Gaisano brothers, as attorneys-in-
fact of the respondents, eventually paid to petitioner bank some time in January 1999 the sum of
P25,100,000.00 as settlement of the respondents' obligation. To the Court's mind, the payment of
the said sum already constituted substantial compliance by the respondents of their obligation
considering that their loan, as restructured or consolidated in November 1982, amounted to only
P3,163,000.00.
As noted by the CA, the surcharges imposed by petitioner bank on the respondents as of
November 15, 1998 reached P16,569,534.62.
19
Article 1229
20
of the Civil Code specifically
empowers the judge to reduce the civil penalty equitably, when the principal obligation has been
partly or irregularly complied with. Upon this premise, the Court holds that the said surcharges
should be equitably reduced such that the payment of P25,100,000.00 constituted substantial
compliance by the respondents of their obligation to petitioner bank.
The Court need not delve on the other issues raised, particularly relating to the interests imposed
by petitioner bank in connection with the respondents' loan, as these were already passed upon in
the other cases (CA-G.R. SP No. 21089 and CA-G.R. CV No. 42899) involving the same parties.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated November 12,
2001 and Resolution of April 12, 2002 of the Court of Appeals in CA-G.R. SP No. 64475 are
AFFIRMED.
SO ORDERED.
_________

4.6 Loss of the thing due
G.R. No. 149756 February 11, 2005
MYRNA RAMOS, petitioner,
vs.
SUSANA S. SARAO and JONAS RAMOS, respondents.
D E C I S I O N
PANGANIBAN, J .:
Although the parties in the instant case denominated their contract as a "DEED OF SALE
UNDER PACTO DE RETRO," the "sellers" have continued to possess and to reside at the subject
house and lot up to the present. This evident factual circumstance was plainly overlooked by the
trial and the appellate courts, thereby justifying a review of this case. This overlooked fact
clearly shows that the petitioner intended merely to secure a loan, not to sell the property. Thus,
the contract should be deemed an equitable mortgage.
The Case
Before us is a Petition for Review
1
under Rule 45 of the Rules of Court, assailing the August 31,
2001 Decision
2
of the Court of Appeals (CA) in CA-GR CV No. 50095, which disposed as
follows:
"WHEREFORE, the instant appeal is DISMISSED for lack of merit. The decision dated
January 19, 1995 of the Regional Trial Court, Branch 145, Makati City is AFFIRMEDin toto."
3

The Facts
On February 21, 1991, Spouses Jonas Ramos and Myrna Ramos executed a contract over their
conjugal house and lot in favor of Susana S. Sarao for and in consideration of P1,310,430.
4

Entitled "DEED OF SALE UNDER PACTO DE RETRO," the contract, inter alia, granted the
Ramos spouses the option to repurchase the property within six months from February 21, 1991,
for P1,310,430 plus an interest of 4.5 percent a month.
5
It was further agreed that should the
spouses fail to pay the monthly interest or to exercise the right to repurchase within the stipulated
period, the conveyance would be deemed an absolute sale.
6

On July 30, 1991, Myrna Ramos tendered to Sarao the amount of P1,633,034.20 in the form of
two managers checks, which the latter refused to accept for being allegedly insufficient.
7
On
August 8, 1991, Myrna filed a Complaint for the redemption of the property and moral damages
plus attorneys fees.
8
The suit was docketed as Civil Case No. 91-2188 and raffled to Branch 145
of the Regional Trial Court (RTC) of Makati City. On August 13, 1991, she deposited with the
RTC two checks that Sarao refused to accept.
9

On December 21, 1991, Sarao filed against the Ramos spouses a Petition "for consolidation of
ownership in pacto de retro sale" docketed as Civil Case No. 91-3434 and raffled to Branch 61
of the RTC of Makati City.
10
Civil Case Nos. 91-2188 and 91-3434 were later consolidated and
jointly tried before Branch 145 of the said Makati RTC.
11

The two lower courts narrated the trial in this manner:
"x x x Myrna [Ramos] testified as follows: On February 21, 1991, she and her husband borrowed
from Sarao the amount of P1,234,000.00, payable within six (6) months, with an interest thereon
at 4.5% compounded monthly from said date until August 21, 1991, in order for them to pay
[the] mortgage on their house. For and in consideration of the said amount, they executed a deed
of sale under a [pacto de retro] in favor of Sarao over their conjugal house and lot registered
under TCT No. 151784 of the Registry of Deeds of Makati (Exhibit A). She further claimed that
Sarao will keep the torrens title until the lapse of the 6-month period, in which case she will
redeem [the] subject property and the torrens title covering it. When asked why it was the
amount of P1,310,430 instead of the aforestated amount which appeared in the deed, she
explained that upon signing of the deed in question, the sum of P20,000.00 representing
attorneys fees was added, and its total amount was multiplied with 4.5% interest rate, so that
they could pay in advance the compounded interest. She also stated that although the market
value of the subject property as of February 1991 [was] calculated to [be] more or less P10
million, it was offered [for] only P1,310,430.00 for the reason that they intended nothing but to
redeem the same. In May 1991, she wrote a letter to Atty. Mario Aguinaldo requesting him to
give a computation of the loan obligation, and [expressed] her intention to redeem the subject
property, but she received no reply to her letter. Instead, she, through her husband, secured
directly from Sarao a handwritten computation of their loan obligation, the total of which
amount[ed] to P1,562,712.14. Later, she sent several letters to Sarao, [furnishing] Atty.
Aguinaldo with copies, asking them for the updated computation of their loan obligation as of
July 1991, but [no reply was again received]. During the hearing of February 17, 1992, she
admitted receiving a letter dated July 23, 1991 from Atty. Aguinaldo which show[ed] the
computation of their loan obligation [totaling] to P2,911,579.22 (Exhs. 6, 6-A). On July 30,
1991, she claimed that she offered the redemption price in the form of two (2) managers checks
amounting to P1,633,034.20 (Exhs. H-1 & H-2) to Atty. Aguinaldo, but the latter refused to
accept them because they [were] not enough to pay the loan obligation. Having refused
acceptance of the said checks covering the redemption price, on August 13, 1991 she came to
Court to consign the checks (Exhs. L-4 and L-5). Subsequently, she proceeded to the Register of
Deeds to cause the annotation of lis pendens on TCT No. 151784 (Exh. B-1-A). Hence, she filed
the x x x civil case against Sarao.
"On the other hand, Sarao testified as follows: On February 21, 1991, spouses Ramos together
with a certain Linda Tolentino and her husband, Nestor Tolentino approached her and offered
transaction involv[ing a] sale of property[. S]he consulted her lawyer, Atty. Aguinaldo, and on
the same date a corresponding deed of sale under pacto de retro was executed and signed (Exh. 1
). Later on, she sent, through her lawyer, a demand letter dated June 10, 1991 (Exh. 6) in view of
Myrnas failure to pay the monthly interest of 4.5% as agreed upon under the deed[. O]n June 14,
1991 Jonas replied to said demand letter (Exh. 8); in the reply Jonas admitted that he no longer
ha[d] the capacity to redeem the property and to pay the interest. In view of the said reply of
Jonas, [Sarao] filed the corresponding consolidation proceedings. She [further claimed] that
before filing said action she incurred expenses including payment of real estate taxes in arrears, x
x x transfer tax and capital [gains] tax, and [expenses] for [the] consolidated proceedings, for
which these expenses were accordingly receipted (Exhs. 6, 6-1 to 6-0). She also presented a
modified computation of the expenses she had incurred in connection with the execution of the
subject deed (Exh. 9). She also testified that Myrna did not tender payment of the correct and
sufficient price for said real property within the 6-month period as stipulated in the contract,
despite her having been shown the computation of the loan obligation, inclusive of capital gains
tax, real estate tax, transfer tax and other expenses. She admitted though that Myrna has tendered
payment amounting to P1,633,034.20 in the form of two managers checks, but these were
refused acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5)
were sent to Myrna and her lawyer, informing them of the computation of the loan obligation
inclusive of said expenses. Finally, she denied the allegations made in the complaint that she
allied herself with Jonas, and claimed that she ha[d] no knowledge about said allegation."
12

After trial, the RTC dismissed the Complaint and granted the prayer of Sarao to consolidate the
title of the property in her favor.
13
Aggrieved, Myrna elevated the case to the CA.
The appellate court sustained the RTCs finding that the disputed contract was a bonafide pacto
de retro sale, not a mortgage to secure a loan.
14
It ruled that Myrna Ramos had failed to exercise
the right of repurchase, as the consignation of the two managers checks was deemed invalid.
She allegedly failed (1) to deposit the correct repurchase price and (2) to comply with the
required notice of consignation.
15

Hence, this Petition.
16

The Issues
Petitioner raises the following issues for our consideration:
"1. Whether or not the honorable appellate court erred in ruling the subject Deed of Sale under
Pacto de Retro was, and is in reality and under the law an equitable mortgage;
"2. Whether or not the honorable appellate court erred in affirming the ruling of the court a quo
that there was no valid tender of payment of the redemption price neither [sic] a valid
consignation in the instant case; and
"3. Whether or not [the] honorable appellate court erred in affirming the ruling of the court a quo
denying the claim of petitioner for damages and attorneys fees."
17

The Courts Ruling
The Petition is meritorious in regard to Issues 1 and 2.
First Issue:
A Pacto de Retro Sale
or an Equitable Mortgage?
Respondent Sarao avers that the herein Petition should have been dismissed outright, because
petitioner (1) failed to show proof that she had served a copy of it to the Court of Appeals and (2)
raised questions of fact that were not proper issues in a petition under Rule 45 of the Rules of
Court.
18
This Court, however, disregarded the first ground; otherwise, substantial injustice would
have been inflicted on petitioner. Since the Court of Appeals is not a party here, failure to serve it
a copy of the Petition would not violate any right of respondent. Service to the CA is indeed
mentioned in the Rules, but only to inform it of the pendency of the appeal before this Court.
As regards Item 2, there are exceptions to the general rule barring a review of questions of fact.
19

The Court reviewed the factual findings in the present case, because the CA had manifestly
overlooked certain relevant and undisputed facts which, after being considered, justified a
different conclusion.
20

Pacto de Retro Sale Distinguished
from Equitable Mortgage
The pivotal issue in the instant case is whether the parties intended the contract to be a bona fide
pacto de retro sale or an equitable mortgage.
In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a
retro, subject only to the repurchase by the vendor a retro within the stipulated period.
21
The
vendor a retros failure to exercise the right of repurchase within the agreed time vests upon the
vendee a retro, by operation of law, absolute title to the property.
22
Such title is not impaired
even if the vendee a retro fails to consolidate title under Article 1607 of the Civil Code.
23

On the other hand, an equitable mortgage is a contract that -- although lacking the formality, the
form or words, or other requisites demanded by a statute -- nevertheless reveals the intention of
the parties to burden a piece or pieces of real property as security for a debt.
24
The essential
requisites of such a contract are as follows: (1) the parties enter into what appears to be a contract
of sale, but (2) their intention is to secure an existing debt by way of a mortgage.
25
The
nonpayment of the debt when due gives the mortgagee the right to foreclose the mortgage, sell
the property, and apply the proceeds of the sale to the satisfaction of the loan obligation.
26

This Court has consistently decreed that the nomenclature used by the contracting parties to
describe a contract does not determine its nature.
27
The decisive factor is their intention -- as
shown by their conduct, words, actions and deeds -- prior to, during, and after executing the
agreement.
28
This juristic principle is supported by the following provision of law:
Article 1371. In order to judge the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.
29

Even if a contract is denominated as a pacto de retro, the owner of the property may still
disprove it by means of parol evidence,
30
provided that the nature of the agreement is placed in
issue by the pleadings filed with the trial court.
31

There is no single conclusive test to determine whether a deed absolute on its face is really a
simple loan accommodation secured by a mortgage.
32
However, the law enumerates several
instances that show when a contract is presumed to be an equitable mortgage, as follows:
Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that
the transaction shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to the usury laws.
33

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage
when the terms of the document and the surrounding circumstances so require.
34
The law
discourages the use of a pacto de retro, because this scheme is frequently used to circumvent a
contract known as a pactum commissorium. The Court has frequently noted that a pacto de retro
is used to conceal a contract of loan secured by a mortgage.
35
Such construction is consistent
with the doctrine that the law favors the least transmission of rights.
36

Equitable Mortgage Presumed
to be Favored by Law
Jurisprudence has consistently declared that the presence of even just one of the circumstances
set forth in the forgoing Civil Code provision suffices to convert a contract to an equitable
mortgage.
37
Article 1602 specifically states that the equitable presumption applies to any of the
cases therein enumerated.
In the present factual milieu, the vendor retained possession of the property allegedly sold.
38

Petitioner and her children continued to use it as their residence, even after Jonas Ramos had
abandoned them.
39
In fact, it remained as her address for the service of court orders and copies of
Respondent Saraos pleadings.
40

The presumption of equitable mortgage imposes a burden on Sarao to present clear evidence to
rebut it. Corollary to this principle, the favored party need not introduce proof to establish such
presumption; the party challenging it must overthrow it, lest it persist.
41
To overturn that prima
facie fact that operated against her, Sarao needed to adduce substantial and credible evidence to
prove that the contract was a bona fide pacto de retro. This evidentiary burden she miserably
failed to discharge.
Contrary to Saraos bare assertions, a meticulous review of the evidence reveals that the alleged
contract was executed merely as security for a loan.
The July 23, 1991 letter of Respondent Saraos lawyer had required petitioner to pay a computed
amount -- under the heading "House and Lot Loan"
42
-- to enable the latter to repurchase the
property. In effect, respondent would resell the property to petitioner, once the latters loan
obligation would have been paid. This explicit requirement was a clear indication that the
property was to be used as security for a loan.
The loan obligation was clear from Saraos evidence as found by the trial court, which we quote:
"x x x [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price
for said real property within the 6-month period as stipulated in the contract, despite her having
been shown the computation of the loan obligation, inclusive of capital gains tax, real estate tax,
transfer tax and other expenses. She admitted though that Myrna has tendered payment
amounting to P1,633,034.20 in the form of two managers checks, but these were refused
acceptance for being insufficient. She also claimed that several letters (Exhs. 2, 4 and 5) were
sent to Myrna and her lawyer, informing them of the computation of the loan obligation
inclusive of said expenses. x x x."
43

Respondent herself stressed that the pacto de retro had been entered into on the very same day
that the property was to be foreclosed by a commercial bank.
44
Such circumstance proves that the
spouses direly needed funds to avert a foreclosure sale. Had they intended to sell the property
just to realize some profit, as Sarao suggests,
45
they would not have retained possession of the
house and continued to live there. Clearly, the spouses had entered into the alleged pacto de retro
sale to secure a loan obligation, not to transfer ownership of the property.
Sarao contends that Jonas Ramos admitted in his June 14, 1991 letter to her lawyer that the
contract was a pacto de retro.
46
That letter, however, cannot override the finding that the pacto
de retro was executed merely as security for a loan obligation. Moreover, on May 17, 1991, prior
to the transmittal of the letter, petitioner had already sent a letter to Saraos lawyer expressing the
formers desire to settle the mortgage on the property.
47
Considering that she had already
denominated the transaction with Sarao as a mortgage, petitioner cannot be prejudiced by her
husbands alleged admission, especially at a time when they were already estranged.
48

Inasmuch as the contract between the parties was an equitable mortgage, Respondent Saraos
remedy was to recover the loan amount from petitioner by filing an action for the amount due or
by foreclosing the property.
49

Second Issue:
Propriety of Tender of
Payment and Consignation
Tender of payment is the manifestation by debtors of their desire to comply with or to pay their
obligation.
50
If the creditor refuses the tender of payment without just cause, the debtors are
discharged from the obligation by the consignation of the sum due.
51
Consignation is made by
depositing the proper amount to the judicial authority, before whom the tender of payment and
the announcement of the consignation shall be proved.
52
All interested parties are to be notified
of the consignation.
53
Compliance with these requisites is mandatory.
54

The trial and the appellate courts held that there was no valid consignation, because petitioner
had failed to offer the correct amount and to provide ample consignation notice to Sarao.
55
This
conclusion is incorrect.
Note that the principal loan was P1,310,430 plus 4.5 per cent monthly interest compounded for
six months. Expressing her desire to pay in the fifth month, petitioner averred that the total
amount due was P1,633,034.19, based on the computation of Sarao herself.
56
The amount of
P2,911,579.22 that the latter demanded from her to settle the loan obligation was plainly
exorbitant, since this sum included other items not covered by the agreement. The property had
been used solely as secure ty for the P1,310,430 loan; it was therefore improper to include in that
amount payments for gasoline and miscellaneous expenses, taxes, attorneys fees, and other
alleged loans. When Sarao unjustly refused the tender of payment in the amount of
P1,633,034.20, petitioner correctly filed suit and consigned the amount in order to be released
from the latters obligation.
The two lower courts cited Article 1257 of the Civil Code to justify their ruling that petitioner
had failed to notify Respondent Sarao of the consignation. This provision of law states that the
obligor may be released, provided the consignation is first announced to the parties interested in
the fulfillment of the obligation.
The facts show that the notice requirement was complied with. In her August 1, 1991 letter,
petitioner said that should the respondent fail to accept payment, the former would consign the
amount.
57
This statement was an unequivocal announcement of consignation. Concededly,
sending to the creditor a tender of payment and notice of consignation -- which was precisely
what petitioner did -- may be done in the same act.
58

Because petitioners consignation of the amount of P1,633,034.20 was valid, it produced the
effect of payment.
59
"The consignation, however, has a retroactive effect, and the payment is
deemed to have been made at the time of the deposit of the thing in court or when it was placed
at the disposal of the judicial authority."
60
"The rationale for consignation is to avoid making the
performance of an obligation more onerous to the debtor by reason of causes not imputable to
him."
61

Third Issue:
Moral Damages and Attorneys Fees
Petitioner seeks moral damages in the amount of P500,000 for alleged sleepless nights and
anxiety over being homeless.
62
Her bare assertions are insufficient to prove the legal basis for
granting any award under Article 2219 of the Civil Code.
63
Verily, an award of moral damages is
uncalled for, considering that it was Respondent Saraos accommodation that settled the earlier
obligation of the spouses with the commercial bank and allowed them to retain ownership of the
property.
Neither have attorneys fees been shown to be proper.
64
As a general rule, in the absence of a
contractual or statutory liability therefor, sound public policy frowns on penalizing the right to
litigate.
65
This policy applies especially to the present case, because there is a need to determine
whether the disputed contract was a pacto de retro sale or an equitable mortgage.
Other Matters
In a belated Manifestation filed on October 19, 2004, Sarao declared that she was the "owner of
the one-half share of Jonas Ramos in the conjugal property," because of his alleged failure to file
a timely appeal with the CA.
66
Such declaration of ownership has no basis in law, considering
that the present suit being pursued by petitioner pertains to a mortgage covering the whole
property.
Besides, it is basic that defenses and issues not raised below cannot be considered on appeal.
67

The Court, however, observes that Respondent Sarao paid real property taxes amounting to
P67,567.10 to halt the auction sale scheduled for October 8, 2004, by the City of Muntinlupa.
68

Her payment was made in good faith and benefited petitioner. Accordingly, Sarao should be
reimbursed; otherwise, petitioner would be unjustly enriched,
69
under Article 2175 of the Civil
Code which provides:
Art. 2175. Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter.
WHEREFORE, the Petition is partly GRANTED and the assailed Decision SET ASIDE.
Judgment is hereby rendered:
(1) DECLARI NG (a) the disputed contract as an equitable mortgage, (b) petitioners loan to
Respondent Sarao to be in the amount of P1,633,034.19 as of July 30, 1991; and (c) the
mortgage on the property -- covered by TCT No. 151784 in the name of the Ramos spouses and
issued by the Register of Deeds of Makati City --as discharged
(2) ORDERI NG the RTC to release to Sarao the consigned amount of P1,633,034.19
(3) COMMANDI NG Respondent Sarao to return to petitioner the owners copy of TCT No.
151784 in the name of the Ramos spouses and issued by the Register of Deeds of Makati City
(4) DI RECTI NG the Register of Deeds of Makati City to cancel Entry No. 24057, the annotation
appearing on TCT No. 151784
(5) ORDERI NG petitioner to pay Sarao in the amount of P67,567.10 as reimbursement for real
property taxes
No pronouncement as to costs.
SO ORDERED.
_________________
G.R. No. 116896 May 5, 1997
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S.
RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.

