ARTICLES 1106 1155 PRESCRIPTION

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 128991
April 12, 2000
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and
CHARITO PORMIDA, petitioners,
vs.
HONORABLE MATEO M. LEANDA, in his capacity as
Presiding Judge of RTC, Tacloban City, Branch 8, and
LEYTE GULF TRADERS, INC., respondents.
KAPUNAN, J.:
Reformation. of an instrument is that remedy in equity by means
of which a written instrument is made or construed so as to
express or conform to the real intention of the parties when some
error or mistake has been committed. 1 It is predicated on the
equitable maxim that equity treats as done that which ought to
be done. 2 The rationale of the doctrine is that it would be unjust
and unequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds
of the parties. 3 However, an action for reformation must be
brought within the period prescribed by law, otherwise, it will be
barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by respondent
Leyte Gulf Traders, Inc. has prescribed and in the negative,
whether or not it is entitled to the remedy of reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein
referred to as respondent corporation) filed a complaint for
reformation of instrument, specific performance, annulment of
conditional sale and damages with prayer for writ of injunction
against petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed as Civil
Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC,
Tacloban City, Branch 7. Respondent corporation alleged that it
entered into a contract of lease of a parcel of land with petitioner
Bentir for a period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was extended for
another four (4) years or until May 31, 1992. On May 5, 1989,
petitioner Bentir sold the leased premises to petitioner spouses
Samuel Pormada and Charito Pormada. Respondent corporation
questioned the sale alleging that it had a right of first refusal.
Rebuffed, it filed Civil Case No. 92-05-88 seeking the
reformation of the expired contract of lease on the ground that its
lawyer inadvertently omitted to incorporate in the contract of
lease executed in 1968, the verbal agreement or understanding
between the parties that in the event petitioner Bentir leases or

sells the lot after the expiration of the lease, respondent

corporation has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease contract is
not a ground for reformation. They further contended that
respondent corporation is guilty of laches for not bringing the
case for reformation of the lease contract within the prescriptive
period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November 18,
1992, filed a motion to admit amended complaint. Said motion
was granted by the lower court. 4
Thereafter, petitioners filed a motion to dismiss reiterating that
the complaint should be dismissed on the ground of prescription.
On December 15, 1995, the trial court through Judge Pedro S.
Espina issued an order dismissing the complaint premised on its
finding that the action for reformation had already prescribed.
The order reads:
ORDER
Resolved here is the defendants' MOTION TO DISMISS
PLAINTIFF'S complaint on ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered into
a contract of lease of a parcel of land on May 5, 1968 for a
period of 20 years (and renewed for an additional 4 years
thereafter) with the verbal agreement that in case the lessor
decides to sell the property after the lease, she shall give the
plaintiff the right to equal the offers of other prospective buyers. It
was claimed that the lessor violated this tight of first refusal of
the plaintiff when she sureptitiously (sic) sold the land to codefendant Pormida on May 5, 1989 under a Deed of Conditional
Sale. Plaintiffs right was further violated when after discovery of
the final sale, plaintiff ordered to equal the price of co-defendant
Pormida was refused and again defendant Bentir surreptitiously
executed a final deed of sale in favor of co-defendant Pormida in
December 11, 1991.
The defendant Bentir denies that she bound herself to give the
plaintiff the right of first refusal in case she sells the property. But
assuming for the sake of argument that such right of first refusal
was made, it is now contended that plaintiffs cause of action to
reform the contract to reflect such right of first refusal, has
already prescribed after 10 years, counted from May 5, 1988
when the contract of lease incepted. Counsel for defendant
cited Conde vs. Malaga, L-9405 July 31, 1956 and Ramos vs.
Court of Appeals, 180 SCRA 635, where the Supreme Court held
that the prescriptive period for reformation of a written contract is
ten (10) years under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that this action
for reformation of contract has prescribed and hereby orders the
dismissal of the case.
SO ORDERED. 5
On December 29, 1995, respondent corporation filed a motion
for reconsideration of the order dismissing the complaint.

On January 11, 1996, respondent corporation filed an urgent exparte motion for issuance of an order directing the petitioners, or
their representatives or agents to refrain from taking possession
of the land in question.
Considering that Judge Pedro S. Espina, to whom the case was
raffled for resolution, was assigned to the RTC, Malolos,
Bulacan, Branch 19, Judge Roberto A. Navidad was designated
in his place.
On March 28, 1996, upon motion of herein petitioners, Judge
Navidad inhibited himself from hearing the case. Consequently,
the case was re-raffled and assigned to RTC, Tacloban City,
Branch 8, presided by herein respondent judge Mateo M.
Leanda.
On May 10, 1996, respondent judge issued an order reversing
the order of dismissal on the grounds that the action for
reformation had not yet prescribed and the dismissal was
"premature and precipitate", denying respondent corporation of
its right to procedural due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions
submitted by the plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December 1995 of
the Court (RTC, Br. 7), dismissing this case, on the sole ground
of prescription of one (1) of the five (5) causes of action of
plaintiff in its complaint for "reformation" of a contract of lease;
and,
(2) for issuance by this Court of an Order prohibiting the
defendants and their privies-in-interest, from taking possession
of the leased premises, until a final court order issues for their
exercise of dominical or possessory right thereto.
The records of this case reveal that co-defendant BENTER
(Yolanda) and plaintiff Leyte Gulf Traders Incorporation,
represented by Chairman Benito Ang, entered into a contract of
lease of a parcel of land, denominated as Lot No. 878-D, located
at Sagkahan District, Tacloban City, on 05 May 1968, for a period
of twenty (20) years, (later renewed for an additional two (2)
years). Included in said covenant of lease is the verbal
understanding and agreement between the contracting parties,
that when the defendant (as lessor) will sell the subject property,
the plaintiff as (lessee) has the "right of first refusal", that is, the
right to equal the offer of any other prospective third-party buyer.
This agreement (sic) is made apparent by paragraph 4 of the
lease agreement stating:
4. IMPROVEMENT. The lessee shall have the right to erect on
the leased premises any building or structure that it may desire
without the consent or approval of the Lessor . . . provided that
any improvements existing at the termination of the lease shall
remain as the property of the Lessor without right to
reimbursement to the Lessee of the cost or value thereof.
That the foregoing provision has been included in the lease
agreement if only to convince the defendant-lessor that plaintiff