DAVIDE, JR., J .:
This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by petitioner's refusal to pay the rentals as
stipulated in the contract of lease
1
on an undivided portion of 30,000 square meters of a parcel of land owned by
private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE This lease shall be for a period of five (5) years, commencing on
the date of issuance of the industrial clearance by the Ministry of Human Settlements,
renewable for a like or other period at the option of the LESSEE under the same terms
and conditions.
2. RATE OF RENT LESSEE shall pay to the LESSOR rent at the monthly rate of
TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%)
based on the agreed monthly rate of P20,000.00 as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT The rent stipulated in Paragraph 2 above shall be paid
yearly in advance by the LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall be
due and payable upon the execution of this Agreement and the succeeding annual rents
shall be payable every twelve (12) months thereafter during the effectivity of this
Agreement.
4. USE OF LEASED PROPERTY It is understood that the Property shall be used by
the LESSEE as the site, grounds and premises of a rock crushing plant and field office,
sleeping quarters and canteen/mess hall. The LESSORS hereby grant to the LESSEE
the right to erect on the Leased Property such structure(s) and/or improvement(s)
necessary for or incidental to the LESSEE's purposes.
xxx xxx xxx
11. TERMINATION OF LEASE This Agreement may be terminated by mutual
agreement of the parties. Upon the termination or expiration of the period of lease without
the same being renewed, the LESSEE shall vacate the Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit
2
for the proposed rock crushing project. The permit was to be valid for two years unless sooner revoked
by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental in
the amount of P240,000 which was due and payable upon the execution of the contract. They also
assured the latter that they had already stopped considering the proposals of other aggregates plants to
lease the property because of the existing contract with petitioner.
3

In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would
commence on the date of the issuance of an industrial clearance by the Ministry of Human Settlements,
and not from the date of signing of the contract. It then expressed its intention to terminate the contract,
as it had decided to cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties."
4

Private respondents refused to accede to petitioner's request for the pretermination of the lease contract.
They insisted on the performance of petitioner's obligation and reiterated their demand for the payment of
the first annual rental.
5

Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the
amount of P20,000.00 as rental payments for the one-month period of lease, counted from 07 January
1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February
1986 when the Notice of Termination was served"
6
on private respondents.
On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig an action against
petitioner for Specific Performance with Damages.
7
The case was docketed as Civil Case No. 53444 at
Branch 160 of the said court. After the filing by petitioner of its Answer with Counterclaim, the case was
set for trial on the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again asked
for postponement, through representative, as he was presently indisposed. The case was
reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988,
the office of the Government Corporate Counsel entered its appearance for defendant (p.
95, rec.) and the original counsel later withdrew his appearance. On September 15, 1988
the Government Corporate Counsel asked for postponement, represented by Atty.
Elpidio de Vega, and with his conformity in open court, the hearing was reset,
intransferable to September 26 and October 17, 1988, (p. 98, rec.) On September 26,
1988 during the hearing, defendant's counsel filed a motion for postponement (urgent) as
he had "sore eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed submitted for
decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration of
the order of the court on September 26, 1988 (p. 107, rec.) The motion was not asked to
be set for hearing (p. 110 rec.) There was also no proof of notice and service to counsel
for plaintiff . The court in the interest of justice set the hearing on the motion on
November 29, 1988. (p. 120, rec.) but despite notice, again defendant's counsel was
absent (p. 120-A, dorsal side, rec.) without reason. The court reset the motion to
December 16, 1988, in the interest of justice. The motion for reconsideration was denied
by the court. A second motion for reconsideration was filed and counsel set for hearing
the motion on January 19, 1989. During the hearing, counsel for the government was
absent. The motion was deemed abandoned but the court at any rate, after a review of
the incidents and the grounds relied upon in the earlier motion of defendant, found no
reason to disturb its previous order.
8

On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private respondents the
amount of P492,000 which represented the rentals for two years, with legal interest from 7 January 1986
until the amount was fully paid, plus attorney's fees in the amount of P20,000 and costs.
9

Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to pay
private respondent the amount of P492,000 and in denying it the right to be heard.
Upon the affirmance of the trial court's decision
10
and the denial of its motion for reconsideration,
petitioner came to this Court ascribing to respondent Court of Appeals the same alleged errors and
reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which reads: "This
lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial
clearance by the Ministry of Human Settlements. . . ." It then submits that the issuance of an industrial
clearance is a suspensive condition without which the rights under the contract would not be acquired.
The Temporary Use Permit is not the industrial clearance referred to in the contract; for the said permit
requires that a clearance from the National Production Control Commission be first secured, and besides,
there is a finding in the permit that the proposed project does not conform to the Zoning Ordinance of
Rodriguez, (formerly Montalban), Rizal, where the leased property is located. Without the industrial
clearance the lease contract could not become effective and petitioner could not be compelled to perform
its obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial clearance
contemplated in the contract. In its letter dated 24 April 1986, petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only obligated to pay
your clients the amount of P20,000.00 as rental payments for the one-month period of the
lease, counted from 07 January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination
was served on your clients.
11
(Emphasis Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit
issued by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this
letter that petitioner has considered the permit as industrial clearance; otherwise, petitioner could
have simply told private respondents that its obligation to pay rentals has not yet arisen because
the Temporary Use Permit is not the industrial clearance contemplated by them. Instead,
petitioner recognized its obligation to pay rentals counted from the date the permit was issued.
Also worth noting is petitioner's earlier letter, thus:
[P]lease be advised of PNCC Management's decision to cancel or discontinue with the
rock crushing project due to financial as well as technical difficulties. In view thereof, we
would like to terminate our Lease Contract dated 18 November, 1985. Should you agree
to the mutual termination of our Lease Contract, kindly indicate your conformity hereto by
affixing your signature on the space provided below. May we likewise request Messrs.
Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro A. Raymundo as
Attorney-in-Fact of Amador S. Raymundo to sign on the spaces indicated below.
12

It can be deduced from this letter that the suspensive condition issuance of industrial clearance has
already been fulfilled and that the lease contract has become operative. Otherwise, petitioner did not
have to solicit the conformity of private respondents to the termination of the contract for the simple
reason that no juridical relation was created because of the non- fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling the
lease contract was "financial as well as technical difficulties," not the alleged insufficiency of the
Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it should be
released from the obligatory force of the contract of lease because the purpose of the contract did not
materialize due to unforeseen events and causes beyond its control, i.e., due to the abrupt change in
political climate after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be complied with in good faith.
13

But the law recognizes exceptions to the principle of the obligatory force of contracts. One exception is
laid down in Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall also be
released when the prestation becomes legally or physically impossible without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to
obligations "to do," and not to obligations "to give."
14
An obligation "to do" includes all kinds of work or
service; while an obligation "to give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient, or for its simple possession,
or in order to return it to its owner.
15

The obligation to pay rentals
16
or deliver the thing in a contract of
lease
17
falls within the prestation "to give"; hence, it is not covered within the scope of Article 1266. At
any rate, the unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt change in the political climate in the country" except the
alleged prevailing uncertainties in government policies on infrastructure projects.
The principle of rebus sic stantibus
18
neither fits in with the facts of the case. Under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the
contract also ceases to exist.
19
This theory is said to be the basis of Article 1267 of the Civil Code, which
provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application
of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The
parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is
therefore only in absolutely exceptional changes of circumstances that equity demands assistance for the
debtor.
20

In this case, petitioner wants this Court to believe that the abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition "rendered the performance of the lease
contract impractical and inimical to the corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by private respondents:
21

It is a matter of record that petitioner PNCC entered into a contract with private
respondents on November 18, 1985. Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the country has experienced
political upheavals, turmoils, almost daily mass demonstrations, unprecedented, inflation,
peace and order deterioration, the Aquino trial and many other things that brought about
the hatred of people even against crony corporations. On November 3, 1985, Pres.
Marcos, being interviewed live on U.S. television announced that there would be a snap
election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the
contract of lease with private respondents with open eyes of the deteriorating conditions
of the country.
Anent petitioner's alleged poor financial condition, the same will neither release petitioner from the binding
effect of the contract of lease. As held in Central Bank v. Court of Appeals,
22
cited by private
respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation,
nor does it constitute a defense to an action for specific performance.
With regard to the non-materialization of petitioner's particular purpose in entering into the contract of
lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not invalidate the
contract. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing.
23
As a
general principle, the motive or particular purpose of a party in entering into a contract does not affect the
validity nor existence of the contract; an exception is when the realization of such motive or particular
purpose has been made a condition upon which the contract is made to depend.
24
The exception does
not apply here.
Third. According to petitioner, the award of P492,000.00 representing the rent for two years is excessive,
considering that it did not benefit from the property. Besides, the temporary permit, conformably with the
express provision therein, was deemed automatically revoked for failure of petitioner to use the same
within one year from the issuance thereof. Hence, the rent payable should only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid for
two years but was automatically revoked because of its non-use within one year from its issuance. The
non-use of the permit and the non-entry into the property subject of the lease contract were both
imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or lessen
petitioner's monetary obligation. The damage or prejudice to private respondents is beyond dispute. They
unquestionably suffered pecuniary losses because of their inability to use the leased premises. Thus, in
accordance with Article 1659 of the Civil Code,
25
they are entitled to indemnification for damages; and
the award of P492,000.00 is fair and just under the circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner the right to
be heard.
We disagree. The trial court was in fact liberal in granting several postponements
26
to petitioner before it
deemed terminated and waived the presentation of evidence in petitioner's behalf.
It must be recalled that private respondents rested their case on 7 September 1987 yet.
27
Almost a year
after, or on 10 August 1988 when it was petitioner's turn to present evidence, petitioner's counsel asked
for postponement of the hearing to 25 August 1988 due to conflict of schedules,
28
and this was granted.
29
At the rescheduled hearing, petitioner's counsel, through a representative, moved anew for
postponement, as he was allegedly
indisposed.
30
The case was then reset "intransferable" to September 15 and 26, 1988.
31
On 2
September 1988, the Office of the Government Corporate Counsel, through Atty. Elpidio J. Vega, entered
its appearance for the
petitioner,
32
and later the original counsel withdrew his appearance.
33
On 15 September 1988, Atty.
Vega requested for postponement to enable him to go over the records of the case.
34
With his
conformity, the hearing was reset "intransferable" to September 26 and October 17, 1988.
35
In the
morning of 26 September 1988, the court received Atty. Vega's Urgent Motion for Postponement on the
ground that he was afflicted with conjunctivitis or sore eyes.
36
This time, private respondents objected;
and upon their motion, the court deemed terminated and waived the presentation of evidence for the
petitioner.
37
Nevertheless, before the court considered the case submitted for decision, it required the
parties to submit their respective memoranda within thirty days.
38
But petitioner failed to comply.
Likewise, the court was liberal with respect to petitioner's motion for reconsideration. Notwithstanding the
lack of request for hearing and proof of notice and service to private respondents, the court set the
hearing of the said motion on 29 November 1988.
39
Upon the denial of the said motion for lack of merit,
40
petitioner filed a second motion for reconsideration. But during the hearing of the motion on a date
selected by him, Atty. Vega was absent for no reason at all, despite due notice.
41

From the foregoing narration of procedural antecedents, it cannot be said that petitioner was deprived of
its day in court. The essence of due process is simply an opportunity to he heard.
42
To be heard does not
only mean oral arguments in court; one may be heard also through pleadings. Where opportunity to be
heard, either through oral arguments or pleadings, is accorded, there is no denial of procedural due
process.
43

WHEREFORE, the instant petition is DENIED and the challenge decision of the Court of Appeals is
AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
____________
G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.

NOCON, J .:
The case of Reyes v. Caltex (Philippines), Inc.
1
enunciated the doctrine that where a person by his contract charges
himself with an obligation possible to be performed, he must perform it, unless its performance is
rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the
party desires to be excused from performance in the event of contingencies arising thereto, it is his duty
to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely, Article 1267
which provides:
When the service has become so difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released therefrom, in whole or in part.
In the report of the Code Commission, the rationale behind this innovation was explained, thus:
The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in
whole or in part. The intention of the parties should govern and if it appears that the
service turns out to be so difficult as to have been beyond their contemplation, it would be
doing violence to that intention to hold their contemplation, it would be doing violence to
that intention to hold the obligor still responsible.
2

In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of Article
1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated differently, the
former insists that the complaint should have been dismissed for failure to state a cause of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long
distance telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative,
Inc. (CASURECO II) is a private corporation established for the purpose of operating an electric power
service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections for the
use by private respondent in the following places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General Manager; &
(f) 2 Units To be determined by the General Manager.
3

Said contract also provided:
(a) That the term or period of this contract shall be as long as the party of the first part
has need for the electric light posts of the party of the second part it being understood
that this contract shall terminate when for any reason whatsoever, the party of the second
part is forced to stop, abandoned [sic] its operation as a public service and it becomes
necessary to remove the electric lightpost; (sic)
4