desired a priority right to acquire the property (ibid) by purchase,

upon expiration of the effectivity of the deed of lease.
In the course of the interplay of several procedural moves of the
parties herein, the defendants filed their motion to admit their
amended answer to plaintiff's amended complaint.
Correspondingly, the plaintiff filed its opposition to said motion.
The former court branch admitted the amended answer, to which
order of admission, the plaintiff seasonably filed its motion for
reconsideration. But, before the said motion for reconsideration
was acted upon by the court, the latter issued an Order on 15
December 1995, DISMISSING this case on the lone ground of
prescription of the cause of action of plaintiff's complaint on
"reformation" of the lease contract, without anymore considering
the remaining cause of action, viz.: (a) on Specific Performance;
(b) an Annulment of Sale and Title; (c) on Issuance of a Writ of
Injunction, and (d) on Damages.
With due respect to the judicial opinion of the Honorable
Presiding Judge of Branch 7 of this Court, the undersigned, to
whom this case was raffled to after the inhibition of Judge
Roberto Navidad, as acting magistrate of Branch 7, feels not
necessary any more to discuss at length that even the cause of
action for "reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted to above,
was obviously premature and precipitate, thus resulting denial
upon the right of plaintiff that procedural due process. The other
remaining four (4) causes of action of the complaint must have
been deliberated upon before that court acted hastily in
dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of
the court, (Branch 7, RTC) dismissing this case, is hereby
ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order
admitting the amended answer and the Motion to Dismiss this
case (ibid), be set for hearing on May 24, 1996, at 8:30 o'clock in
the morning. Service of notices must be effected upon parties
and counsel as early as possible before said scheduled date.
Concomitantly, the defendants and their privies-in-interest or
agents, are hereby STERNLY WARNED not to enter, in the
meantime, the litigated premises, before a final court order
issues granting them dominical as well as possessory right
thereto.
To the motion or petition for contempt, filed by plaintiff, thru Atty.
Bartolome C. Lawsin, the defendants may, if they so desire, file
their answer or rejoinder thereto, before the said petition will be
set for hearing. The latter are given ten (10) days to do so, from
the date of their receipt of a copy of this Order.
SO ORDERED. 6
On June 10, 1996, respondent judge issued an order for status
quo ante, enjoining petitioners to desist from occupying the
property. 7

Aggrieved, petitioners herein filed a petition for certiorari to the

Court of Appeals seeking the annulment of the order of
respondent court with prayer for issuance of a writ of preliminary
injunction and temporary restraining order to restrain respondent
judge from further hearing the case and to direct respondent
corporation to desist from further possessing the litigated
premises and to turn over possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no error
in the questioned order nor grave abuse of discretion on the part
of the trial court that would amount to lack, or in excess of
jurisdiction, denied the petition and affirmed the questioned
order. 8 A reconsideration of said decision was, likewise, denied
on April 16, 1997. 9
Thus, the instant petition for review based on the following
assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
ACTION FOR REFORMATION IS PROPER AND JUSTIFIED
UNDER THE CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT
THE ACTION FOR REFORMATION HAS NOT YET
PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
OPTION TO BUY IN A CONTRACT OF LEASE IS REVIVED
FROM THE IMPLIED RENEWAL OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT
A STATUS QUO ANTE ORDER IS NOT AN INJUNCTIVE
RELIEF THAT SHOULD COMPLY WITH THE PROVISIONS OF
RULE 58 OF THE RULES OF COURT. 10
The petition has merit.
The core issue that merits our consideration is whether the
complaint for reformation of instrument has prescribed.1awp++i1
The remedy of reformation of an instrument is grounded on the
principle of equity where, in order to express the true intention of
the contracting parties, an instrument already executed is
allowed by law to be reformed. The right of reformation is
necessarily an invasion or limitation of the parol evidence rule
since, when a writing is reformed, the result is that an oral
agreement is by court decree made legally
effective. 11 Consequently, the courts, as the agencies authorized
by law to exercise the power to reform an instrument, must
necessarily exercise that power sparingly and with great caution
and zealous care. Moreover, the remedy, being an extraordinary
one, must be subject to limitations as may be provided by law.
Our law and jurisprudence set such limitations, among which is
laches. A suit for reformation of an instrument may be barred by
lapse of time. The prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten (10)
years under Article 1144 of the Civil Code. 12 Prescription is
intended to suppress stale and fraudulent claims arising from
transactions like the one at bar which facts had become so
obscure from the lapse of time or defective memory. 13 In the

case at bar, respondent corporation had ten (10) years from

1968, the time when the contract of lease was executed, to file
an action for reformation. Sadly, it did so only on May 15, 1992
or twenty-four (24) years after the cause of action accrued,
hence, its cause of action has become stale, hence, time-barred.
In holding that the action for reformation has not prescribed, the
Court of Appeals upheld the ruling of the Regional Trial Court
that the 10-year prescriptive period should be reckoned not from
the execution of the contract of lease in 1968, but from the date
of the alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for reformation
of instrument was filed in 1992 it was within ten (10) years from
the extended period of the lease. Private respondent theorized,
and the Court of Appeals agreed, that the extended period of
lease was an "implied new lease" within the contemplation of
Article 1670 of the Civil Code, 14 under which provision, the other
terms of the original contract were deemed revived in the implied
new lease.
We do not agree. First, if, according to respondent corporation,
there was an agreement between the parties to extend the lease
contract for four (4) years after the original contract expired in
1988, then Art. 1670 would not apply as this provision speaks of
an implied new lease (tacita reconduccion) where at the end of
the contract, the lessee continues to enjoy the thing leased "with
the acquiescence of the lessor", so that the duration of the lease
is "not for the period of the original contract, but for the time
established in Article 1682 and 1687." In other words, if the
extended period of lease was expressly agreed upon by the
parties, then the term should be exactly what the parties
stipulated, not more, not less. Second, even if the supposed 4year extended lease be considered as an implied new lease
under Art. 1670, "the other terms of the original contract"
contemplated in said provision are only those terms which are
germane to the lessee's right of continued enjoyment of the
property leased. 15 The prescriptive period of ten (10) years
provided for in Art. 1144 16 applies by operation of law, not by the
will of the parties. Therefore, the right of action for reformation
accrued from the date of execution of the contract of lease in
1968.
Even if we were to assume for the sake of argument that the
instant action for reformation is not time-barred, respondent
corporation's action will still not prosper. Under Section 1, Rule
64 of the New Rules of Court, 17 an action for the reformation of
an instrument is instituted as a special civil action for declaratory
relief. Since the purpose of an action for declaratory relief is to
secure an authoritative statement of the rights and obligations of
the parties for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising from an
alleged breach thereof, it may be entertained only before the
breach or violation of the law or contract to which it
refers. 18 Here, respondent corporation brought the present

action for reformation after an alleged breach or violation of the

contract was already committed by petitioner Bentir.
Consequently, the remedy of reformation no longer lies.
We no longer find it necessary to discuss the other issues raised
considering that the same are predicated upon our affirmative
resolution on the issue of the prescription of the action for
reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision
of the Court of Appeals dated January 17, 1997 is REVERSED
and SET ASIDE. The Order of the Regional Trial Court of
Tacloban City, Branch 7, dated December 15, 1995 dismissing
the action for reformation is REINSTATED.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.
FIRST DIVISION
[G.R. No. 165420. June 30, 2005]
CONCEPCION R. AINZA, substituted by her legal heirs, DR.
NATIVIDAD A. TULIAO, CORAZON A. JALECO and LILIA A.
OLAYON, petitioners, vs. SPOUSES ANTONIO PADUA and
EUGENIA PADUA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the February 24,
2004 decision of the Court of Appeals in CA-G.R. CV No. 70239,
[1]
and its September 28, 2004 resolution, denying
reconsideration thereof.[2]
In her complaint for partition of real property, annulment of titles
with damages,[3] Concepcion Ainza (Concepcion) alleged that
respondent-spouses Eugenia (Eugenia) and Antonio Padua
(Antonio) owned a 216.40 sq. m. lot with an unfinished
residential house located at No. 85-A Durian corner Pajo Sts.,
Barangay Quirino 2-C, Project 2, Quezon City, covered by
Transfer Certificate of Title No. 271935. Sometime in April 1987,
she bought one-half of an undivided portion of the property from
her daughter, Eugenia and the latters husband, Antonio, for One
Hundred Thousand Pesos (P100,000.00).
No Deed of Absolute Sale was executed to evidence the
transaction, but cash payment was received by the respondents,
and ownership was transferred to Concepcion through physical
delivery to her attorney-in-fact and daughter, Natividad Tuliao
(Natividad). Concepcion authorized Natividad and the latters
husband, Ceferino Tuliao (Ceferino) to occupy the premises, and
make improvements on the unfinished building.
Thereafter, Concepcion alleged that without her consent,
respondents caused the subdivision of the property into three
portions and registered it in their names under TCT Nos. N155122, N-155123 and N-155124 in violation of the restrictions
annotated at the back of the title.
On the other hand, Antonio averred that he bought the property
in 1980 and introduced improvements thereon. Between 1989