It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a member
of the Board of Directors of private respondent and at the same time the legal counsel of petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989
with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of
the contract with damages, on the ground that it is too one-sided in favor of petitioners; that it is not in
conformity with the guidelines of the National Electrification Administration (NEA) which direct that the
reasonable compensation for the use of the posts is P10.00 per post, per month; that after eleven (11)
years of petitioners' use of the posts, the telephone cables strung by them thereon have become much
heavier with the increase in the volume of their subscribers, worsened by the fact that their linemen bore
holes through the posts at which points those posts were broken during typhoons; that a post now costs
as much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the
inequities thereon.
As second cause of action, private respondent alleged that starting with the year 1981, petitioners have
used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City,
without any contract with it; that at the rate of P10.00 per post, petitioners should pay private respondent
for the use thereof the total amount of P267,960.00 from 1981 up to the filing of its complaint; and that
petitioners had refused to pay private respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by petitioners of the
ten (10) telephone units which had caused it great inconvenience and damages to the tune of not less
than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it
does not sufficiently state a cause of action for reformation of contract; (2) it is barred by prescription, the
same having been filed more than ten (10) years after the execution of the contract; and (3) it is barred by
estoppel, since private respondent seeks to enforce the contract in the same action. Petitioners further
alleged that their utilization of private respondent's posts could not have caused their deterioration
because they have already been in use for eleven (11) years; and that the value of their expenses for the
ten (10) telephone lines long enjoyed by private respondent free of charge are far in excess of the
amounts claimed by the latter for the use of the posts, so that if there was any inequity, it was suffered by
them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if petitioners
had refused to comply with private respondent's demands for payment for the use of the posts outside
Naga City, it was probably because what is due to them from private respondent is more than its claim
against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service
had been categorized by the National Telecommunication Corporation (NTC) as "very high" and of
"superior quality."
During the trial, private respondent presented the following witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it was
petitioner Maggay who prepared the contract; that the understanding between private respondent and
petitioners was that the latter would only use the posts in Naga City because at that time, petitioners'
capability was very limited and they had no expectation of expansion because of legal squabbles within
the company; that private respondent agreed to allow petitioners to use its posts in Naga City because
there were many subscribers therein who could not be served by them because of lack of facilities; and
that while the telephone lines strung to the posts were very light in 1977, said posts have become heavily
loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department,
declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which were in
the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that petitioners'
cables strung to the posts in 1989 are much bigger than those in November, 1977; that in 1987, almost
100 posts were destroyed by typhoon Sisang: around 20 posts were located between Naga City and the
town of Pili while the posts in barangay Concepcion, Naga City were broken at the middle which had
been bored by petitioner's linemen to enable them to string bigger telephone lines; that while the cost per
post in 1977 was only from P700.00 to P1,000.00, their costs in 1989 went up from P1,500.00 to
P2,000.00, depending on the size; that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building Code, so that there were cases in 1988
where, because of the low clearance of the cables, passing trucks would accidentally touch said cables
causing the posts to fall and resulting in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and Manager
of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the use by private
telephone systems of electric cooperatives' posts, they should pay a minimum monthly rental of P4.00 per
post, and considering the escalation of prices since 1985, electric cooperatives have been charging from
P10.00 to P15.00 per post, which is what petitioners should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent,
testified on the poor service rendered by petitioner's telephone lines, like the telephone in their
Complaints Section which was usually out of order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it would take two to three hours for petitioners to
reactivate them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors asked
him to study the contract sometime during the latter part of 1982 or in 1983, as it had appeared very
disadvantageous to private respondent. Notwithstanding his recommendation for the filing of a court
action to reform the contract, the former general managers of private respondent wanted to adopt a soft
approach with petitioners about the matter until the term of General Manager Henry Pascual who, after
failing to settle the matter amicably with petitioners, finally agreed for him to file the present action for
reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private respondent and at the same time
the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was also a
member of the Board of Directors of private respondent, was the one who saw to it that the contract was
fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners for as
long as it wishes without paying anything therefor except for long distance calls through PLDT out of
which the latter get only 10% of the charges.
(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which posts
have remained erect up to the present;
(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need only
small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private respondent
involved trucks that were either overloaded or had loads that protruded upwards, causing them to hit the
cables.
(3) Concerning the second cause of action, the intention of the parties when they entered into the contract
was that the coverage thereof would include the whole area serviced by petitioners because at that time,
they already had subscribers outside Naga City. Private respondent, in fact, had asked for telephone
connections outside Naga City for its officers and employees residing there in addition to the ten (10)
telephone units mentioned in the contract. Petitioners have not been charging private respondent for the
installation, transfers and re-connections of said telephones so that naturally, they use the posts for those
telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be in
accordance with engineering standards and practice and comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards
private respondent's first cause of action, that while the contract appeared to be fair to both parties when
it was entered into by them during the first year of private respondent's operation and when its Board of
Directors did not yet have any experience in that business, it had become disadvantageous and unfair to
private respondent because of subsequent events and conditions, particularly the increase in the volume
of the subscribers of petitioners for more than ten (10) years without the corresponding increase in the
number of telephone connections to private respondent free of charge. The trial court concluded that
while in an action for reformation of contract, it cannot make another contract for the parties, it can,
however, for reasons of justice and equity, order that the contract be reformed to abolish the inequities
therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private respondent should also be
ordered to pay the monthly bills for the use of the telephones also in Naga City. And taking into
consideration the guidelines of the NEA on the rental of posts by telephone companies and the increase
in the costs of such posts, the trial court opined that a monthly rental of P10.00 for each post of private
respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in
this case on January 2, 1989. And in like manner, private respondent should pay petitioners from the
same date its monthly bills for the use and transfers of its telephones in Naga City at the same rate that
the public are paying.
On private respondent's second cause of action, the trial court found that the contract does not mention
anything about the use by petitioners of private respondent's posts outside Naga City. Therefore, the trial
court held that for reason of equity, the contract should be reformed by including therein the provision that
for the use of private respondent's posts outside Naga City, petitioners should pay a monthly rental of
P10.00 per post, the payment to start on the date this case was filed, or on January 2, 1989, and private
respondent should also pay petitioners the monthly dues on its telephone connections located outside
Naga City beginning January, 1989.
And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the
reformation of the agreement (Exh. A); ordering the defendants to pay plaintiff's electric
poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines
Sur and in other places where defendant NATELCO uses plaintiff's electric poles, the
sum of TEN (P10.00) PESOS per plaintiff's pole, per month beginning January, 1989 and
ordering also the plaintiff to pay defendant NATELCO the monthly dues of all its
telephones including those installed at the residence of its officers, namely; Engr.
Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and
Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants' counterclaim are both hereby ordered dismissed.
Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the
decision dated May 28, 1992, respondent court affirmed the decision of the trial court,
5
but based on
different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the contract
was subject to a potestative condition which rendered said condition void. The motion for reconsideration
was denied in the resolution dated September 10, 1992.
6
Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;
2) in ruling that prescription of the action for reformation of the contract in this case
commenced from the time it became disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because the
contract does not involve the rendition of service or a personal prestation and it is not for future service
with future unusual change. Instead, the ruling in the case of Occea, et al. v. Jabson, etc., et al.,
7
which
interpreted the article, should be followed in resolving this case. Besides, said article was never raised by
the parties in their pleadings and was never the subject of trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of contract would lie
and may prosper, there must be sufficient allegations as well as proof that the contract in
question failed to express the true intention of the parties due to error or mistake,
accident, or fraud. Indeed, in embodying the equitable remedy of reformation of
instruments in the New Civil Code, the Code Commission gave its reasons as follows:
Equity dictates the reformation of an instrument in order that the true
intention of the contracting parties may be expressed. The courts by the
reformation do not attempt to make a new contract for the parties, but to
make the instrument express their real agreement. The rationale of the
doctrine is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or disclose the
real meeting of the minds of the parties. The rigor of the legalistic rule
that a written instrument should be the final and inflexible criterion and
measure of the rights and obligations of the contracting parties is thus
tempered to forestall the effects of mistake, fraud, inequitable conduct, or
accident. (pp. 55-56, Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in
essence that where through mistake or accident on the part of either or both of the
parties or mistake or fraud on the part of the clerk or typist who prepared the instrument,
the true intention of the parties is not expressed therein, then the instrument may be
reformed at the instance of either party if there was mutual mistake on their part, or by
the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that
there was a mistake on its part or mutual mistake on the part of both parties when they
entered into the agreement Exh. "A", and that because of this mistake, said agreement
failed to express their true intention. Rather, plaintiff's evidence shows that said
agreement was prepared by Atty. Luciano Maggay, then a member of plaintiff's Board of
Directors and its legal counsel at that time, who was also the legal counsel for defendant-
appellant, so that as legal counsel for both companies and presumably with the interests
of both companies in mind when he prepared the aforesaid agreement, Atty. Maggay
must have considered the same fair and equitable to both sides, and this was affirmed by
the lower court when it found said contract to have been fair to both parties at the time of
its execution. In fact, there were no complaints on the part of both sides at the time of and
after the execution of said contract, and according to 73-year old Justino de Jesus, Vice
President and General manager of appellant at the time who signed the agreement Exh.
"A" in its behalf and who was one of the witnesses for the plaintiff (sic), both parties
complied with said contract "from the very beginning" (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or disadvantageous to
the plaintiff with the expansion of the business of appellant and the increase in the
volume of its subscribers in Naga City and environs through the years, necessitating the
stringing of more and bigger telephone cable wires by appellant to plaintiff's electric posts
without a corresponding increase in the ten (10) telephone connections given by
appellant to plaintiff free of charge in the agreement Exh. "A" as consideration for its use
of the latter's electric posts in Naga City, appear, however, undisputed from the totality of
the evidence on record and the lower court so found. And it was for this reason that in the
later (sic) part of 1982 or 1983 (or five or six years after the subject agreement was
entered into by the parties), plaintiff's Board of Directors already asked Atty. Luis General
who had become their legal counsel in 1982, to study said agreement which they
believed had become disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and thereafter, he already
recommended to the Board the filing of a court action to reform said contract, but no
action was taken on Atty. General's recommendation because the former general
managers of plaintiff wanted to adopt a soft approach in discussing the matter with
appellant, until, during the term of General Manager Henry Pascual, the latter, after failing
to settle the problem with Atty. Luciano Maggay who had become the president and
general manager of appellant, already agreed for Atty. General's filing of the present
action. The fact that said contract has become inequitous or disadvantageous to plaintiff
as the years went by did not, however, give plaintiff a cause of action for reformation of
said contract, for the reasons already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that the allegations of its complaint
herein and the evidence it has presented sufficiently make out a cause of action under
Art. 1267 of the New Civil Code for its release from the agreement in question.
xxx xxx xxx
The understanding of the parties when they entered into the Agreement Exh. "A" on
November 1, 1977 and the prevailing circumstances and conditions at the time, were
described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two
officials who signed said agreement in its behalf, as follows:
Our understanding at that time is that we will allow NATELCO to utilize
the posts of CASURECO II only in the City of Naga because at that time
the capability of NATELCO was very limited, as a matter of fact we do
[sic] not expect to be able to expand because of the legal squabbles
going on in the NATELCO. So, even at that time there were so many
subscribers in Naga City that cannot be served by the NATELCO, so as
a mater of public service we allowed them to sue (sic) our posts within
the Naga City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts of
plaintiff were very light and that very few telephone lines were attached to the posts of
CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the volume of
appellant's subscribers and the corresponding increase in the telephone cables and wires
strung by it to plaintiff's electric posts in Naga City for the more 10 years that the
agreement Exh. "A" of the parties has been in effect, there has been no corresponding
increase in the ten (10) telephone units connected by appellant free of charge to plaintiff's
offices and other places chosen by plaintiff's general manager which was the only
consideration provided for in said agreement for appellant's use of plaintiffs electric posts.
Not only that, appellant even started using plaintiff's electric posts outside Naga City
although this was not provided for in the agreement Exh. "A" as it extended and
expanded its telephone services to towns outside said city. Hence, while very few of
plaintiff's electric posts were being used by appellant in 1977 and they were all in the City
of Naga, the number of plaintiff's electric posts that appellant was using in 1989 had
jumped to 1,403,192 of which are outside Naga City (Exh. "B"). Add to this the
destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in
1987 because of the heavy telephone cables attached thereto, and the escalation of the
costs of electric poles from 1977 to 1989, and the conclusion is indeed ineluctable that
the agreement Exh. "A" has already become too one-sided in favor of appellant to the
great disadvantage of plaintiff, in short, the continued enforcement of said contract has
manifestly gone far beyond the contemplation of plaintiff, so much so that it should now
be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's unjust
enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries on the
Civil Code citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of the
principle of the obligatory force of contracts (IV Tolentino, Civil Code of the Philippines,
1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial court, although based on a
different and wrong premise (i.e., reformation of contract), that from the date of the filing
of this case, appellant must pay for the use of plaintiff's electric posts in Naga City at the
reasonable monthly rental of P10.00 per post, while plaintiff should pay appellant for the
telephones in the same City that it was formerly using free of charge under the terms of
the agreement Exh. "A" at the same rate being paid by the general public. In affirming
said ruling, we are not making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and essential services being rendered
by both parties herein to the public and to avoid unjust enrichment by appellant at the
expense of plaintiff, said arrangement to continue only until such time as said parties can
re-negotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and
executed by the parties, the aforesaid ruling of the lower court and affirmed by us shall
cease to exist and shall be substituted and superseded by their new agreement. . . ..
8

Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale
behind this provision,
9
the term "service" should be understood as referring to the "performance" of the
obligation. In the present case, the obligation of private respondent consists in allowing petitioners to use
its posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of
this article reveals that it is not a requirement thereunder that the contract be for future service with future
unusual change. According to Senator Arturo M. Tolentino,
10
Article 1267 states in our law the doctrine of
unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to exist. Considering practical needs and
the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner before the trial
court praying for modification of the terms and conditions of the contract that they entered into by fixing
the proper shares that should pertain to them out of the gross proceeds from the sales of subdivided lots.
We ordered the dismissal of the complaint therein for failure to state a sufficient cause of action. We
rationalized that the Court of Appeals misapplied Article 1267 because:
. . . respondent's complaint seeks not release from the subdivision contract but that the
court "render judgment modifying the terms and conditions of the contract . . . by fixing
the proper shares that should pertain to the herein parties out of the gross proceeds from
the sales of subdivided lots of subject subdivision". The cited article (Article 1267) does
not grant the courts (the) authority to remake, modify or revise the contract or to fix the
division of shares between the parties as contractually stipulated with the force of law
between the parties, so as to substitute its own terms for those covenanted by the parties
themselves. Respondent's complaint for modification of contract manifestly has no basis
in law and therefore states no cause of action. Under the particular allegations of
respondent's complaint and the circumstances therein averred, the courts cannot even in
equity grant the relief sought.
11

The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made out a
cause of action under Article 1267. We, therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present controversy does not end here. We have to
take into account the possible consequences of merely releasing the parties therefrom: petitioners will
remove the telephone wires/cables in the posts of private respondent, resulting in disruption of their
service to the public; while private respondent, in consonance with the contract
12
will return all the
telephone units to petitioners, causing prejudice to its business. We shall not allow such eventuality.
Rather, we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of its
posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other
places where petitioners use private respondent's posts, the sum of ten (P10.00) pesos per post, per
month, beginning January, 1989; and 2) private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occea case, necessitates exercise
of our equity jurisdiction.
13
By way of emphasis, we reiterate the rationalization of respondent court that:
. . . In affirming said ruling, we are not making a new contract for the parties herein, but
we find it necessary to do so in order not to disrupt the basic and essential services being
rendered by both parties herein to the public and to avoid unjust enrichment by appellant
at the expense of plaintiff . . . .
14

Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never
the subject of trial and evidence has been passed upon by respondent court in its well reasoned
resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of the New Civil
Code to this case, we have changed its theory and decided the same on an issue not
invoked by plaintiff in the lower court. For basically, the main and pivotal issue in this
case is whether the continued enforcement of the contract Exh. "A" between the parties
has, through the years (since 1977), become too inequitous or disadvantageous to the
plaintiff and too one-sided in favor of defendant-appellant, so that a solution must be
found to relieve plaintiff from the continued operation of said agreement and to prevent
defendant-appellant from further unjustly enriching itself at plaintiff's expense. It is indeed
unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation,
constraining the latter to go to court. But although plaintiff cannot, as we have held,
correctly invoke reformation of contract as a proper remedy (there having been no
showing of a mistake or error in said contract on the part of any of the parties so as to
result in its failure to express their true intent), this does not mean that plaintiff is
absolutely without a remedy in order to relieve itself from a contract that has gone far
beyond its contemplation and has become so highly inequitous and disadvantageous to it
through the years because of the expansion of defendant-appellant's business and the
increase in the volume of its subscribers. And as it is the duty of the Court to administer
justice, it must do so in this case in the best way and manner it can in the light of the
proven facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a certain ground,
the appellant court may uphold the decision below upon some other point which was
ignored or erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943;
Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the
appellate court has the discretion to consider an unassigned error that is closely related
to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78
Phil. 196). It has also been held that the Supreme Court (and this Court as well) has the
authority to review matters, even if they are not assigned as errors in the appeal, if it is
found that their consideration is necessary in arriving at a just decision of the case (Saura
Import & Export Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143). For it is
the material allegations of fact in the complaint, not the legal conclusion made therein or
the prayer, that determines the relief to which the plaintiff is entitled, and the plaintiff is
entitled to as much relief as the facts warrant although that relief is not specifically prayed
for in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50
Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very illuminating
decision of our Supreme Court through the pen of American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to grant the
relief to which the parties are shown to be entitled by the allegations in
their pleadings and the facts proven at the trial, and the mere fact that
they themselves misconstrue the legal effect of the facts thus alleged
and proven will not prevent the court from placing the just construction
thereon and adjudicating the issues accordingly." (Alzua v. Johnson, 21
Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable
Supreme Court also held:
We rule that the respondent court did not commit any error in taking
cognizance of the aforesaid issues, although not raised before the trial
court. The presence of strong consideration of substantial justice has led
this Court to relax the well-entrenched rule that, except questions on
jurisdiction, no question will be entertained on appeal unless it has been
raised in the court below and it is within the issues made by the parties in
their pleadings (Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA
532). . . .
We believe that the above authorities suffice to show that this Court did not err in
applying Art. 1267 of the New Civil Code to this case. Defendant-appellant stresses that
the applicability of said provision is a question of fact, and that it should have been given
the opportunity to present evidence on said question. But defendant-appellant cannot
honestly and truthfully claim that it (did) not (have) the opportunity to present evidence on
the issue of whether the continued operation of the contract Exh. "A" has now become
too one-sided in its favor and too inequitous, unfair, and disadvantageous to plaintiff. As
held in our decision, the abundant and copious evidence presented by both parties in this
case and summarized in said decision established the following essential and vital facts
which led us to apply Art. 1267 of the New Civil Code to this case:
xxx xxx xxx
15

On the issue of prescription of private respondent's action for reformation of contract, petitioners allege
that respondent court's ruling that the right of action "arose only after said contract had already become
disadvantageous and unfair to it due to subsequent events and conditions, which must be sometime
during the latter part of 1982 or in 1983 . . ."
16
is erroneous. In reformation of contracts, what is reformed
is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the
determination of the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period is
to be reckoned from the time the right of action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private respondent's right of action arose "sometime
during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was asked by
(private respondent's) Board of Directors to study said contract as it already appeared disadvantageous
to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's) cause of action to ask for
reformation of said contract should thus be considered to have arisen only in 1982 or 1983, and from
1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet elapsed."
17

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of
either party because petitioner's permission for free use of telephones is not made to depend purely on
their will, neither is private respondent's permission for free use of its posts dependent purely on its will.
Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the party of
the first part [herein appellant] has need for the electric light posts of the
party of the second part [herein plaintiff] it being understood that this
contract shall terminate when for any reason whatsoever, the party of the
second part is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric light post [sic]";
(Emphasis supplied)
is invalid for being purely potestative on the part of appellant as it leaves the continued
effectivity of the aforesaid agreement to the latter's sole and exclusive will as long as
plaintiff is in operation. A similar provision in a contract of lease wherein the parties
agreed that the lessee could stay on the leased premises "for as long as the defendant
needed the premises and can meet and pay said increases" was recently held by the
Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of
Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely potestative condition
because it leaves the effectivity and enjoyment of leasehold rights to the sole and
exclusive will of the lessee." Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of lease cannot
be made to depend exclusively upon the free and uncontrolled choice of
the lessee between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter. Mutuality does
not obtain in such a contract of lease of no equality exists between the
lessor and the lessee since the life of the contract is dictated solely by
the lessee.
The above can also be said of the agreement Exh. "A" between the parties in this case.
There is no mutuality and equality between them under the afore-quoted provision
thereof since the life and continuity of said agreement is made to depend as long as
appellant needs plaintiff's electric posts. And this is precisely why, since 1977 when said
agreement was executed and up to 1989 when this case was finally filed by plaintiff, it
could do nothing to be released from or terminate said agreement notwithstanding that its
continued effectivity has become very disadvantageous and inequitous to it due to the
expansion and increase of appellant's telephone services within Naga City and even
outside the same, without a corresponding increase in the ten (10) telephone units being
used by plaintiff free of charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff and its customers. . . .
18

Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment
of which depends upon the sole will of the debtor, in which case, the conditional obligation is void.
19

Based on this definition, respondent court's finding that the provision in the contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the first part
(petitioner) has need for the electric light posts of the party of the second part (private
respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other conditions in the same
provision, to wit:
. . . it being understood that this contract shall terminate when for any reason whatsoever,
the party of the second part (private respondent) is forced to stop, abandoned (sic) its
operation as a public service and it becomes necessary to remove the electric light post
(sic);
which are casual conditions since they depend on chance, hazard, or the will of a third person.
20
In sum,
the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly
on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision.
21

Nevertheless, in view of our discussions under the first and second issues raised by petitioners, there is
no reason to set aside the questioned decision and resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28, 1992
and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.
________________
G.R. No. 124221 August 4, 2000
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D. MAGAT, and minors MA.
DULCE MAGAT, MA. MAGNOLIA MAGAT, RONALD MAGAT and DENNIS
MAGAT, petitioners,
vs.
COURT OF APPEALS and SANTIAGO A. GUERRERO, respondents.
PARDO, J .:
The case is an appeal
1
from the decision of the Court of Appeals
2
reversing the decision of the
Regional Trial Court of Makati, Metro Manila,
3
ruling in favor of respondent Santiago A.
Guerrero and dismissing petitioners' complaint.
First, the facts.
Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero") was President
and Chairman of
4
"Guerrero Transport Services", a single proprietorship.
5

Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of taxicabs
within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to "provide radio-
controlled taxi service within the U.S. Naval Base, Subic Bay, utilizing as demand requires . . .
160 operational taxis consisting of four wheel, four-door, four passenger, radio controlled, meter
controlled, sedans, not more than one year . . . "
6

On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos issued
Letter of Instruction No. 1 (hereinafter referred to as "the LOI"). We reproduce the text, as
follows:
"Letter of Instruction No. 1
"SUBJECT: SEIZURE AND CONTROL OF ALL PRIVATELY OWNED
NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND ALL
OTHER MEDIA OF COMMUNICATION.
"To: 1. The Press Secretary Office of the President
Manila
"2. The Secretary Department of National
Defense
Camp E. Aguinaldo, Q.C.
"In view of the present national emergency which has been brought about by the
activities of those who are actively engaged in a criminal conspiracy to seize political and
state power in the Philippines and to take over the Government by force and violence the
extent of which has now assumed the proportion of an actual war against our people and
their legitimate Government, and pursuant to Proclamation No. 1081 dated September 21,
1972, and in my capacity as commander in chief of all the armed forces of the Philippines
and in order to prevent the use of privately owned newspapers, magazines, radio and
television facilities and all other media of communications, for propaganda purposes
against the government and its duly constituted authorities or for any purpose that tend to
undermine the faith and confidence of the people in our government and aggravate the
present national emergency, you are hereby ordered forthwith to take over and control or
cause the taking over and control of all such newspapers, magazines, radio and television
facilities and all other media of communications, wherever they are, for the duration of
the present national emergency, or until otherwise ordered by me or by my duly
designated representative.1wphi1.nt
"In carrying out the foregoing order you are hereby also directed to see to it that
reasonable means are employed by you and your men and that injury to persons and
property must be carefully avoided."
On September 25, 1972, pursuant to the aforequoted Letter of Instruction, the Radio Control
Office issued Administrative Circular No. 4 (hereinafter referred to as "the Admin. Circular"),
herein quoted in full:
"SUBJECT: SUSPENDING THE ACCEPTANCE AND PROCESSING OF
APPLICATIONS FOR RADIO STATION CONSTRUCTION PERMITS AND FOR
PERMITS TO OWN AND/OR POSSESS RADIO TRANSMITTERS OR
TRANSCEIVERS.
"In view of the existence of a state of emergency and the declaration by the President of
martial law in the entire country under Proclamation No. 1081 dated September 21, 1972,
effective immediately the acceptance and processing by the radio control office of
applications for radio stations constructions permits and for permits to possess, own,
transfer, purchase and sale of radio transmitters and transreceivers as well as
manufacturers and dealer's permits of said equipment is hereby suspended.
"Exempted from this circular are applications for radio station construction permits and
for permits to possess, own, transfer, purchase and sell radio transmitters and transceivers
for the following radio stations:
"1. Aeronautical Stations;
"2. Aeronautical Fixed Stations;
"3. Aircraft Stations;
"4. Coastal Stations; and
"5. Ship Stations.
"This circular shall be strictly observed until lifted upon proper instructions from higher
authorities."
On September 25, 1972, Guerrero and Victorino D. Magat (hereinafter referred to as Victorino),
as General Manager of Spectrum Electronic Laboratories, a single proprietorship, executed a
letter-contract for the purchase of transceivers at a quoted price of US$77,620.59, FOB
Yokohoma. Victorino was to deliver the transceivers within 60 to 90 days after receiving notice
from Guerrero of the assigned radio frequency,
7
"taking note of Government Regulations."
8

The contract was signed and Victorino contacted his Japanese supplier, Koide & Co., Ltd. and
placed an order for the transceivers.
On September 29, 1972, Navy Exchange Officer, A. G. Mason confirmed that Guerrero won the
bid for the commercial transportation contract.
9

On October 4, 1972, middle man and broker
10
Isidro Q. Aligada of Reliance Group Engineers,
Inc. (hereinafter referred to as "Aligada"), wrote Victorino, informing him that a radio frequency
was not yet assigned to Guerrero and that government regulations might complicate the
importation of the transceivers. However, in the same letter, Victorino was advised to advise his
supplier "to proceed (with) production pending frequency information." Victorino was also
assured of Guerrero's financial capability to comply with the contract.
11

On October 6, 1972, Guerrero informed Aligada of the frequency number
12
assigned by Subic
Naval Base authorities. Aligada was instructed to "proceed with the order thru Spectrum
Electronics Laboratories."
13

On October 7, 1972, Aligada informed Magat of the assigned frequency number. Aligada also
advised Victorino to "proceed with the order upon receipt of letter of credit."
14

On January 10, 1973, Guerrero applied for a letter of credit with the Metropolitan Bank and
Trust Company.
15
This application was not pursued.
16

On March 27, 1973, Victorino, represented by his lawyer, Atty. Sinesio S. Vergara, informed
Guererro that the order with the Japanese supplier has not been canceled. Should the contract be
canceled, the Japanese firm would forfeit 30% of the deposit and charge a cancellation fee in an
amount not yet known, Guerrero to bear the loss. Further, should the contract be canceled,
Victorino would demand an additional amount equivalent to 10% of the contract price.
17

Unable to get a letter of credit from the Central Bank due to the refusal of the Philippine
government
18
to issue a permit to import the transceivers,
19
Guerrero commenced operation of
the taxi cabs within Subic Naval Base, using radio units borrowed from the U.S. government
(through the Subic Naval Base authorities).
20
Victorino thus canceled his order with his Japanese
supplier.
On May 22, 1973, Victorino filed with the Regional Trial Court, Makati a complaint for damages
arising from breach of contract against Guerrero.
21

On June 7, 1973, Guerrero moved to dismiss the complaint on the ground that it did not state a
cause of action.
22

On June 16, 1973, the trial court
23
granted the motion and dismissed the complaint.
24

On July 11, 1973, Victorino filed a petition for review on certiorari with this Court assailing the
dismissal of the complaint.
25

On April 20, 1983, this Court
2
6 ruled that the complaint sufficiently averred a cause of action.
We set aside the order of dismissal and remanded the case to the trial court for further
proceedings, to wit:
27

"ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case
ordered remanded to the court of origin for further proceedings. No costs.
"SO ORDERED."
On November 27, 1984, the trial court
28
ordered that the case be archived for failure of Victorino
to prosecute.
29

On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia, Ronald and Dennis Magat
(hereinafter referred to as "heirs of Victorino"), moved to reinstate the case and to substitute
Victorino in its prosecution. Apparently, Victorino died on February 18, 1985.
30

On April 29, 1985, the trial court granted the motion.
31

On July 12, 1991, the trial court decided in favor of the heirs of Victorino and ordered Guerrero
to pay temperate, moral and exemplary damages, and attorney's fees, disposing of the case in this
wise:
32

"WHEREFORE, judgment is rendered for the substituted plaintiffs and against the
defendant
"1. Ordering defendant to pay substituted plaintiffs the sum of P25,000.00 for temperate
damages for injury to plaintiff's business dealings with foreign and local businessmen;
"2. P50,000.00 as moral damages;
"3. P25,000.00 as exemplary
damages; and
"4. P20,000.00 as attorney's fees.
"SO ORDERED."
On August 21, 1991, Guerrero appealed to the Court of Appeals.
33

On October 4, 1995, the Court of Appeals rendered the decision appealed from, disposing as
follows:
34

"WHEREFORE, judgment is hereby rendered DISMISSING the complaint.
"No pronouncements as to costs.
" SO ORDERED."
On October 26, 1995, the heirs of Victorino filed with the Court of Appeals a motion for
reconsideration.
35

On March 12, 1996, the Court of Appeals denied the motion for reconsideration.
36

Hence, this appeal.
37

The issue is whether the contract between Victorino and Guerrero for the purchase of radio
transceivers was void. Stated differently, whether the transceivers subject of the contract were
banned contraband items prohibited by the LOI and the Administrative Circular to import.
The contract was valid; the radio transceivers were not contraband.
"Contraband" generally refers to "any property which is unlawful to produce or possess." It
refers to goods which are exported and imported into a country against its laws.
38

In declaring the contract void ab initio, the Court of Appeals ruled that the importation of the
transceivers meant the inevitable passing of such goods through Philippine Ports, where the LOI
and the Administrative Circular have to be observed and applied with full force and effect.
39
The
Court of Appeals declared that the proposed importation of such goods was contrary to law,
hence, the nullity of the contract.
40

We do not agree. The contract was not void ab initio. Nowhere in the LOI and Admin. Circular
is there an express ban on the importation of transceivers.
The LOI and Administrative Circular did not render "radios and transceivers" illegal per se. The
Administrative Circular merely ordered the Radio Control Office to suspend the "acceptance and
processing . . . . of applications . . . for permits to possess, own, transfer, purchase and sell radio
transmitters and transceivers . . . "
41
Therefore, possession and importation of the radio
transmitters and transceivers was legal provided one had the necessary license for it.
42

Transceivers were not prohibited but merely regulated goods. The LOI and Administrative
Circular did not render the transceivers outside the commerce of man. They were valid objects of
the contract.
43

Affirming the validity of the contract, we next discuss whether the contract was breached.
Guerrero testified that a permit to import the transceivers from Japan was denied by the Radio
Control Board. He stated that he, together with Aligada, Victorino and a certain John Dauden
personally went to the Radio Control Office, and were denied a permit to import. They also went
to the Office of the President, where Secretary Ronaldo B. Zamora explained that radios were
"banned like guns because of martial law."
44
Guerrero testified that this prevented him from
securing a letter of credit from the Central Bank.
45
This testimony was not rebutted.
The law provides that "[w]hen the service (required by the contract) has become so manifestly
beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or
in part."
46
Here, Guerrero's inability to secure a letter of credit and to comply with his obligation
was a direct consequence of the denial of the permit to import. For this, he cannot be faulted.
Even if we assume that there was a breach of contract, damages cannot be awarded. Damnum
absque injuria.
There was no bad faith.
47
Bad faith does not simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a
breach of a known duty through some motive or interest or ill will that partakes of the nature of
fraud.
48
Guerrero honestly relied on the representations of the Radio Control Office and the
Office of the President.
True, Guerrero borrowed equipment from the Subic Naval Base authorities at zero cost.
49
This
does not automatically translate to bad faith. Guerrero was faced with the danger of the
cancellation of his contract with Subic Naval Base. He borrowed equipment as a prudent and
swift alternative. There was no proof that he resorted to this option with a deliberate and
malicious intent to dishonor his contract with Victorino. An award of damages surely cannot be
based on mere hypotheses, conjectures and surmises. Good faith is presumed, the burden of
proving bad faith rests on the one alleging it.
50
Petitioners did not effectively discharge the
burden in this case.
To recover moral damages in an action for breach of contract, the breach must be palpably
wanton, reckless, malicious, in bad faith, oppressive or abusive.
51
This is not the case here.
Exemplary damages also cannot be awarded. Guerrero did not act in a wanton, fraudulent,
reckless, oppressive or malevolent manner.
52

Neither can actual damages be awarded. True, indemnification for damages contemplates not
only actual loss suffered (damnum emergens) but unrealized profits (lucrum cessans) as well.
53

However, to be entitled to adequate compensation for pecuniary loss, the loss must be actually
suffered and duly proved.
54
To recover actual damages, the amount of loss must not only be
capable of proof, but must be proven with a reasonable degree of certainty. The claim must be
premised upon competent proof or upon the best evidence obtainable,
55
such as receipts
56
or
other documentary proof.
Only the testimony of Aligada was presented to substantiate petitioners' claim for unrealized
profits.
57
Aligada testified that as a result of the cancellation of the contract, Victorino had to
suspend transactions with his Japanese supplier for six (6) months. Aligada stated that the
volume of Victorino's business with Subic Naval Base also diminished significantly. Aligada
approximated that Victorino's unrealized business opportunities amounted to P400,000.00.
58

Being a witness for Victorino's heirs and standing to gain from the contract's fulfillment,
Aligada's testimony is self-serving. It is also hearsay. We fail to see how this "evidence" proves
actual damages with a "reasonable degree of certainty."
59
If proof is "flimsy", we cannot award
actual damages.
60

WHEREFORE, we AFFIRM the decision of the Court of Appeals promulgated on October 11,
1995, in CA-G. R. CV No. 34952, dismissing the complaint.1wphi1.nt
No costs.
SO ORDERED.
___________
4.7 Condonation or remission of debts
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C. DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J .:
This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of First Instance of Manila, Branch XVI, in
Civil Case No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General Construction Company to pay plaintiff the sum
of P7,119.07 with interest at the rate of 12% per annum until it is fully paid, plus attorney's fees which the Court fixes in
the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto Palisoc are sentenced to pay the
plaintiff in this case with the understanding that the judgment against these individual defendants shall be enforced only
if the defendant company has no more leviable properties with which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly registered under the laws of the Philippines, purchased from the
plaintiff a motor vehicle on the installment basis and for this purpose executed a promissory note for P9,440.00, payable in twelve (12) equal
monthly installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent installments on the 22nd day of
every month thereafter, until fully paid, with the condition that failure to pay any of said installments as they fall due would render the whole
unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance amounting to
P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in
their capacity as general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in default.
1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B.
Lumauig is concerned.
2

When the case was called for hearing, the defendants and their counsels failed to appear notwithstanding
the notices sent to them. Consequently, the trial court authorized the plaintiff to present its evidence ex-
parte
3
, after which the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that since
there are five (5) general partners, the joint and subsidiary liability of each partner should not exceed one-
fifth (
1
/
5
) of the obligations of the defendant company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only
one-fifth (
1
/
5
) of the obligations of the defendant company.
4
Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to favor one of the general
partners of a partnership increases the joint and subsidiary liability of each of the remaining partners for
the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. However, any partner
may enter into a separate obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles l698 and 1137
of the Civil Code, the partners are not liable each for the whole debt of the partnership.
The liability is pro rata and in this case Pedro Yulo is responsible to plaintiff for only one-
half of the debt. The fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to only one-fifth (
1
/
5
) of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig was dismissed, upon
motion of the plaintiff, does not unmake the said Lumauig as a general partner in the defendant company.
In so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's individual liability to the
plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without pronouncement as
to costs.
SO ORDERED.
________
G.R. No. 109172 August 19, 1994
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner,
vs.
The COURT OF APPEALS and ASSOCIATED BANK, respondents.
Gancayco Law Offices for petitioners.
Jose A. Soluta, Jr. & Associates for private respondent.