and 1990, he and his wife, Eugenia, allowed Natividad and

Ceferino to occupy the premises temporarily. In 1994, they
caused the subdivision of the property and three (3) separate
titles were issued.
Thereafter, Antonio requested Natividad to vacate the premises
but the latter refused and claimed that Concepcion owned the
property. Antonio thus filed an ejectment suit on April 1, 1999.
Concepcion, represented by Natividad, also filed on May 4, 1999
a civil case for partition of real property and annulment of titles
with damages.
Antonio claimed that his wife, Eugenia, admitted that Concepcion
offered to buy one third (1/3) of the property who gave her small
amounts over several years which totaled P100,000.00 by 1987
and for which she signed a receipt.
On January 9, 2001, the Regional Trial Court of Quezon City,
Branch 85, rendered judgment[4] in favor of Concepcion, the
dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants and
ordering:
1. the subdivision of the subject property between the said
plaintiff and defendants in equal shares with one-half of the
property, including the portion occupied by the spouses Severino
and Natividad Tuliao to be awarded to the plaintiff;
2. the cancellation of Transfer Certificates of Title Nos. N155122, N-155123, N-155124 of the Registry of Deeds of
Quezon City;
3. the defendants to pay to the plaintiff P50,000.00 as attorneys
fees.
SO ORDERED.[5]
The trial court upheld the sale between Eugenia and
Concepcion. It ruled that the sale was consummated when both
contracting parties complied with their respective obligations.
Eugenia transferred possession by delivering the property to
Concepcion who in turn paid the purchase price. It also declared
that the transfer of the property did not violate the Statute of
Frauds because a fully executed contract does not fall within its
coverage.
On appeal by the respondents, the Court of Appeals reversed
the decision of the trial court, and declared the sale null and
void. Applying Article 124 of the Family Code, the Court of
Appeals ruled that since the subject property is conjugal, the
written consent of Antonio must be obtained for the sale to be
valid. It also ordered the spouses Padua to return the amount of
P100,000.00 to petitioners plus interest.[6]
The sole issue for resolution in this petition for review is whether
there was a valid contract of sale between Eugenia and
Concepcion.
A contract of sale is perfected by mere consent, upon a meeting
of the minds on the offer and the acceptance thereof based on
subject matter, price and terms of payment.[7]

In this case, there was a perfected contract of sale between

Eugenia and Concepcion. The records show that Eugenia
offered to sell a portion of the property to Concepcion, who
accepted the offer and agreed to pay P100,000.00 as
consideration. The contract of sale was consummated when
both parties fully complied with their respective obligations.
Eugenia delivered the property to Concepcion, who in turn, paid
Eugenia the price of One Hundred Thousand Pesos
(P100,000.00), as evidenced by the receipt which reads:
RECEIPT
Received the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00) as payment for the lot on 85-A Durian St., Project
2, Quezon City, from Mrs. Concepcion R. Ainza, on April, 1987.
_______(Sgd.)______
Mrs.. Eugenia A. Padua[8]
The verbal contract of sale between Eugenia and Concepcion
did not violate the provisions of the Statute of Frauds that a
contract for the sale of real property shall be unenforceable
unless the contract or some note or memorandum of the sale is
in writing and subscribed by the party charged or his agent.
[9]
When a verbal contract has been completed, executed or
partially consummated, as in this case, its enforceability will not
be barred by the Statute of Frauds, which applies only to an
executory agreement.[10] Thus, where one party has performed
his obligation, oral evidence will be admitted to prove the
agreement.[11]
In the instant case, the oral contract of sale between Eugenia
and Concepcion was evidenced by a receipt signed by Eugenia.
Antonio also stated that his wife admitted to him that she sold the
property to Concepcion.
It is undisputed that the subject property was conjugal and sold
by Eugenia in April 1987 or prior to the effectivity of the Family
Code on August 3, 1988, Article 254 of which repealed Title V,
Book I of the Civil Code provisions on the property relations
between husband and wife. However, Article 256 thereof limited
its retroactive effect only to cases where it would not prejudice or
impair vested or acquired rights in accordance with the Civil
Code or other laws. In the case at bar, vested rights of
Concepcion will be impaired or prejudiced by the application of
the Family Code; hence, the provisions of the Civil Code should
be applied.
In Felipe v. Heirs of Aldon, et al.,[12] the legal effect of a sale of
conjugal properties by the wife without the consent of the
husband was clarified, to wit:
The legal ground which deserves attention is the legal effect of a
sale of lands belonging to the conjugal partnership made by the
wife without the consent of the husband.
It is useful at this point to re-state some elementary rules: The
husband is the administrator of the conjugal partnership. (Art.
165, Civil Code) Subject to certain exceptions, the husband
cannot alienate or encumber any real property of the conjugal

partnership without the wifes consent. (Art. 166, Idem.) And the
wife cannot bind the conjugal partnership without the husbands
consent, except in cases provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands belonging to the
conjugal partnership without the consent of the husband and the
sale is not covered by the phrase except in cases provided by
law. The Court of Appeals described the sale as invalid a
term which is imprecise when used in relation to contracts
because the Civil Code uses specific names in designating
defective contracts, namely: rescissible (Arts. 1380 et
seq.), voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403,et
seq.), and void or inexistent (Arts. 1409 et seq.).
The sale made by Gimena is certainly a defective contract
but of what category? The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable
contracts are [T]hose where one of the parties is incapable of
giving consent to the contract. (Par. 1.) In the instant case
Gimena had no capacity to give consent to the contract of sale.
The capacity to give consent belonged not even to the husband
alone but to both spouses.
The view that the contract made by Gimena is a voidable
contract is supported by the legal provision that contracts
entered by the husband without the consent of the wife
when such consent is required, are annullable at her
instance during the marriage and within ten years from the
transaction questioned. (Art. 173, Civil Code).
Gimenas contract is not rescissible for in such a contract all the
essential elements are untainted but Gimenas consent was
tainted. Neither can the contract be classified as unenforceable
because it does not fit any of those described in Art. 1403 of the
Civil Code. And finally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of the Civil
Code. By process of elimination, it must perforce be a voidable
contract.
The voidable contract of Gimena was subject to annulment by
her husband only during the marriage because he was the victim
who had an interest in the contract. Gimena, who was the party
responsible for the defect, could not ask for its annulment. Their
children could not likewise seek the annulment of the contract
while the marriage subsisted because they merely had an
inchoate right to the lands sold. (Emphasis supplied)
The consent of both Eugenia and Antonio is necessary for the
sale of the conjugal property to be valid. Antonios consent
cannot be presumed.[13] Except for the self-serving testimony of
petitioner Natividad, there is no evidence that Antonio
participated or consented to the sale of the conjugal property.
Eugenia alone is incapable of giving consent to the contract.
Therefore, in the absence of Antonios consent, the disposition
made by Eugenia is voidable.[14]
The contract of sale between Eugenia and Concepcion being an
oral contract, the action to annul the same must be commenced