BIDIN, J .:
In this petition for review on certiorari, petitioner Trans-Pacific Industrial Supplies, Inc. seeks the reversal of the decision of respondent court,
the decretal portion of which reads:
WHEREFORE, the decision of June 11, 1991 is SET ASIDE and NULLIFIED; the complaint is dismissed, and on the
counterclaim, Transpacific is ordered to pay Associated attorney's fees of P15,000.00.
Costs against Transpacific.
SO ORDERED. (Rollo, p. 47)
Sometime in 1979, petitioner applied for and was granted several financial accommodations amounting to P1,300,000.00 by respondent
Associated Bank. The loans were evidenced and secured by four (4) promissory notes, a real estate mortgage covering three parcels of land
and a chattel mortgage over petitioner's stock and inventories.
Unable to settle its obligation in full, petitioner requested for, and was granted by respondent bank, a restructuring of the remaining
indebtedness which then amounted to P1,057,500.00, as all the previous payments made were applied to penalties and interests.
To secure the re-structured loan of P1,213,400.00, three new promissory notes were executed by Trans-Pacific as follows: (1) Promissory
Note No. TL-9077-82 for the amount of P1,050,000.00 denominated as working capital; (2) Promissory Note No. TL-9078-82 for the amount
of P121,166.00 denominated as restructured interest; (3) Promissory Note No. TL-9079-82 for the amount of P42,234.00 denominated
similarly as restructured interest (Rollo. pp. 113-115).
The mortgaged parcels of land were substituted by another mortgage covering two other parcels of land and a chattel mortgage on
petitioner's stock inventory. The released parcels of land were then sold and the proceeds amounting to P1,386,614.20, according to
petitioner, were turned over to the bank and applied to Trans-Pacific's restructured loan. Subsequently, respondent bank returned the
duplicate original copies of the three promissory notes to Trans-Pacific with the word "PAID" stamped thereon.
Despite the return of the notes, or on December 12, 1985, Associated Bank demanded from Trans-Pacific payment of the amount of
P492,100.00 representing accrued interest on PN No. TL-9077-82. According to the bank, the promissory notes were erroneously released.
Initially, Trans-Pacific expressed its willingness to pay the amount demanded by respondent bank. Later, it had a change of heart and
instead initiated an action before the Regional Trial Court of Makati, Br. 146, for specific performance and damages. There it prayed that the
mortgage over the two parcels of land be released and its stock inventory be lifted and that its obligation to the bank be declared as having
been fully paid.
After trial, the court a quo rendered judgment in favor of Trans-Pacific, to wit:
WHEREFORE, premises considered and upon a clear preponderance of evidence in support of the stated causes of
action, the Court finds for the plaintiffs and against defendant, and
(a) declares plaintiff's obligations to defendant to have been already fully paid;
(b) orders defendant to execute and deliver to plaintiffs a release on the i September 11, 1981
mortgage over TCT (50858)
S-10086 and TCT (50859) S-109087, and ii December 20, 1983 chattel mortgage, within fifteen
(15) days from the finality hereof;
(c) orders defendant to pay plaintiffs Romeo Javier and Romana Bataclan-Javier the sum of
P50,000.00 as and for moral damages; and
(d) orders defendant to pay plaintiffs the sum of P30,000.00 as attorney's fees, plus expenses of
the suit.
Defendant's counterclaims are dismissed for lack of merit.
With costs against defendant.
SO ORDERED. (Rollo, p. 101)
Respondent bank elevated the case to the appellate court which, as aforesaid, reversed the decision of the trial court. In this appeal,
petitioner raises four errors allegedly committed by the respondent court, namely:
I
RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE ACCRUED INTEREST IN THE AMOUNT OF
492,100.00 HAS NOT BEEN PAID WHEN ARTICLE 1176 OF THE CIVIL CODE PROVIDES THAT SUCH CLAIM FOR
INTEREST UPON RECEIPT OF PAYMENT OF THE PRINCIPAL MUST BE RESERVED OTHERWISE IT IS DEEMED
PAID.
II
RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT WITH THE DELIVERY OF THE DOCUMENTS
EVIDENCING THE PRINCIPAL OBLIGATION, THE ANCILLARY OBLIGATION OF PAYING INTEREST WAS NOT
RENOUNCED CONTRARY TO THE PROVISIONS OF ART. 1273 OF THE CIVIL CODE AND THE UNDISPUTED
EVIDENCE ON RECORD.
III
RESPONDENT APPELLATE COURT ERRED IN NOT HOLDING THAT PETITIONER HAS FULLY PAID ITS
OBLIGATION CONFORMABLY WITH ARTICLE 1234 OF THE CIVIL CODE.
IV
RESPONDENT APPELLATE COURT ERRED IN AWARDING ATTORNEY'S FEES IN FAVOR OF ASSOCIATED
BANK (Rollo, p. 15).
The first three assigned errors will be treated jointly since their resolution border on the common issue, i.e., whether or not petitioner has
indeed paid in full its obligation to respondent bank.
Applying the legal presumption provided by Art. 1271 of the Civil Code, the trial court ruled that petitioner has fully discharged its obligation
by virtue of its possession of the documents (stamped "PAID") evidencing its indebtedness. Respondent court disagreed and held, among
others, that the documents found in possession of Trans-Pacific are mere duplicates and cannot be the basis of petitioner's claim that its
obligation has been fully paid. Accordingly, since the promissory notes submitted by petitioner were duplicates and not the originals, the
delivery thereof by respondent bank to the petitioner does not merit the application of Article 1271 (1st par.) of the Civil Code which reads:
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies
the renunciation of the action which the former had against the latter.
Respondent court is of the view that the above provision must be construed to mean the original copy of the document evidencing the credit
and not its duplicate, thus:
. . . [W]hen the law speaks of the delivery of the private document evidencing a credit, it must be construed as referring
to the original. In this case, appellees (Trans-Pacific) presented, not the originals but the duplicates of the three
promissory notes." (Rollo, p. 42)
The above pronouncement of respondent court is manifestly groundless. It is undisputed that the documents presented were duplicate
originals and are therefore admissible as evidence. Further, it must be noted that respondent bank itself did not bother to challenge the
authenticity of the duplicate copies submitted by petitioner. In People vs. Tan, (105 Phil. 1242 [1959]), we said:
When carbon sheets are inserted between two or more sheets of writing paper so that the writing of a contract upon the
outside sheet, including the signature of the party to be charged thereby, produces a facsimile upon the sheets
beneath, such signature being thus reproduced by the same stroke of pen which made the surface or exposed
impression, all of the sheets so written on are regarded as duplicate originals and either of them may be introduced in
evidence as such without accounting for the nonproduction of the others.
A duplicate copy of the original may be admitted in evidence when the original is in the possession of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice (Sec. 2[b], Rule 130), as in the case of respondent bank.
This notwithstanding, we find no reversible error committed by the respondent court in disposing of the appealed decision. As gleaned from
the decision of the court a quo, judgment was rendered in favor of petitioner on the basis of presumptions, to wit:
The surrender and return to plaintiffs of the promissory notes evidencing the consolidated obligation as restructured,
produces a legal presumption that Associated had thereby renounced its actionable claim against plaintiffs (Art. 1271,
NCC). The presumption is fortified by a showing that said promissory notes all bear the stamp "PAID", and has not
been otherwise overcome. Upon a clear perception that Associated's record keeping has been less than exemplary . .
., a proffer of bank copies of the promissory notes without the "PAID" stamps thereon does not impress the Court as
sufficient to overcome presumed remission of the obligation vis-a-vis the return of said promissory notes. Indeed,
applicable law is supportive of a finding that in interest bearing obligations-as is the case here, payment of principal
(sic) shall not be deemed to have been made until the interests have been covered (Art. 1253, NCC). Conversely,
competent showing that the principal has been paid, militates against postured entitlement to unpaid interests.
In fine. the Court is satisfied that plaintiffs must be found to have settled their obligations in full.
As corollary, a finding is accordingly compelled that plaintiffs (sic) accessory obligations under the real estate mortgage
over two (2) substituted lots as well as the chattel mortgage, have been extinguished by the renunciation of the
principal debt (Art. 1273, NCC), following the time-honored axiom that the accessory follows the principal. There is,
therefore, compelling warrant (sic) to find in favor of plaintiffs insofar as specific performance for the release of the
mortgages on the substituted lots and chattel is concerned. (Rollo, p. 100)
premised by:
Records show that Associated's Salvador M. Mesina is on record as having testified that all three (3) December 8,
1990 promissory notes for the consolidated principal obligation, interest and penalties had been fully paid (TSN, July
18, 1990, p. 18). It is, moreover, admitted that said promissory notes were accordingly returned to Romeo Javier. (Ibid.)
The above disquisition finds no factual support, however, per review of the records. The presumption created by the Art. 1271 of the Civil
Code is not conclusive but merely prima facie. If there be no evidence to the contrary, the presumption stands. Conversely, the presumption
loses its legal efficacy in the face of proof or evidence to the contrary. In the case before us, we find sufficient justification to overthrow the
presumption of payment generated by the delivery of the documents evidencing petitioners indebtedness.
It may not be amiss to add that Article 1271 of the Civil Code raises a presumption, not of payment, but of the renunciation of the credit
where more convincing evidence would be required than what normally would be called for to prove payment. The rationale for allowing the
presumption of renunciation in the delivery of a private instrument is that, unlike that of a public instrument, there could be just one copy of
the evidence of credit. Where several originals are made out of a private document, the intendment of the law would thus be to refer to the
delivery only of the original original rather than to the original duplicate of which the debtor would normally retain a copy. It would thus be
absurd if Article 1271 were to be applied differently.
While it has been consistently held that findings of facts are not reviewable by this Court, this rule does not find application where both the
trial and the appellate courts differ thereon (Asia Brewery, Inc. v. CA, 224 SCRA 437 [1993]).
Petitioner maintains that the findings of the trial court should be sustained because of its advantage in observing the demeanor of the
witnesses while testifying (citing Crisostomo v. Court of Appeals, 197 SCRA 833) more so where it is supported by the records (Roman
Catholic Bishop of Malolos v. Court of Appeals, 192 SCRA 169).
This case, however, does not concern itself with the demeanor of witnesses. As for the records, there is actually none submitted by petitioner
to prove that the contested amount, i.e., the interest, has been paid in full. In civil cases, the party that alleges a fact has the burden of
proving it (Imperial Victory Shipping Agency v. NLRC 200 SCRA 178 [1991]). Petitioner could have easily adduced the receipts
corresponding to the amounts paid inclusive of the interest to prove that it has fully discharged its obligation but it did not.
There is likewise nothing on the records relied upon by the trial court to support its claim, by empirical evidence, that the amount
corresponding to the interest has indeed been paid. The trial court totally relied on a disputable presumption that the obligation of petitioner
as regards interest has been fully liquidated by the respondent's act of delivering the instrument evidencing the principal obligation.
Rebuttable as they are, the court a quo chose to ignore an earlier testimony of Mr. Mesina anent the outstanding balance pertaining to
interest, as follows:
Court:
Q Notwithstanding, let us go now specifically to promissory note No. 9077-82 in the amount of
consolidated principal of P1,050,000.00. Does the Court get it correctly that this consolidated
balance has been fully paid?
A Yes, the principal, yes, sir.
Q Fully settled?
A Fully settled, but the interest of that promissory note has not been paid, Your Honor.
Q In other words, you are saying, fully settled but not truly fully settled?
A The interest was not paid.
Q Not fully settled?
A The interest was not paid, but the principal obligation was removed from our books, Your
Honor.
Q And you returned the promissory note?
A We returned the promissory note. (TSN, July 18, 1990, p. 22)
That petitioner has not fully liquidated its financial obligation to the Associated Bank finds more than ample confirmation and self-defeating
posture in its letter dated December 16, 1985, addressed to respondent bank, viz.:
. . . that because of the prevailing unhealthy economic conditions, the business is unable to generate sufficient
resources for debt servicing.
Fundamentally on account of this, we propose that you permit us to fully liquidate the remaining obligations to you of
P492,100 through a payment in kind (dacion en pago) arrangement by way of the equipments (sic) and spare parts
under chattel mortgage to you to the extent of their latest appraised values." (Rollo, pp. 153-154; Emphasis supplied)
Followed by its August 20, 1986 letter which reads:
We have had a series of communications with your bank regarding our proposal for the eventual settlement of our
remaining obligations . . .
As you may be able to glean from these letters and from your credit files, we have always been conscious of our
obligation to you which had not been faithfully serviced on account of unfortunate business reverses. Notwithstanding
these however, total payments thus far remitted to you already exceede (sic) the original principal amount of our
obligation. But because of interest and other charges, we find ourselves still obligated to you by P492,100.00. . . .
. . . We continue to find ourselves in a very fluid (sic) situation in as much as the overall outlook of the industry has not
substantially improved. Principally for this reason, we had proposed to settle our remaining obligations to you by way of
dacion en pago of the equipments (sic) and spare parts mortgaged to you to (the) extent of their applicable loan values.
(Rollo, p. 155; Emphasis supplied)
Petitioner claims that the above offer of settlement or compromise is not an admission that anything is due and is inadmissible against the
party making the offer (Sec. 24, Rule 130, Rules of Court). Unfortunately, this is not an iron-clad rule.
To determine the admissibility or non-admissibility of an offer to compromise, the circumstances of the case and the intent of the party
making the offer should be considered. Thus, if a party denies the existence of a debt but offers to pay the same for the purpose of buying
peace and avoiding litigation, the offer of settlement is inadmissible. If in the course thereof, the party making the offer admits the existence
of an indebtedness combined with a proposal to settle the claim amicably, then, the admission is admissible to prove such indebtedness
(Moran, Comments on the Rules of Court, Vol. 5, p. 233 [1980 ed.); Francisco, Rules of Court, Vol. VII, p. 325 [1973 ed.] citing McNiel v.
Holbrook, 12 Pac. (US) 84, 9 L.ed. 1009). Indeed, an offer of settlement is an effective admission of a borrower's loan balance (L.M.
Handicraft Manufacturing Corp. v. Court of Appeals, 186 SCRA 640 [1990]). Exactly, this is what petitioner did in the case before us for
review.
Finally, respondent court is faulted in awarding attorney's fees in favor of Associated Bank. True, attorney's fees may be awarded in a case
of clearly unfounded civil action (Art. 2208 [4], CC). However, petitioner claims that it was compelled to file the suit for damages in the honest
belief that it has fully discharged its obligations in favor of respondent bank and therefore not unfounded.
We believe otherwise. As petitioner would rather vehemently deny, undisputed is the fact of its admission regarding the unpaid balance of
P492,100.00 representing interests. It cannot also be denied that petitioner opted to sue for specific performance and damages after
consultation with a lawyer (Rollo, p. 99) who advised that not even the claim for interests could be recovered; hence, petitioner's attempt to
seek refuge under Art. 1271 (CC). As previously discussed, the presumption generated by Art. 1271 is not conclusive and was successfully
rebutted by private respondent. Under the circumstances, i.e., outright and honest letters of admission vis-a-vis counsel-induced
recalcitrance, there could hardly be honest belief. In this regard, we quote with approval respondent court's observation:
The countervailing evidence against the claim of full payment emanated from Transpacific itself. It cannot profess
ignorance of the existence of the two letters, Exhs. 3 & 4, or of the import of what they contain. Notwithstanding the
letters, Transpacific opted to file suit and insist(ed) that its liabilities had already been paid. There was thus an
ill-advised attempt on the part of Transpacific to capitalize on the delivery of the duplicates of the promissory notes, in
complete disregard of what its own records show. In the circumstances, Art. 2208 (4) and (11) justify the award of
attorney's fees. The sum of P15,000.00 is fair and equitable. (Rollo, pp. 46-47)
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
__________
G.R. No. 43503 October 31, 1990
LEONOR J. BIALA, petitioner,
vs.
COURT OF APPEALS (Fourth Division) and MARIA P. LEE, respondents.
Guillermo U. Gonzales and Antonio M. Reyes for petitioner.
Manuel D. Ancheta for private respondent.

MEDIALDEA, J .:
This is a petition for review on certiorari of the decision of the Court of Appeals reversing the decision of the Court of First Instance (now
Regional Trial Court) of Pangasinan, in Civil Case No. D-2610 entitled "Maria P. Lee v. Leonor Biala" which dismissed the complaint for sum
of money in favor of petitioner, who is the defendant in the trial court.
The antecedent facts of this case are as follows:
On November 3, 1970, respondent Lee filed an action for collection of sum of money against petitioner Biala, in the amount of P31,338.76,
based on several causes of action, evidenced by documents of real estate mortgages and promissory notes executed by petitioner in favor of
private respondent, as follows:
(1) Deed of Real Estate Mortgage on August 15, 1956 over two residential houses on Lot 374-C of the cadastral survey of Dagupan in the
amount of P12,000.00, redeemable within a period of five (5) years from the date of execution of the deed;
(2) Deed of Real Estate Mortgage on April 8, 1958 over Lot 374-C on which the two residential houses previously mortgaged stand, in the
amount of P2,000.00 payable within two (2) years from April 8, 1958;
(3) Deed of Second Real Estate Mortgage over the same lot 374-C in the amount of P4,857.00 payable within one (1) year from the date of
the contract;
(4) Promissory note dated March 28, 1960, in the amount of P2,330.00 payable on or before April 8, 1960;
(5) Promissory notes dated May 27, 1960, in the amount of P500. 00 payable on or before April 8, 1961;
(6) Promissory note dated December 15, 1960, in the amount of P4,790.00 to be paid on or before January 1, 1961;
(7) Promissory note dated April 14, 1961, in the amount of P300.00 to be paid on or before May 8, 1961;
(8) Promissory note executed on May 5, 1961, for P100.00 payable on or before June 30, 1961;
(9) Promissory note dated May 23, 1961, for P700.00 payable on or before August 31, 1961;
(10) Promissory note signed on June 30, 1961 for P310.00 to be paid on or before September 30, 1961;
(11) Promissory note dated July 18, 1961, in the amount of P200.00 to be paid on or before December 30, 1961;
(12) Promissory note executed on July 31, 1961 for P2,193.46 payable on or before December 31, 1961;
(13) Promissory note dated August 18, 1961 in the sum of P565.00 payable on or before December 30, 1961;
(14) Promissory note executed on August 21, 1961 for P100.00 to be paid on or before December 21, 1961;
(15) Promissory note dated April 24, 1963 in the amount o f P100.00, with the following statement: his account of mine will be paid if I will pay
all my accounts to her and all conditions will follow my previous accounts with her.
Respondent Lee also claimed the additional amount of P295.00 which the former allegedly paid Atty. Rivera, counsel for petitioner.
Petitioner denied all respondent's allegations in her answer and contended that although she signed for the amount of P12,000.00 as stated
in the first cause of action, the real amount she actually received from respondent was only P2,000.00 as shown in the latter's affidavit dated
May 27, 1958; that the claims of respondent in the second, third, fourth, fifth and ninth causes of action had already been settled, and even if
not settled, the action has already prescribed; and that the amounts stated under the other causes of action were never received by her.
On December 5, 1972, the trial court rendered a decision dismissing the complaint on the ground of prescription of all claims prayed for
therein. Thedispositive portion of the decision states:
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor of the defendant. The plaintiff is
ordered to pay the defendant the following: (1) The amount of Five Thousand Pesos (P5,000.00) as the actual, moral
and exemplary damage(s) suffered by the defendant (2) The sum of Two Thousand Pesos (P2,000.00) as attorney's
fees and (3) To pay the costs of suit.
SO ORDERED. (p. 58, Records)
Not satisfied with the decision, respondent Lee appealed the decision to the Court of Appeals. On January 15, 1976, respondent appellate
court rendered judgment reversing the decision of the trial court in favor of respondent Lee, the dispositive portion of which reads as follows:
WHEREFORE, the decision appealed from is REVERSED, and a new one shall be entered, ordering defendant-
appellee to pay plaintiff-appellant the amount of P28,215.46, plus 12% interest on the amount from the date the instant
suit was initiated in the lower court; to pay attorney's fees in the amount of P3,000.00; and to pay the costs.
SO ORDERED. (p. 37, Rollo)
Hence, the petition is filed with the petitioner assigning the following errors:
I
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTION IS BARRED BY
LACHES.
II
THE RESPONDENT COURT OF APPEALS ERRED IN DISCARDING THE AFFIDAVIT OF PRIVATE RESPONDENT
DATED MAY 27, 1958 (EXHIBIT I) AND GIVING MORE WEIGHT AND CREDENCE TO HER ORAL TESTIMONY IN
COURT.
III
THE RESPONDENT COURT OF APPEALS ERRED IN DISREGARDING THE TESTIMONY OF PETITIONER THAT
THE ALLEGED INDEBTEDNESS HAS ALREADY BEEN PAID AND GIVING MORE FORCE AND CREDIT TO HER
ALLEGATIONS IN HER ANSWER.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT AFFORDING PETITIONER JUDICIAL PROTECTION
UNDER ARTICLE 24 OF THE NEW CIVIL CODE.
We find the petition devoid of merit.
Anent the first assigned error, petitioner alleges that the action brought by respondent Lee before the trial court is barred by laches on the
ground of unreasonable delay of nine (9) years before the filing of the action.
Laches is the failure or neglect, for an unreasonable length of time to do that which, by exercising due diligence could or should have been
done earlier; it is negligence or omission to assert a right within a reasonable time warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. (Tijam, et al. vs. Sibonghanoy, G.R. 21450, April 15, 1968, 23 SCRA 29; Tejido v.
Zamacoma, No. 63048, August 7, 1985, 138 SCRA 78).
The four basic elements of laches are: 1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of
which complaint is made and for which the complainant seeks a remedy; 2) delay in asserting the complainant's rights, the complainant
having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute suit; 3) lack of knowledge or
notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and 4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit is not held to be barred.
While the first element is present in this case, all the other elements are missing. The lapse of nine (9) years within which respondent Lee
had not instituted her suit cannot be considered as unreasonable delay to warrant the application of laches. In the first place, the action filed
by respondent has not yet prescribed, since it was instituted well within the period of ten (10) years from the time the cause of action accrued
as provided by law. The doctrine of laches, being an equitable principle, should not be applied to supplant what is clearly stated in the law,
especially if it would defeat and not promote justice.
Moreover, the petitioner, in invoking laches, has not sufficiently shown that she has no knowledge that respondent Lee would assert her right
for the collection of the obligations which the former owes the latter. On the contrary, petitioner admits the existence of the real estate
mortgages on the properties and the promissory notes signed by her in favor of respondent Lee. Although she raised the defense of payment
of all her debts in her answer before the trial court, there was no proof presented evidencing payment thereof as correctly found by the
appellate court. Hence, there was more truth to the allegations of respondent, which were not refuted by petitioner, that several demands had
been made to the latter for the payment of all her debts, and that petitioner had merely given her word and promises to settle such
obligations (p. 13, Brief for Private Respondent). Thus, the doctrine of laches cannot be taken against respondent where petitioner is shown
to have promised from time to time the relief sought for (Cristobal v. Melchor, et al., G.R. No. L-43203, July 29, 1977, 78 SCRA 175)
As to the last element of laches, there is no showing that the petitioner would be the party injured or prejudiced if the suit is not held to be
barred. There was satisfactory proof that petitioner owed the respondent several amounts of money and that payment had not been made
thereof. If the suit is allowed to prosper against petitioner and the latter adjudged liable, her liability would be confined merely to the
settlement of her due and demandable obligations and the payment of proper interest to respondent for the default incurred. Laches, being
an equitable defense, he who invokes it must come to court with clean hands. (Bailon Casilao v. Court of Appeals, G.R. 78178, April 15,
1988, 160 SCRA 738).
Anent the second assigned error, petitioner submits that the affidavit executed by respondent Lee dated May 27, 1958 which states that the
real indebtedness of petitioner is only P2,000.00 with respect to the deed of real estate mortgage should be given more weight than
respondent's oral testimony in court which states that the petitioner's obligation is P12,000.00.
Said the respondent appellate court on this matter:
In her answer to the first cause of action of the complaint, defendant-appellee claimed that "the real amount she
received from ... plaintiff is only P2,000.00, and not P12,000.00." But when she testified before the lower court,
defendant-appellee stated that she did not receive even the P2,000.00
xxx xxx xxx
Defendant-appellee cited the affidavit of plaintiff-appellant, dated May 27, 1958 (Exhibit "I"), in which she stated that
there is of only one document so far executed ... in the amount of P2,000.00 ... and not P12,000.00. The execution of
that affidavit was explained by plaintiff-appellant, as follows:
Q . . . Is it not a fact that you executed this affidavit as appearing in Exhibit T ?
A I executed this affidavit because this Leonor Biala got a fire insurance of P10,000.00 and she
told me that she is going to put in my name because in case the house will get burn (sic), the
public will not have any question on my name. So, she put the fire insurance of P10,000.00 just to
cover this affidavit.
COURT:
Q Did you put that arrangement about that fire insurance?
A It was not put in the arrangement but the truth is that they put my name as beneficiary in the fire
insurance in order that I may get the proceeds of fire insurance and thus was made to guarantee
the amount.
Q Did you have any document or policy to this fact that you would be the beneficiary?
A Yes, sir.
Q And that P2,000.00 is not really the P12,000.00 which is now the amount of the loan?
A No, it is P12,000.00 because she put the fire insurance in my name that is why she made me
sign the affidavit.
Q So you are now claiming the amount of P12,000.00.
A I will claim the whole amount.
Q But the P12,000.00 is considered as fire insurance in your favor?
A Yes, sir. But I didn't receive any fire insurance money.
Q Why?
A She got the money when the house was burned.
(t.s.n, pp. 52-54, Hearing on October 7, 1971).
xxx xxx xxx
It is said that the insurance company would not insure the two houses unless there is a document to the effect that the
mortgage lien thereon was only P2,000.00, to justify the insurance of the two houses for P10,000.00. (pp. 31-34, Rollo)
We agree with the findings of the appellate court. Respondent's testimony satisfactorily explained the details behind the declaration she
previously made in an affidavit. Taken along with the documentary evidence consisting of the deed of real mortgage for the amount of
P12,000.00 and with the other facts and circumstances surrounding the case, testimony is worthy of belief. Contradictions between an
affidavit and testimony may be explained by the fact that an affidavit will not always disclose the whole facts and will oftentimes and without
design incorrectly describe without the deponent detecting it, some of the occurrences narrated. Being taken (ex parte,) the affidavit is almost
always incomplete and inaccurate, sometimes from partial suggestions and sometimes from the want of suggestions and inquiries, without
the aid of which the witness may be unable to recall the connected collateral circumstances necessary for the correction of the first
suggestions of his memory, and for his accurate recollection of all that belongs to the subject (People v. Andaya, G.R. 63862, July 31,
1987,152 SCRA 570).
In support of his third assigned error, petitioner submits that her testimony in court wherein she stated that she had paid all her indebtedness
to respondent Lee should be considered as having amended the allegations in her answer stating that she never received the amounts
claimed in the sixth to eighth and tenth to fifteenth causes of action under the complaint.
The respondent appellate court found petitioner's testimony unreliable, for being inconsistent with the allegations in her answer that she
never received the amounts stated in the promissory notes. It also arrived at the conclusion that petitioner's claim of payment of all her
obligations which were covered by the documents was not proved by evidence sufficient to overcome the presumption which arises from
private respondent's possession of the documents.
No compelling reasons exist herein to justify the reversal by this Court of the findings of the appellate court. When the existence of a debt is
fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the
debtor who offers such a defense to the claim of the creditor (Chua Cuenco v. Vargas, 11 Phil. 219 cited in Servicewide Specialists Inc. v.
Hon. Intermediate Appellate Court, et al., G.R. No. 74553, June 8, 1989, 174 SCRA 80). In the case at bar, all the documents evidencing
petitioner's debts are still in the possession of respondent Lee. No receipts or other satisfactory evidence was presented by the petitioner to
prove the alleged payment to respondent. Promissory notes in the hands of the creditor are proofs of indebtedness rather than proofs of
payment (First Integrated Bonding and Insurance Company v. Isnani G.R. 70246, July 31, 1989, 175 SCRA 753). Further, it is settled in our
jurisprudence that findings of facts of the Court of Appeals are final and conclusive and cannot be generally disturbed on appeal by certiorari
before this Court.
Anent the fourth assigned error, petitioner contends that courts of justice must be vigilant to protect persons like her who are poor and
illiterate unlike the respondent, who is a prosperous business woman.
Petitioner's contention must fail. Justice must be done according to law. Emotional appeals for justice while they may wring the heart of the
court, cannot justify disregard of the mandate of the law as long as it remains in force (Aguila v. CFI, G.R. 48335, April 15, 1988,160 SCRA
352).
ACCORDINGLY, the petition is hereby DENIED and the assailed decision of the respondent appellate court dated January 15, 1976 is
AFFIRMED.
SO ORDERED.
____________
4.8 Confusion or merger of rights
G.R. No. L-25350 October 4, 1988
WILLIAM A. CHITTICK, petitioner,
vs.
HONORABLE COURT OF APPEALS and LAURENCE F. DE PRIDA PATRICIA
CHITTICK, LANE, WILLIAM A. CHITTICK, JR., DAGMAR CHITTICK
GILDERSLEEVE and MARY CHITTICK LYMAN, as alleged substituted parties for
MURIEL M. CHITTICK original party plaintiff, respondents.
Gonzalo W. Gonzales & Associates for petitioner.
David Guevarra for respondent Laurence F. de Prida.

BIDIN, J .:
This is a petition for review on certiorari of the decision * of respondent Court of Appeals promulgated on July 31, 1965 in CA-G.R. No.
31327-R, affirming in all respect the decision ** of the Court of First Instance of Manila, Branch II in Civil Case No. 6405 entitled Muriel M.
Chittick vs. William A. Chittick.
The dispositive portion of the decision which was affirmed by respondent Court, reads as follows:
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant by way of
support in arrears for the sum of P21,145.42 or its present equivalent in dollar at the option of the plaintiff, with interest
at the legal rate from January 12, 1951; and under the second cause of action for the sum of P9,000.00 with interest at
the rate of 6% from April 29, 1940, plus attorney's fees in the amount of P900.00, and the costs of the suit. (R.A. p.
110)
The facts of the case, taken from the decision of the trial court is as follows:
The plaintiff and the defendant, both American citizens, were married in Washington, U.S.A. on February 12, 1923.
They came to the Philippines in 1924 and made the City of Manila their permanent residence. Four children were born
of the marriage, namely, Patricia, who was born, on September 12, 1924; William, Jr., on January 8, 1926; Dagmar, on
October 6, 1931, and Mary, on January 12, 1933. According to the defendant, due to plaintiffs infidelity, their marital
relation became strained and they entered into an agreement of separation, Exhibit A, on May 8, 1937. The document,
Exhibit A, was drawn by Atty. Benjamin S. Ohmick, an American lawyer, and was duly acknowledged before a notary
public. The pertinent stipulations which are the bases of plaintiffs two causes of action are found in paragraphs 2 and 3,
and read as follows:
2. The husband agrees that he will pay or cause to be paid to said wife monthly the sum of FIVE
HUNDRED FIFTY PESOS (P550.00), Philippine Currency, or its present equivalent in United
States Currency, at the election of the wife, for the care, maintainance and support of the said
wife and the said minor children. Said payment shall continue until such time as the youngest of
said minor children arrives at the age of eighteen (18) years, provided however, that the said wife
in the meantime does not remarry. Should such marriage take place, it is understood and agreed
that payments aforesaid shall be reduced by twenty percent (20%).
3. It is mutually agreed that the community or conjugal assets of the parties, consisting of share of
stock in various corporations, together with cash, have a net realizable value of P22,500.00 which
the husband agrees to divide equally with the wife and deliver same to her whenever the said
wife secures a final decree of divorce as is contemplated by her it being understood that the
husband, at his option, may deliver to the wife the sum of P11,250.00 in full and complete
discharge.
The plaintiff thereafter went to Nevada, U.S.A., and alleging desertion on the part of her husband, the defendant herein,
the plaintiff obtained a divorce, Exhibit B, on August 30, 1937. Plaintiff stayed in the United States until December
1937, after which she returned to the Philippines. The defendant complied faithfully with the payment of the monthly
support of P550.00 until the war broke out in December 1941. With the outbreak of the war, the spouses and their
children were interred in the Sto. Tomas University concentration camp by the Japanese from January 1942 to March
3, 1944. Nevertheless, the defendant during the period of interment, paid to the plaintiff a total of P4,716.00 which
according to the defendant, was extended as a loan to the plaintiff and which was obtained by borrowing from his
friends. After the liberation in March 1945, plaintiff and defendant and their children were among the first to be sent
back to the United States for medical treatment, arriving in San Francisco on May 9, 1945. From the arrival of the
parties in San Francisco in May 9, 1945 to January 12, 1951 when Mary, the youngest, reached the age of 18, and
when according to paragraph 2 of Exhibit A, the payment of support should cease, the defendant paid a total of
$8,145.00. The total amount due to the plaintiff by way of support, in accordance with paragraph 2 of Exhibit A, from
May 9, 1945 to January 12, 1951 is $18,717.71, thereby, leaving a balance in favor of the plaintiff in the amount of
$10,572.7l. (Record on Appeal, pp. 84-88).
On October 2, 1948, private respondent commenced an action to recover from petitioner support in arrears and her share in the conjugal
partnership, in Civil Case No. 6405 of the Court of First Instance of Manila, Branch II, praying that judgment be rendered in her favor and
against defendant, under the first cause of action, for the sum of $3,442.90, United States currency, or P6,885.80, Philippine Currency, and
the further sum of $110.00 or P220.00 per month from March 1, 1948, both with legal interest from the date of filing of the complaint until paid
and, under the second cause of action, for the sum of P11,250.00, with legal interest from the date of the filing of this complaint, until paid,
plus the sum of P1,000.00 for attorney's fees, with costs against defendant. (Record on Appeal, pp. 1-11).
As aforesaid, the trial court rendered a decision in favor of the plaintiff.
On appeal, respondent Court of Appeals on July 31, 1965, affirmed the decision of the trial court in all respects (Rollo, pp. 82-116). August 5,
1965, counsel for plaintiff-appellee, private respondent herein, filed a motion with respondent court for substitution of party plaintiff-appellee,
who died in Los Angeles, California, United States of America on April 25, 1964, by her heirs, her surviving spouse, Laurence F. de Prida
and the legitimate children of the parties (Rollo, p. 143). The motion was opposed by petitioner herein on the ground that since the relation
between attorney and client ceased with the death of plaintiff-appellee, counsel cannot present any motion for and in behalf of the children of
the deceased client, unless authorized by the said children and/or heirs. (Rollo, p. 144). On November 3, 1965, the respondent Court issued
its resolution granting the motion for substitution (Rollo, p. 209).
A motion for reconsideration of the decision of respondent court dated July 31, 1965 was filed by petitioner on August 20, 1965 (Rollo, pp.
154-199.) It was denied by respondent court in another resolution also dated November 3, 1965 (Rollo, p. 210.)
Hence, this petition filed with this Court on November 26, 1965 (Rollo, p.1.) In a resolution dated January 7, 1966, the Court resolved to
dismiss the petition for lack of merit (Rollo, p. 215-A.)
On January 27, 1966, petitioner tiled a motion for reconsideration of the Court's resolution of January 7, 1966 (Rollo, p. 217) in view of which
the Court required respondents to answer within ten days from notice, in its resolution of February 17, 1966 (Rollo, p. 242.) Private
respondent Laurence F. de Prida filed his answer on April 4,1966 (Rollo, p. 247.)
On April 18, 1966, the Court resolved to give due course to the petition (Rollo, p. 276.) The brief for the petitioner was filed on June 14, 1966
(Reno, p. 279); the brief for the respondent was filed on August 25, 1966 (Rollo, p. 288.) The reply brief was filed on November 3, 1966
(Rollo, p. 308.)
On January 18, 1967, petitioner filed a manifestation that the Court take cognizance of two letters of his son William, Jr. stating that the case
will filed by Larry de Prida (his mother's alleged second husband), without his consent and expressing a desire not to be made a party to the
case against his father (Rollo, p. 309.). Acting on the manifestation the Court required private respondent to comment thereon, (Rollo, p. 315)
which was filed on February 16, 1967 (Rollo, p. 316). A counter manifestation with reference to the comment of private respondent was filed
by petitioner on February 2&, 1967 (Rollo, p. 318.)
Petitioner raised several assignments of errors but the principal conflict in this case centers on whether or not the decision of respondent
Court was rendered nugatory by the death of plaintiff-appellee Muziel M. Chittick (private respondent herein) more than one year before its
issuance and before a substitution of heirs could be effected.
The answer is in the affirmative.
Section 16, Rule 3 of the Rules of Court states:
Duty of attorney upon death, incapacity, or incompetency of party.Whenever a party to a pending case dies,
becomes incapacitated or incompetent, it shall be the duty of his attorney to inform the court promptly of such death,
incapacity or incompetency, and to give the name and residence of his executor, administrator, guardian on other legal
representative.
Section 17 of the same Rule likewise, states:
Death of a party.After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased, within a period of
thirty (30) days, or within such time as may be granted. If the legal representative fails to appear within said time, the
court may order the opposing party to procure the appointment of a legal representative of the deceased within a time
to be specified by the court, and the representative shall immediately appear for and on behalf of the interest of the
deceased. The court charges involved in procuring such appointment, if defrayed by the opposing party, may be
recovered as costs. The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint guardian ad litem for the minor heirs.
Private respondent Muriel M. Chittick died in Los Angeles, California, United States of America, on April 25,1964 while the case was pending
with respondent Court of Appeals. It was only on August 5, 1965, however, that counsel for private respondent filed a motion for substitution
of party plaintiff-appellee (Rollo, p. 143) five days after respondent court promulgated its decision of July 31, 1965, despite Section 16, Rule 3
of the Rules of Court which clearly provides for a prompt notice of such death to be given to the Court by the attorney of the deceased. In fact
said counsel himself admitted his lapse in memory, alleging however, that he thought all the while that he had already complied with the
aforementioned sections of Rule 3 and that he discovered his neglect when he went over the records of the case upon receipt of the decision
promulgated by the Court of Appeals (Rollo, p. 148). There is no question that this duty applies in this case where a party dies after filing of
the complaint and during the pendency of the case (Doel v. Teves, 136 SCRA 196 [1985], nor is there any argument against the rule that
counsel's inexcusable negligence is binding on his client. (Llantero v. Court of Appeals, 105 SCRA 609 [1981], Pulido v. Court of Appeals,
122 SCRA 63 [1983]).
More than that, apart from the fact that there appears to be no compliance with the procedure laid down in Rule 3, Sections 16 and 17 of the
Rules of Court, in order that a valid substitution maybe effected, all of the Chittick children who claim that they have no knowledge of such
substitution, expressly and vehemently objected to their being included as plaintiffs against petitioner, their father (Brief for Petitioner, pp. 33-
36).
Consequently, it is evident that the motion for substitution filed by the counsel for the deceased and which was subsequently approved by the
Court of Appeals is null and void because the party in whose name it was presented was dead, and therefore, the authority of the attorney to
represent her had ceased (Moran, Vol. I, p. 218,1979 ed.). Furthermore, the said motion was unauthorized by the plaintiffs in question
(private respondents herein) with the exception of Laurence F. de Prida, the alleged second husband of the deceased, whose heirship is
however also in question. As correctly stated by petitioner, there should first be a prior determination as to whether or not de Prida is an heir
of the deceased before he can be properly substituted as such (Brief for Petitioner, pp. 3640).
Under similar circumstances, this Court ruled as follows:
In the present case, there had been no court order for the legal representative of the deceased to appear, nor had any
such legal representative ever appeared in court to be substituted for the deceased; neither had the complainant ever
procured the appointment of such legal representative of the deceased, nor had the heirs of the deceased, including
appellant, ever asked to be allowed to be substituted for the deceased. As a result, no valid substitution was effected,
consequently, the court never acquired jurisdiction over appellant for the purpose of making her a party to the case and
making the decision binding upon her, either personally or as legal representative of the estate of her deceased
mother. (Ferreria, et al. v. Vda. de Gonzales, et al., 104 Phil. 143).
Going back to the case at bar, it is without question that there was no valid substitution made and as a consequence, the Court of Appeals
never acquired jurisdiction over the Chittick children nor over the alleged second husband whose status as heir has still to be determined.
Still further, on November 29, 1977, counsel for petitioner filed with this Court a Notice of Death of the latter on April 13, 1977 in Makati,
Metro Manila (Rollo, p. 322). Accordingly, even assuming that there was a valid substitution still this case as a money claim against the
defendant petitioner cannot survive under Sec. 5, Rule 86 of the Rules of Court and should have been filed against the decedent's estate
which is mandatory (De Bautista v. De Guzman, 125 SCRA 682 [1983]). Nevertheless, since the Chittick children as heirs of respondent-
creditor are also the heirs of petitioner-debtor, the obligation sued upon had been extinguished by the merger in their persons of the
character of creditor and debtor of the same obligation (Art. 1275, Civil Code).
WHEREFORE, the appealed decision of the Court of Appeals is hereby Reversed and Set Aside and the complaint filed against defendant-
petitioner is Dismissed. No costs.
SO ORDERED.
______________
G.R. No. L-23494 December 19, 1980
ALFREDO CATOLICO and SATURNINA K. CATOLICO, plaintiffs-appellants,
vs.
FLORENCIO DEUDOR, J.M. TUASON & CO., INC., and GREGORIO ARANETA,
INC., defendants-appellees.