within six years from the time the right of action accrued.
[15]
Eugenia sold the property in April 1987 hence Antonio should
have asked the courts to annul the sale on or before April 1993.
No action was commenced by Antonio to annul the sale, hence
his right to seek its annulment was extinguished by prescription.
Even assuming that the ten (10)-year prescriptive period under
Art. 173 should apply, Antonio is still barred from instituting an
action to annul the sale because since April 1987, more than ten
(10) years had already lapsed without any such action being
filed.
In sum, the sale of the conjugal property by Eugenia without the
consent of her husband is voidable. It is binding unless
annulled. Antonio failed to exercise his right to ask for the
annulment within the prescribed period, hence, he is now barred
from questioning the validity of the sale between his wife and
Concepcion.
WHEREFORE, the petition is GRANTED. The decision dated
February 24, 2004 of the Court of Appeals in CA-G.R. CV No.
70239 and its resolution dated September 28, 2004 are
REVERSED and SET ASIDE. The decision dated January 9,
2001 of the Regional Trial Court of Quezon City, Branch 85, in
Civil Case No. Q-99-37529, is REINSTATED.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Quisumbing, Carpio, and Azcuna,
JJ., concur.

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
JAIME ABALOS and SPOUSES FELIX SALAZAR and
CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF
AQUILINO ABALOS, namely: SEGUNDA BAUTISTA,
ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD
ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA
ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA
ABALOS, namely: ARTURO BRAVO, PURITA B.
MENDOZA, LOURDES B. AGANON, CONSUELO B.
SALAZAR, PRIMA B. DELOS SANTOS, THELMA
APOSTOL and GLECERIO ABALOS,
Petitioners,
- versus HEIRS OF VICENTE TORIO, namely: PUBLIO TORIO,
LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO,
LADISLAO TORIO, PRIMO TORIO and NORBERTO

TORIO,
Respondents.
x----------------------------------------------------------------------------------------x
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking to
set aside the Decision1 dated June 30, 2006 and
Resolution2 dated November 13, 2006 by the Court of Appeals
(CA) in CA-G.R. SP No. 91887. The assailed Decision reversed
and set aside the Decision3 dated June 14, 2005 of the Regional
Trial Court (RTC) of Lingayen, Pangasinan, Branch 69, while the
questioned Resolution denied petitioners' Motion for
Reconsideration.
The factual and procedural antecedents of the case are as
follows:
On July 24, 1996, herein respondents filed a Complaint for
Recovery of Possession and Damages with the Municipal Trial
Court (MTC) of Binmaley, Pangasinan against Jaime Abalos
(Jaime) and the spouses Felix and Consuelo Salazar.
Respondents contended that: they are the children and heirs of
one Vicente Torio (Vicente) who died intestate on September 11,
1973; at the time of the death of Vicente, he left behind a parcel
of land measuring 2,950 square meters, more or less, which is
located at San Isidro Norte, Binmaley, Pangasinan; during the
lifetime of Vicente and through his tolerance, Jaime and the
Spouses Salazar were allowed to stay and build their respective
houses on the subject parcel of land; even after the death of
Vicente, herein respondents allowed Jaime and the Spouses
Salazar to remain on the disputed lot; however, in 1985,
respondents asked Jaime and the Spouses Salazar to vacate
the subject lot, but they refused to heed the demand of
respondents forcing respondents to file the complaint.4
Jaime and the Spouses Salazar filed their Answer with
Counterclaim, denying the material allegations in the Complaint
and asserting in their Special and Affirmative Defenses that:
respondents' cause of action is barred by acquisitive
prescription; the court a quo has no jurisdiction over the nature of
the action and the persons of the defendants; the absolute and
exclusive owners and possessors of the disputed lot are the
deceased predecessors of defendants; defendants and their
predecessors-in-interest had been in actual, continuous and
peaceful possession of the subject lot as owners since time
immemorial; defendants are faithfully and religiously paying real
property taxes on the disputed lot as evidenced by Real Property

Tax Receipts; they have continuously introduced improvements

on the said land, such as houses, trees and other kinds of
ornamental plants which are in existence up to the time of the
filing of their Answer.5
On the same date as the filing of defendants' Answer with
Counterclaim, herein petitioners filed their Answer in Intervention
with Counterclaim. Like the defendants, herein petitioners
claimed that their predecessors-in-interest were the absolute and
exclusive owners of the land in question; that petitioners and
their predecessors had been in possession of the subject lot
since time immemorial up to the present; they have paid real
property taxes and introduced improvements thereon.6

On June 30, 2006, the CA promulgated its questioned Decision,

the dispositive portion of which reads, thus:
WHEREFORE, the petition is GRANTED. The Decision dated
June 14, 2005 of the Regional Trial Court, Branch 69, Lingayen,
Pangasinan is hereby REVERSED and SET ASIDE. In its stead,
a new one is entered reinstating the Decision dated December
10, 2003 of the Municipal Trial Court of Binmaley, Pangasinan.
SO ORDERED.9
Jaime and the Spouses Salazar filed a Motion for
Reconsideration, but the same was denied by the CA in its
Resolution dated November 13, 2006.