CONCEPCION JR., J .:
Appeal from the order of the Court of First Instance of Rizal, Quezon City Branch, dated
January 8, 1963, dismissing he appellant's complaint in Civil Case No. Q-5978.
In the said complaint, filed on August 26, 1961, the appellant spouses Alfredo and
Saturnina Catolico seek to compel he defendant corporations to sell to them a parcel of
land situated in Barrio Tatalon, Quezon City, with an area of 1,675 square meters,
which the said appellants allegedly bought ..from Milagros Araulio who, in turn acquired
it from the ant Florencio Deudor with whom the defendant ad made a Compromise
Agreement in Civil Can No. Q-135 of the Court of First Instance of Rizal Quezon City
Branch, concerning the Tatalon Estate.
1

After hearing the affirmative defenses and the motion to dismiss, the trial court dismissed the complaint
on January 8, 1963 upon the grounds that the action is barred by a prior judgment and that the complaint
states no cause of action.
2
Whereupon, the plaintiffs appealed.
On April 2, 1964, however, the appellant spouses sold their rights and interests over the house and lot
involved in this litigation to the spouses Benjamin and Emilia Lapuz, the same persons to whom the
defendant corporations have sold the property such that there is now a merger of rights and interests,
disputed by the parties in this case, in the persons of the spouses Benjamin and Emilia Lapuz,
3
thus
rendering the present appeal moot and academic.
Anyhow, the Tatalon Estate of which the property in question forms part, has been expropriated by the
government for the sale, at cost, of the lots therein to their bona fide occupants,
4
and on September 9,
1980, the President personally distributed the title to each lot to its bona fide applicant. The condemnation
proceedings of the Tatalon Estate rendered continuance of the action unnecessary since a judgment in
favor of the appellants cannot be enforced.
WHEREFORE, the appeal should be, as it is hereby dismissed. No costs.
SO ORDERED.
___________
4.9 Compensation
G.R. No. 129598 August 15, 2001
PNB MADECOR, petitioner,
vs.
GERARDO C. UY, respondent.
QUISUMBING,J .:
This is a petition for review on certiorari filed by petitioner PNB Management and Development
Corporation (PNB MADECOR) seeking to annul the decision of the Court of Appeals dated
February 19, 1997, and its resolution dated June 19, 1997 in CA-G.R. CV No. 49693, affirming
the order of the Regional Trial Court of Manila, Branch 38, dated August 21, 1995 in Civil Case
No. 95-72685. In said order, the RTC directed the garnishment of the credits and receivables of
Pantranco North Express, Inc. (PNEI), also known as Philippine National Express, Inc., in the
possession of PNB MADECOR, and if these were insufficient to cover the debt of PNB
MADECOR to PNEI, to levy upon the assets of PNB MADECOR.
The facts of this case, culled from the decision of the CA,
1
are as follows:
Guillermo Uy, doing business under the name G.U. Enterprises, assigned to respondent Gerardo
Uy his receivables due from Pantranco North Express Inc. (PNEI) amounting to P4,660,558.00.
The deed of assignment included sales invoices containing stipulations regarding payment of
interest and attorney's fees.
On January 23, 1995, Gerardo Uy filed with the RTC a collection suit with an application for the
issuance of a writ of preliminary attachment against PNEI. He sought to collect from PNEI the
amount of P8,397,440.00. He alleged that PNEI was guilty of fraud in contracting the obligation
sued upon, hence his prayer for a writ of preliminary attachment.
A writ of preliminary attachment was issued on January 26, 1995, commanding the sheriff "to
attach the properties of the defendant, real or personal, and/or (of) any person representing the
defendant"
2
in such amount as to cover Gerardo Uy's demand.
On January 27, 1995, the sheriff issued a notice of garnishment addressed to the Philippine
National Bank (PNB) attaching the "goods, effects, credits, monies and all other personal
properties"
3
of PNEI in the possession of the bank, and requesting a reply within five days. PNB
MADECOR received a similar notice.
On March 1995, the RTC, through the application of Gerardo Uy, issued a subpoena duces
tecum for the production of certain documents in the possession of PNB and PNB MADECOR:
(1) from PNB, books of account of PNEI regarding trust account nos. T-8461-I, 8461-II, and T-
8565; and (2) from PNB MADECOR, contracts showing PNEI's receivables from the National
Real Estate Development Corporation (NAREDECO), now PNB MADECOR, from 1981 up to
the period when the documents were requested.
At the hearing in connection with the subpoena, PNB moved to be allowed to submit a position
paper on its behalf and/or on behalf of PNB MADECOR. In its position paper dated April 3,
1995, PNB MADECOR alleged that it was the owner of the parcel of land located in Quezon
City that was leased to PNEI for use as bus terminal. Moreover, PNB MADECOR claimed:
"2. PNEI has not been paying its rentals from October 1990 to March 24, 1994 when it
(PNEI) vacated the property. As of the latter date, PNB MADECOR's receivables against
PNEI amounted to P8,784,227.48, representing accumulated rentals, inclusive of interest;
3. On the other hand, PNB MADECOR has payables to PNEI in the amount of
P7,884,000.00 as evidenced by a promissory note executed on October 31, 1982 by then
NAREDECO in favor of PNEI;
4. Considering that PNB MADECOR is a creditor of PNEI with respect to the
P8,784,227.48 and at the same time its debtor with respect to the P7,884,000.00, PNB
MADECOR and PNEI are therefore creditors and debtors of each other; and
5. By force of the law on compensation, both obligations of PNB MADECOR and PNEI
are already considered extinguished to the concurrent amount or up to P7,884,000.00 so
that PNEI is still obligated to pay PNB MADECOR the amount of P900,227.48. x x x ."
4

On the other hand, Gerardo Uy filed an omnibus motion controverting PNB MADECOR's claim
of compensation. Even if compensation were possible, according to him, PNEI would still have
sufficient funds in the hands of PNB MADECOR to fully satisfy his claim. He explained' that:
"The allegation of PNB MADECOR that it owes PNEI only . . . (P7,884,000.00) is not
accurate. Apparently, PNB MADECOR only considered the principal amount. In the first
place, to be precise, the principal debt amounts to exactly . . . (P7,884,921.10) as clearly
indicated in the Promissory Note dated 31 October 1982 . . . In accordance with the
stipulations contained in the promissory note, notice of demand was sent by PNEI to
PNB MADECOR (then NAREDECO) through a letter dated 28 September 1984 and
received by the latter on 1 October 1984 . . . The second paragraph of the subject
promissory note states that '[F]ailure to pay the above amount by NAREDECO after due
notice has been made by PNEI would entitle PNEI to collect an 18% [interest] per annum
from date of notice of demand'. Hence, interest should be computed and start to run from
November 1984 until the present in order to come up with the outstanding debt of PNB
MADECOR to PNEI. And to be more precise, the outstanding debt of PNB MADECOR
to PNEI as of April 1995 amounts to . . . (P75,813,508.26). Hence, even if the alleged
debt of PNEI to PNB MADECOR amounting to . . . (P8,784,227.48) shall be
compensated and deducted from PNB MADECOR's debt to PNEI, there shall still be a
remainder of . . . (P67,029,380.78), largely sufficient enough to cover complainant's
claim."
5

Also in his omnibus motion, he prayed for an order directing that levy be made upon all goods,
credits, deposits, and other personal properties of PNEI under the control of PNB MADECOR,
to the extent of his demand.
PNB MADECOR opposed his omnibus motion, particularly the claim that its obligation to PNEI
earned an interest of 18 percent annually. It argued that PNEI's letter dated September 28, 1984
was not a demand letter but merely a request for the implementation of the arrangement for set-
off of receivables between PNEI and PNB, as provided in adacion en pago executed on July 28,
1983.
6
Gerardo Uy again controverted PNB MADECOR's arguments.
Meanwhile, in the main case, the RTC rendered judgment on July 26, 1995 against PNEI. The
corresponding writ of execution was issued on August 18, 1995.
As regards the issue between PNEI and PNB MADECOR, the RTC issued the assailed order on
August 21, 1995, the decretal portion of which provided:
"WHEREFORE, the Sheriff of this Court is hereby directed to garnish/levy or cause to be
garnished/levied the amount stated in the writ of attachment issued by this Court from the
credits and receivables/collectibles of PNEI from PNB MADECOR (NAREDECO) and
to levy and/or cause to levy upon the assets of the debtor PNB MADECOR should its
personal assets be insufficient to cover its debt with PNEI.
Furthermore, Mr. Roger L. Venarosa, Vice-President, Trust Department, Philippine
National Bank, and other concerned officials of said bank, is/are hereby directed to
submit the books of accounts of Pantranco North Express, Inc./Philippine National
Express, Inc. under Trust Account Nos. T-8461-I, T-8461-II, T-8565 with its position
paper within five (5) days from notice hereof.
SO ORDERED."
Petitioner appealed said order to the CA which, however, affirmed the RTC in a decision dated
February 19, 1997. Petitioner's motion for reconsideration was denied in a resolution dated June
19, 1997.
According to the CA, there could not be any compensation between PNEI's receivables from
PNB MADECOR and the latter's obligation to the former because PNB MADECOR's supposed
debt to PNEI is the subject of attachment proceedings initiated by a third party, herein
respondent Gerardo Uy. This is a controversy that would prevent legal compensation from taking
place, per the requirements set forth in Article 1279 of the Civil Code. Moreover, the CA
stressed that it was not clear whether, at the time compensation was supposed to have taken
place, the rentals being claimed by petitioner were indeed still unpaid. The CA pointed out that
petitioner did not present evidence in this regard, apart from a statement of account.
The CA also questioned petitioner's inaction in claiming the unpaid rentals from PNEI, when the
latter started defaulting in its payment as early as 1994. This, according to the CA, indicates that
the debt was either already settled or not yet demandable and liquidated.
The CA rejected petitioner's contention that Rule 39, Section 43 of the Revised Rules of Court
applies to the present case. Said rule sets forth the procedure to follow when a person alleged to
have property or to be indebted to a judgment obligor claims an interest in the property or denies
the debt. In such a situation, under said Rule the judgment obligee is required to institute a
separate action against such person. The CA held that there was no need for a separate action
here since petitioner had already become a forced intervenor in the case by virtue of the notice of
garnishment served upon it.
Hence, this petition. Petitioner now assigns the following alleged errors for our consideration:
I
THE [COURT OF APPEALS] COMMITTED A CLEAR ERROR IN THE
INTERPRETATION OF THE APPLICABLE LAW HEREIN WHEN IT RULED THAT
THE REQUISITES FOR LEGAL COMPENSATION AS SET FORTH UNDER
ARTICLES 1278 AND 1279 OF THE CIVIL CODE DO NOT CONCUR IN THE
CASE AT BAR.
II
THE [COURT OF APPEALS] COMMITTED A CLEAR ERROR IN INTERPRETING
THE PROVISIONS OF SECTION 45, RULE 39 OF THE RULES OF COURT, NOW
SECTION 43, RULE 39 OF THE REVISED RULES OF COURT, AS AMENDED ON
1 JULY 1997, BY RULING THAT PETITIONER PNB-MADECOR, UPON BEING
CITED FOR AND SERVED WITH A NOTICE OF GARNISHMENT BECAME A
FORCED INTERVENOR, HENCE, DENYING THE RIGHT OF HEREIN
PETITIONER TO VENTILATE ITS POSITION IN A FULL-BLOWN TRIAL AS
PROVIDED FOR UNDER SEC. 10, RULE 57, WHICH REMAINS THE SAME RULE
UNDER THE REVISED RULES OF COURT AS AMENDED ON 1 JULY 1997.
III
THE [COURT OF APPEALS] COMMITTED AN ERROR IN FINDING THAT A
DEMAND WAS MADE BY PANTRANCO NORTH EXPRESS, INC. TO PNB
MADECOR FOR THE PAYMENT OF THE PROMISSORY NOTE DATED 31
OCTOBER 1982.
7

After considering these assigned errors carefully insofar as they raise issues of law, we find that
the petition lacks merit. We shall now discuss the reasons for our conclusion.
Petitioner admits its indebtedness to PNEI, in the principal sum of P7,884,921.10, per a
promissory note dated October 31, 1982 executed by its precursor NAREDECO in favor of
PNEI. It also admits that the principal amount should earn an interest of 18 percent per annum
under the promissory note, in case NAREDECO fails to pay the principal amount after notice.
Petitioner adds that the receivables of PNEI were thereafter conveyed to PNB in payment of
PNEI's loan obligation to the latter, in accordance with a dacion en pago agreement executed
between PNEI and PNB.
Petitioner, however, maintains that there is nothing now that could be subject of attachment or
execution in favor of respondent since compensation had already taken place as between its debt
to PNEI and the latter's obligation to it, consistent with Articles 1278, 1279, and 1290 of the
Civil Code. Petitioner assails the CA's ratiocination that compensation could not have taken
place because the receivables in question were the subject of attachment proceedings
commenced by a third party (respondent). This reasoning is contrary to law, according to
petitioner.
Petitioner insists that even the Asset Privatization Trust (APT), which now has control over
PNEI, recognized the set-off between the subject receivables as indicated in its reply to
petitioner's demand for payment of PNEI's unpaid rentals.
8
The APT stated in its letter:
"xxx xxx xxx
While we have long considered the amount of SEVEN MILLION EIGHT HUNDRED
EIGHTY FIVE THOUSAND PESOS (P7,885,000.00) which PNEI had earlier
transmitted to you as its share in an aborted project as partial payment for PNEI's unpaid
rentals in favor of PNB-Madecor, being a creditor like your goodself of PNEI, we are
unable to be of assistance to you regarding your claim for the balance thereof. We trust
that you will understand our common predicament.
xxx xxx xxx"
Petitioner argues that PNEI's letter dated September 28, 1984 did not contain a demand for
payment but only notice of the implementation of thedacion en pago agreement between PNB
and PNEI.
Petitioner contends that the CA's statement that PNEI's obligation to petitioner had either been
settled or was not yet demandable is highly speculative and conjectural. On the contrary,
petitioner asserts that its failure to institute a judicial action against PNEI proved that the
receivables of petitioner and PNEI had already been subject to legal compensation.
Petitioner submits that Rule 39, Section 43 of the Revised Rules of Court applies to the present
case. It asserts that it stands to lose more than P7 million if not given the opportunity to present
its side in a formal proceeding such as that provided under the cited rule. According to petitioner,
it was not an original party to this case but only became involved when it was issued a
subpoenaduces tecum by the trial court.
For his part, respondent claims that the requisites for legal compensation are not present in this
case, contrary to petitioner's assertion. He argues that the better rule should be that compensation
cannot take place where one of the obligations sought to be compensated is the subject of a suit
between a third party and a party interested in the compensation, as in this case.
Moreover, respondent points out that, while the alleged demand letter sent by PNEI to petitioner
was dated September 28, 1984, the unpaid rentals due petitioner from PNEI accrued during the
period October 1990 to March 1994, or before petitioner's obligation to PNEI became due. This
being so, respondent argues that there can be no compensation since there was as yet no
compensable debt in 1984 when PNEI demanded payment from petitioner.
Even granting that there had been compensation, according to respondent, PNEI would still have
sufficient funds with petitioner since the PNB MADECOR's obligation to PNEI earned interest.
Respondent echoes the observation of the CA that petitioner failed to file a suit against PNEI at
the time when it should have. This failure gave rise to the presumption that PNEI's obligation
might have already been settled, waived, or otherwise extinguished, according to him. He
contends that petitioner's explanation that it did not sue PNEI because there had been legal
compensation is only an afterthought and contrary to logic and reason.
On petitioner's claim that it had been denied due process, respondent avers that he did not have
to file a separate action against petitioner since this would only result in multiplicity of suits.
Furthermore, he points out that the order of attachment is an interlocutory order that may not be
the subject of appeal.
Finally, respondent calls the attention of this Court to the sale by PNB of its shares in PNB
MADECOR to the "Dy Group", which in turn assigned its majority interest to the "Atlanta
Group". Respondent claims that the Dy Group set aside some P30 million for expenses to be
incurred in litigating PNB MADECOR's pending cases, and asks that his "claim over this
amount, arising from the instant case,"
9
be given preference in case the PNEI properties already
garnished prove insufficient to satisfy his claim.
The first and third errors assigned by petitioner are obviously interrelated and must be resolved
together.
Worth stressing, compensation is a mode of extinguishing to the concurrent amount the
obligations of persons who in their own right and as principals arereciprocally debtors and
creditors of each other.
10
Legal compensation takes place by operation of law when all the
requisites are present,
11
as opposed to conventional compensation which takes place when the
parties agree to compensate their mutual obligations even in the absence of some requisites.
12

Legal compensation requires the concurrence of the following conditions:
(1) that each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) that both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;
(3) that the two debts be due;
(4) that they be liquidated and demandable;
(5) that over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
13

Petitioner insists that legal compensation had taken place such that no amount of money
belonging to PNEI remains in its hands, and, consequently, there is nothing that could be
garnished by respondent.
We find, however, that legal compensation could not have occurred because of the absence of
one requisite in this case: that both debts must be due and demandable.
The CA observed:
"Under the terms of the promissory note, failure on the part of NAREDECO (PNB
MADECOR) to pay their value of the instrument 'after due notice has been made by
PNEI would entitle PNEI to collect an 18% [interest] per annum from date of notice of
demand'."
14

Petitioner makes a similar assertion in its petition, that
"x x x It has been stipulated that the promissory note shall earn an interest of 18% per
annum in case NAREDECO, after notice, fails to pay the amount stated therein."
15

Petitioner's obligation to PNEI appears to be payable on demand, following the above
observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay
the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If petitioner
fails to pay after such notice, the obligation will earn an interest of 18 percent per annum.
Respondent alleges that PNEI had already demanded payment. The alleged demand letter reads
in part:
"We wish to inform you that as of August 31, 1984 your outstanding accounts amounted
to P10,376,078.67, inclusive of interest.
In accordance with our previous arrangement, we have conveyed in favor of the
Philippine National Bank P7,884,921.10 of said receivables from you. With this
conveyance, the unpaid balance of your account will be P2,491,157.57.
16

To forestall further accrual of interest, we request that you take up with PNB the
implementation of said arrangement. x x x."
17

We agree with petitioner that this letter was not one demanding payment, but one that merely
informed petitioner of (1) the conveyance of a certain portion of its obligation to PNEI per
adacion en pago arrangement between PNEI and PNB, and (2) the unpaid balance of its
obligation after deducting the amount conveyed to PNB. The import of this letter is not that
PNEI was demanding payment, but that PNEI was advising petitioner to settle the matter of
implementing the earlier arrangement with PNB.
Apart from the aforecited letter, no other demand letter appears on record, nor has any of the
parties adverted to another demand letter.
Since petitioner's obligation to PNEI is payable on demand, and there being no demand made, it
follows that the obligation is not yet due. Therefore, this obligation may not be subject to
compensation for lack of a requisite under the law. Without compensation having taken place,
petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation
may undoubtedly be garnished in favor of respondent to satisfy PNEI's judgment debt.
18

As to respondent's claim that legal compensation could not have taken place due to the existence
of a controversy involving one of the mutual obligations, we find this matter no longer
controlling. Said controversy was not seasonably communicated to petitioner as required under
Article 1279 of the Civil Code.
The controversy,i.e., the action instituted by respondent against PNEI, must have been
communicated to PNB MADECOR in due time to prevent compensation from taking place. By
"in due time" should be meant the period before legal compensation was supposed to take place,
considering that legal compensation operates so long as the requisites concur, even without any
conscious intent on the part of the parties.
19
A controversy that is communicated to the parties
after that time may no longer undo the compensation that had taken place by force of law, lest
the law concerning legal compensation be for naught.
Petitioner had notice of the present controversy when it received the subpoenaduces tecum issued
by the trial court. The exact date when petitioner received the subpoena is not on record, but
petitioner was allowed to submit a position paper regarding said subpoena per order of the trial
court dated March 27, 1995.
20
We assume that petitioner had notice of the pending litigation at
least no later than this date. Now, was this date before that period when legal compensation
would have occurred, assuming all other requisites to be present?
Clearly, it is not. PNB MADECOR's obligation to PNEI was contracted in 1982 and the alleged
demand letter was sent by PNEI to petitioner on September 1984. On the other hand, PNEI's
obligation to petitioner, the payment of monthly rentals, accrued during the period October 1990
to March 1994 and a demand to pay was sent in 1993. Assuming the other requisites to be
present, legal compensation of the mutual obligations would have taken place on March 1994 at
the latest. Obviously, this was before petitioner received notice of the pendency of this litigation
in 1995. The controversy communicated to petitioner in 1995 could not have affected the legal
compensation that would have taken place in 1994.
As regards respondent's averment that there was as yet no compensable debt when PNEI sent
petitioner a demand letter on September 1984, since PNEI was not yet indebted to petitioner at
that time, the law does not require that the parties' obligations be incurred at the same time. What
the law requires only is that the obligations be due and demandable at the same time.
Coming now to the second assigned error, which we reserved as the last for our discussion,
petitioner contends that it did not become a forced intervenor in the present case even after being
served with a notice of garnishment. Petitioner argues that the correct procedure would have
been for respondent to file a separate action against PNB MADECOR, per Section 43 of Rule 39
of the Rules of Court.
21
Petitioner insists it was denied its right to ventilate its claims in a
separate, full-blown trial when the courtsa quo ruled that the abovementioned rule was
inapplicable to the present case.
On this score, we had occasion to rule as early as 1921 inTayabas Land Co. v. Sharruf ,
22
as
follows:
". . . garnishment . . . consists in the citation of some stranger to the litigation, who is
debtor to one of the parties to the action. By this means such debtor stranger becomes a
forced intervenor; and the court, having acquired jurisdiction over his person by means of
the citation, requires him to pay his debt, not to his former creditor, but to the new
creditor, who is creditor in the main litigation. It is merely a case of involuntary novation
by the substitution of one creditor for another. Upon principle the remedy is a species of
attachment or execution for reaching any property pertaining to a judgment debtor which
may be found owing to such debtor by a third person."
Again, inPerla Compania de Seguros, Inc. v. Ramolete,
23
we declared:
"Through service of the writ of garnishment, the garnishee becomes a "virtual party" to,
or a "forced intervenor" in, the case and the trial court thereby acquires jurisdiction to
bind him to compliance with all orders and processes of the trial court with a view to the
complete satisfaction of the judgment of the court."
Petitioner here became a forced intervenor by virtue of the notice of garnishment served upon
him. It could have presented evidence on its behalf. The CA, in fact, noted that petitioner
presented a statement of account purportedly showing that PNEI had not yet settled its obligation
to petitioner.
24
That petitioner failed to present any more proof of its claim, as observed by the
CA, is no longer the fault of the courts.
There is no need for the institution of a separate action under Rule 39, Section 43, contrary to
petitioner's claim. This provision contemplates a situation where the person allegedly holding
property of (or indebted to) the judgment debtor claims an adverse interest in the property (or
denies the debt). In this case, petitioner expressly admits its obligation to PNEI.
25

WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of
Appeals are AFFIRMED. Costs against petitioner.
SO ORDERED.

G. R. No. L-74027 December 7, 1989
SILAHIS MARKETING CORPORATION, petitioner
vs.
INTERMEDIATE APPELLATE COURT and GREGORIO DE LEON, doing business
under the name and style of "MARK INDUSTRIAL SALES", respondents.
Jaime V. Villanueva for petitioner.
Tinga, Fuentes, Tagle & Malate for private respondent.

FERNAN, C.J .
Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a
reversal of the decision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV

No. 67162 entitled "De Leon, etc. v. Silahis Marketing Corporation", disallowing
petitioner's counterclaim for commission to partially offset the claim against it of private
respondent Gregorio de Leon for the purchase price of certain merchandise.
A review of the record shows that on various dates in October, November and
December, 1975, Gregorio de Leon (De Leon for short) doing business under the name
and style of Mark Industrial Sales sold and delivered to Silahis Marketing Corporation
(Silahis for short) various items of merchandise covered by several invoices in the
aggregate amount of P 22,213.75 payable within thirty (30) days from date of the
covering invoices. Allegedly due to Silahis' failure to pay its account upon maturity
despite repeated demands, de Leon filed before the then Court of First Instance of
Manila a complaint for the collection of the said accounts including accrued interest
thereon in the amount of P 661.03 and attorney's fees of P 5,000.00 plus costs of
litigation.
The answer admitted the allegations of the complaint insofar as the invoices were
concerned but presented as affirmative defenses; [al a debit memo for P 22,200.00 as
unrealized profit for a supposed commission that Silahis should have received from de
Leon for the sale of sprockets in the amount of P 111,000.00 made directly to Dole
Philippines, Incorporated by the latter sometime in August 1975 without coursing the
same through the former allegedly in violation of the usual practice concerning sale of
merchandise to Dole Philippines, Inc.; and [b] Silahis' claim that it is entitled to return the
stainless steel screen covered by Exhibits '6-A' and '6-B' which was found defective by
its client, Borden International, Davao City, and to have the corresponding amount
cancelled from its account with de Leon.
In a decision dated August 25, 1978,
1
the lower court confirmed the liability of Silahis for the claim
of de Leon but at the same time ordered that it be partially offset by Silahis' counterclaim as contained in
the debit memo for unrealized profit and commission. Judge Bienvenido C. Ejercito of said court held:
There is no question that the defendant received from the plaintiff the items contained in
Exhs. 'A' to 'F'. The only question is whether or not the defendant is entitled to set off
against the claim of the plaintiff the amount contained in the debit memo of the
defendant, Exh. '1', and whether or not the defendant is entitled to return the steel wire
mesh which was returned to them by Borden Philippines, as shown by Exhs. '6-A' and '6-
B'. The Court believes that the defendant is properly chargeable for the amounts of the
unpaid invoices set forth in the complaint. However, the Court also believes that the
plaintiff is also properly chargeable for the debit memo of P 22,200.00, Exh. '1'. This is
because it was proven by the defendant from the testimonies of Isaias Fernando, Jr. and
Jose Joel Tamon that contrary to the agreement between plaintiff and defendant that the
latter was to serve the account of Dole Philippines in Davao, the plaintiff made a direct
sale of sprockets for P 111,000.00 which therreby deprives the defendant of its
corresponding commission for P 22,200.00 which the defendant would have otherwise
made if the plaintiff had followed its previous arrangement with the defendant. However,
as to the counterclaim of the defendant for a cancellation of the amount of P 6,000.00 for
defective stainless screen wire purchased and intended for Borden International, Davao
City, the Court believes that it is much too late now to present said claim because the
purchase was made and delivered as early as December 22,1975 and the proposed
return to the defendant by Borden was made on April 1, 1976 only. The Court is not

ready to award damages to any of the parties. After deducting the amount of P
22,200.00, which is the unpaid commission of the defendant from the principal total
amount of the unpaid invoices of the plaintiff of P 22,213.75, the unpaid balance in favor
of the plaintiff is P 13.75. The claim for interest and attorney's fees of the plaintiff may be
offset against the interest and attorney's fees of the defendant.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the defendant to pay to the plaintiff the amount of P 13.75, with
interest at 12% per annum from the date of the filing of the action on July 1, 1976 until
fully paid, without pronouncement as to costs.
SO ORDERED.
2

De Leon appealed from the said decision insofar as it directed partial compensation and its failure to
award interest on his principal claim as well as attomey's fees in his favor. In a decision dated March 1 7,
1986,
3
respondent Intermediate Appellate Court
4
set aside the decision of the lower court and dismissed
herein petitioner's (therein defendant- appellee's) counterclaim for lack of factual or legal basis. The
appellate court found that there was no agreement, verbal or otherwise, nor was there any contractual
obligation between De Leon and Silahis prohibiting any direct sales to Dole Philippines, Inc. by de Leon;
nor was there anything in the debit memo obligating de Leon to pay a commission to Silahis for the sale
of P 111,000.00 worth of sprockets to Dole Philippines although in the past, the former did supply certain
items to the latter for delivery to Dole Philippines, Incorporated.
Hence, in this petition for review on certiorari, the central issue is whether or not private respondent is
liable to the petitioner for the commission or margin for the direct sale which the former concluded and
consummated with Dole Philippines, Incorporated without coursing the same through herein petitioner.
We have carefully gone over the record of this case particularly the debit memo upon which petitioner's
counterclaim rests and found nothing contained therein to show that private respondent obligated himself
to set-off or compensate petitioner's outstanding accounts with the alleged unrealized commission from
the assailed sale of sprockets in the amount of P 111,000.00 to Dole Philippines, Inc.
It must be remembered that compensation takes place when two persons, in their own right, are creditors
and debtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may
be proper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
[3] that the two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them
there be any retention or controversy, commenced by third persons and communicated in due time to the
debtor.
When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect
by operation of law, even without the consent or knowledge of the creditors and debtors.
5
Article 1279
requires, among others, that in order that legal compensation shall take place, "the two debts be due" and
"they be liquidated and demandable." Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract.
6

Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the
amount of P 22,213.75 as contained in its answer. But whether private respondent is liable to pay the
petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously disputed.
This circumstance prevents legal compensation from taking place.

The Court agrees with respondent appellate court that there is no evidence on record from which it can
be inferred that there was any agreement between the petitioner and private respondent prohibiting the
latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debit
memo was a contract binding between the parties considering that the same, as correctly found by the
appellate court, was not signed by private respondent nor was there any mention therein of any
commitment by the latter to pay any commission to the former involving the sale of sprockets to Dole
Philippines, Inc. in the amount of P 111,000.00. Indeed, such document can be taken as self-serving with
no probative value absent a showing or at the very least an inference, that the party sought to be bound
assented to its contents or showed conformity thereto.
In fact the letter written by private respondent's lawyer dated March 5,1975
7
in reply to petitioner's letter
dated February 19, 1976 transmitting its Debit Memo No. 1695
8
further strengthens private respondent's
stand that it never agreed to give petitioner any commission on the direct sale to Dole Philippines, Inc. by
its company because said letter denied any utilization of petitioners personnel and facilities at its Davao
Branch in the transaction with Dole Philippines, Inc. which would otherwise lend a basis for petitioner's
monetary claim.
WHEREFORE, in view of the foregoing, the questioned decision of respondent appellate court is hereby
AFFIRMED.
SO ORDERED.
__________
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J .:
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set aside the
auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was, sold at
public auction to Ho Fernandez and ordered titled in the latter's name.
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of
Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by Transfer Certificate of
Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of
P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public
auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in
order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed by
Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate of title. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December
11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of Title in favor of the
defendant Ho Fernandez over the parcel of land including the improvements thereon, subject to
whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same
TCT No. 4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as attorney's fees. (p. 30,
Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE
GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT
PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at public auction
without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and deprivation without due
process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are constrained to dismiss
it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed
him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of
law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other;

xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the subject of set-
off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-
off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness
of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule
based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general
or local governmental purposes. The reason on which the general rule is based, is that taxes are not in the nature of
contracts between the party and party but grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental
body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not be the
subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article 1278 of the
Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the expropriation was
effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of
his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit
dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew
about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the
auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute governing tax
sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax delinquency was followed.
... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests upon him to show that plaintiff was duly
and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that there was
compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established by proof and the general rule is that the
purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up
to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale.
(Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the rule that
administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner can not,
however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:

[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly notified of the auction sale.
Surprisingly, however, he admitted in his testimony that he received the letter dated November 21, 1977 (Exhibit "I") as
shown by his signature (Exhibit "I-A") thereof. He claimed further that he was not present on December 5, 1977 the
date of the auction sale because he went to Iligan City. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez notified you that the
property in question shall be sold at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you received the original of this
letter?
A. I just signed it because I was not able to read the same. It was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and you signed upon receipt thereof but
you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own
admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De Leon v.
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917 Unrep.).
See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of price is not material when
the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is
for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the
wide divergence between their assessed values and the amounts for which they had been actually sold. However,
while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or
when such inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow when the law
gives to the owner the right to redeem, as when a sale is made at public auction, upon the theory that the lesser the
price the easier it is for the owner to effect the redemption. And so it was aptly said: "When there is the right to redeem,
inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his
right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction
sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner
would be greatly embarrassed, if not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238, the
correct rule is stated as follows: "where land is sold for taxes, the inadequacy of the price given is not a valid objection
to the sale." This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless
to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship from which we would be glad to relieve,
but do so would unsettle long-established rules and lead to uncertainty and difficulty in the collection of taxes which are
the life blood of the state. We are convinced that the present rules are just, and that they bring hardship only to those
who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of
Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone up in the area.
However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the foregoing reasons which
answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial
justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed
the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation
payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to
another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke
equity in his attempt to regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court is affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

CIV REV LAW 2 - Extinguishment of Obligations Full

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4.1 Causes of Extinguishment of Obligations .................................................................................. 2

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