After the issues were joined, trial ensued.

On December 10, 2003, the MTC issued a Decision, the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing consideration[s], the
Court adjudged the case in favor of the plaintiffs and against the
defendants and defendants-intervenors are ordered to turn over
the land in question to the plaintiffs (Lot Nos. 869 and 870, Cad.
467-D. Binmaley Cadastre located in Brgy. San Isidro Norte,
Binmaley, Pangasinan with an area of 2,950 sq. m., more or
less, bounded and described in paragraph 3 of the Complaint[)];
ordering the defendants and defendants-intervenors to remove
their respective houses standing on the land in dispute; further
ordering the defendants and defendants-intervenors, either
singly or jointly to pay the plaintiffs land rent in the amount
of P12,000.00 per year to be reckoned starting the year 1996
until defendants and defendants-intervenors will finally vacate
the premises; furthermore, defendants and defendantsintervenors are also ordered to pay, either singly or jointly, the
amount of P10,000.00 as and by way of attorney's fees and
costs of suit.
SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision of the
MTC with the RTC of Lingayen, Pangasinan.8 Herein petitioners,
who were intervenors, did not file an appeal.
In its Decision dated June 14, 2005, the RTC ruled in favor of
Jaime and the Spouses Salazar, holding that they have acquired
the subject property through prescription. Accordingly, the RTC
dismissed herein respondents' complaint.
Aggrieved, herein respondents filed a petition for review with the
CA assailing the Decision of the RTC.

Hence, the instant petition based on a sole assignment of error,

to wit:
THE COURT OF APPEALS ERRED IN NOT APPRECIATING
THAT THE PETITIONERS HEREIN ARE NOW THE ABSOLUTE
AND EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY
VIRTUE OF ACQUISITIVE PRESCRIPTION.10
The main issue raised by petitioners is whether they and their
predecessors-in-interest possessed the disputed lot in the
concept of an owner, or whether their possession is by mere
tolerance of respondents and their predecessors-in-interest.
Corollarily, petitioners claim that the due execution and
authenticity of the deed of sale upon which respondents'
predecessors-in-interest derived their ownership were not proven
during trial.
The petition lacks merit.
Preliminarily, the Court agrees with the observation of
respondents that some of the petitioners in the instant petition
were the intervenors11 when the case was filed with the MTC.
Records would show that they did not appeal the Decision of the
MTC.12 The settled rule is that failure to perfect an appeal
renders the judgment final and executory.13 Hence, insofar as the
intervenors in the MTC are concerned, the judgment of the MTC
had already become final and executory.
It also bears to point out that the main issue raised in the instant
petition, which is the character or nature of petitioners'
possession of the subject parcel of land, is factual in nature.
Settled is the rule that questions of fact are not reviewable in
petitions for review on certiorari under Rule 45 of the Rules of
Court.14 Section 1 of Rule 45 states that petitions for review

on certiorari shall raise only questions of law which must be

distinctly set forth.
Doubtless, the issue of whether petitioners possess the subject
property as owners, or whether they occupy the same by mere
tolerance of respondents, is a question of fact. Thus, it is not
reviewable.
Nonetheless, the Court has, at times, allowed exceptions from
the abovementioned restriction. Among the recognized
exceptions are the following:
(a) When the findings are grounded entirely on speculation,
surmises, or conjectures;
(b) When the inference made is manifestly mistaken, absurd, or
impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the CA went beyond the issues of
the case, or its findings are contrary to the admissions of both
the appellant and the appellee;
(g) When the CAs findings are contrary to those by the trial
court;
(h) When the findings are conclusions without citation of specific
evidence on which they are based;
(i) When the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondent;
(j) When the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on
record; or
(k) When the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would
justify a different conclusion.15
In the present case, the findings of fact of the MTC and the CA
are in conflict with those of the RTC.
After a review of the records, however, the Court finds that the
petition must fail as it finds no error in the findings of fact and
conclusions of law of the CA and the MTC.
Petitioners claim that they have acquired ownership over the
disputed lot through ordinary acquisitive prescription.
Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary.16 Ordinary acquisitive prescription
requires possession in good faith and with just title for ten (10)
years.17 Without good faith and just title, acquisitive prescription
can only be extraordinary in character which requires
uninterrupted adverse possession for thirty (30) years.18

Possession in good faith consists in the reasonable belief that

the person from whom the thing is received has been the owner
thereof, and could transmit his ownership.19 There is just title
when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition
of ownership or other real rights, but the grantor was not the
owner or could not transmit any right.20
In the instant case, it is clear that during their possession of the
property in question, petitioners acknowledged ownership
thereof by the immediate predecessor-in-interest of respondents.
This is clearly shown by the Tax Declaration in the name of
Jaime for the year 1984 wherein it contains a statement
admitting that Jaime's house was built on the land of Vicente,
respondents' immediate predecessor-in-interest.21 Petitioners
never disputed such an acknowledgment. Thus, having
knowledge that they nor their predecessors-in-interest are not
the owners of the disputed lot, petitioners' possession could not
be deemed as possession in good faith as to enable them to
acquire the subject land by ordinary prescription. In this respect,
the Court agrees with the CA that petitioners' possession of the
lot in question was by mere tolerance of respondents and their
predecessors-in-interest. Acts of possessory character executed
due to license or by mere tolerance of the owner are inadequate
for purposes of acquisitive prescription.22 Possession, to
constitute the foundation of a prescriptive right, must be en
concepto de dueo, or, to use the common law equivalent of the
term, that possession should be adverse, if not, such possessory
acts, no matter how long, do not start the running of the period of
prescription.23
Moreover, the CA correctly held that even if the character of
petitioners' possession of the subject property had become
adverse, as evidenced by their declaration of the same for tax
purposes under the names of their predecessors-in-interest, their
possession still falls short of the required period of thirty (30)
years in cases of extraordinary acquisitive prescription. Records
show that the earliest Tax Declaration in the name of petitioners
was in 1974. Reckoned from such date, the thirty-year period
was completed in 2004. However, herein respondents' complaint
was filed in 1996, effectively interrupting petitioners' possession
upon service of summons on them.24 Thus, petitioners
possession also did not ripen into ownership, because they failed
to meet the required statutory period of extraordinary
prescription.
This Court has held that the evidence relative to the possession
upon which the alleged prescription is based, must be clear,
complete and conclusive in order to establish the
prescription.25 In the present case, the Court finds no error on the
part of the CA in holding that petitioners failed to present

competent evidence to prove their alleged good faith in neither

possessing the subject lot nor their adverse claim thereon.
Instead, the records would show that petitioners' possession was
by mere tolerance of respondents and their predecessors-ininterest.
Finally, as to the issue of whether the due execution and
authenticity of the deed of sale upon which respondents anchor
their ownership were not proven, the Court notes that petitioners
did not raise this matter in their Answer as well as in their PreTrial Brief. It was only in their Comment to respondents' Petition
for Review filed with the CA that they raised this issue. Settled is
the rule that points of law, theories, issues, and arguments not
adequately brought to the attention of the trial court need not be,
and ordinarily will not be, considered by a reviewing court.26 They
cannot be raised for the first time on appeal. To allow this would
be offensive to the basic rules of fair play, justice and due
process.27

SO ORDERED.

Even granting that the issue of due execution and authenticity

was properly raised, the Court finds no cogent reason to depart
from the findings of the CA, to wit:
xxxx

February 1, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -----x

Based on the foregoing, respondents [Jaime Abalos and the

Spouses Felix and Consuelo Salazar] have not inherited the
disputed land because the same was shown to have already
been validly sold to Marcos Torio, who, thereupon, assigned the
same to his son Vicente, the father of petitioners [herein
respondents]. A valid sale was amply established and the said
validity subsists because the deed evidencing the same was duly
notarized.
There is no doubt that the deed of sale was duly acknowledged
before a notary public. As a notarized document, it has in its
favor the presumption of regularity and it carries the evidentiary
weight conferred upon it with respect to its due execution. It is
admissible in evidence without further proof of its authenticity
and is entitled to full faith and credit upon its face.28
Indeed, settled is the rule in our jurisdiction that a notarized
document has in its favor the presumption of regularity, and to
overcome the same, there must be evidence that is clear,
convincing and more than merely preponderant; otherwise, the
document should be upheld.29 In the instant case, petitioners'
bare denials will not suffice to overcome the presumption of
regularity of the assailed deed of sale.
WHEREFORE, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 91887
areAFFIRMED.

FIRST DIVISION
CELERINO E. MERCADO,
Petitioner,

G.R. No. 184109

Present:

- versus -

CORONA, C.J.,
Chairperson,
LEONARDO-DE
CASTRO,
BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

BELEN* ESPINOCILLA** AND

FERDINAND ESPINOCILLA,
Respondents.

Promulgated:

DECISION
VILLARAMA, JR., J.:
The case
Petitioner Celerino E. Mercado appeals the
Decision[1] dated April 28, 2008 and Resolution[2] dated July 22,
2008 of the Court of Appeals (CA) in CA-G.R. CV No.
87480. The CA dismissed petitioners complaint[3] for recovery of
possession, quieting of title, partial declaration of nullity of deeds
and documents, and damages, on the ground of prescription.
The antecedent facts
Doroteo Espinocilla owned a parcel of land, Lot No. 552,
with an area of 570 sq. m., located at Magsaysay Avenue, Zone
5, Bulan, Sorsogon. After he died, his five children, Salvacion,
Aspren, Isabel, Macario, and Dionisia divided Lot No. 552
equally among themselves. Later, Dionisia died without issue
ahead of her four siblings, and Macario took possession of
Dionisias share. In an affidavit of transfer of real
property[4] dated November 1, 1948, Macario claimed that
Dionisia had donated her share to him in May 1945.
Thereafter, on August 9, 1977, Macario and his daughters
Betty Gullaba and Saida Gabelo sold[5] 225 sq. m. to his son
Roger Espinocilla, husband of respondent Belen Espinocilla and
father of respondent Ferdinand Espinocilla. On March 8, 1985,
Roger Espinocilla sold[6] 114 sq. m. to Caridad Atienza. Per
actual survey of Lot No. 552, respondent Belen Espinocilla
occupies 109 sq. m., Caridad Atienza occupies 120 sq. m.,

Caroline Yu occupies 209 sq. m., and petitioner, Salvacion's son,

occupies 132 sq. m.[7]
The case for petitioner
Petitioner sued the respondents to recover two portions: an
area of 28.5[8] sq. m. which he bought from Aspren and another
28.5 sq. m. which allegedly belonged to him but was occupied by
Macarios house.[9] His claim has since been modified to an
alleged encroachment of only 39 sq. m. that he claims must be
returned to him. He avers that he is entitled to own and possess
171 sq. m. of Lot No. 552, having inherited 142.5 sq. m. from his
mother Salvacion and bought 28.5 sq. m. from his aunt
Aspren. According to him, his mothers inheritance is 142.5 sq.
m., that is, 114 sq. m. from Doroteo plus 28.5 sq. m. from
Dionisia. Since the area he occupies is only 132 sq. m.,[10] he
claims that respondents encroach on his share by 39 sq. m.[11]
The case for respondents
Respondents agree that Doroteos five children each
inherited 114 sq. m. of Lot No. 552. However, Macarios share
increased when he received Dionisias share. Macarios
increased share was then sold to his son Roger, respondents
husband and father. Respondents claim that they rightfully
possess the land they occupy by virtue of acquisitive prescription
and that there is no basis for petitioners claim of encroachment.
[12]

The trial courts decision

On May 15, 2006, the Regional Trial Court (RTC) ruled in
favor of petitioner and held that he is entitled to 171 sq. m. The
RTC found that petitioner inherited 142.5 sq. m. from his mother
Salvacion and bought 28.5 sq. m. from his aunt Aspren. The
RTC computed that Salvacion, Aspren, Isabel and Macario each
inherited 142.5 sq. m. of Lot No. 552. Each inherited 114 sq. m.
from Doroteo and 28.5 sq. m. from Dionisia. The RTC further
ruled that Macario was not entitled to 228 sq. m. Thus,
respondents must return 39 sq. m. to petitioner who occupies
only 132 sq. m.[13]
There being no public document to prove Dionisias
donation, the RTC also held that Macarios 1948 affidavit is void
and is an invalid repudiation of the shares of his sisters
Salvacion, Aspren, and Isabel in Dionisias share. Accordingly,
Macario cannot acquire said shares by prescription. The RTC
further held that the oral partition of Lot No. 552 by Doroteos
heirs did not include Dionisias share and that partition should
have been the main action. Thus, the RTC ordered partition and
deferred the transfer of possession of the 39 sq. m. pending
partition.[14] The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing premises, the court
issues the following ORDER, thus -

a) Partially declaring the nullity of the Deed of Absolute Sale of

Property dated August 9, 1977 x x x executed by Macario
Espinocilla, Betty E. Gullaba and Saida E. Gabelo in favor of
Roger Espinocilla, insofar as it affects the portion or the share
belonging to Salvacion Espinocilla, mother of [petitioner,] relative
to the property left by Dionisia Espinocilla, including [Tax
Declaration] No. 13667 and other documents of the same nature
and character which emanated from the said sale;
b) To leave as is the Deeds of Absolute Sale of May 11, 1983
and March 8, 1985, it having been determined that they did not
involve the portion belonging to [petitioner] x x x.
c) To effect an effective and real partition among the heirs for
purposes of determining the exact location of the share (114 sq.
m.) of the late Dionisia Espinocilla together with the 28.5 sq.
m. belonging to [petitioners] mother Salvacion, as well as, the
exact location of the 39 sq. m. portion belonging to the
[petitioner] being encroached by the [respondents], with the
assistance of the Commissioner (Engr. Fundano) appointed by
this court.
d) To hold in abeyance the transfer of possession of the 39 sq.
m. portion to the [petitioner] pending the completion of the real
partition above-mentioned.[15]
The CA decision
On appeal, the CA reversed the RTC decision and
dismissed petitioners complaint on the ground that extraordinary
acquisitive prescription has already set in in favor of
respondents. The CA found that Doroteos four remaining
children made an oral partition of Lot No. 552 after Dionisias
death in 1945 and occupied specific portions. The oral partition
terminated the co-ownership of Lot No. 552 in 1945. Said
partition also included Dionisias share because the lot was
divided into four parts only. And since petitioners complaint was
filed only on July 13, 2000, the CA concluded that prescription
has set in.[16] The CA disposed the appeal as follows:
WHEREFORE, the appeal is GRANTED. The assailed
May 15, 2006 Decision of the Regional Trial Court (RTC) of
Bulan, Sorsogon is hereby REVERSED and SET ASIDE. The
Complaint of the [petitioner] is hereby DISMISSED. No costs.[17]
The instant petition
The core issue to be resolved is whether petitioners action
to recover the subject portion is barred by prescription.
Petitioner confirms oral partition of Lot No. 552 by
Doroteo's heirs, but claims that his share increased from 114 sq.
m. to 171 sq. m. and that respondents encroached on his share
by 39 sq. m. Since an oral partition is valid, the corresponding
survey ordered by the RTC to identify the 39 sq. m. that must be
returned to him could be made.[18] Petitioner also alleges that

Macario committed fraud in acquiring his share; hence, any

evidence adduced by him to justify such acquisition is
inadmissible. Petitioner concludes that if a person obtains legal
title to property by fraud or concealment, courts of equity will
impress upon the title a so-called constructive trust in favor of the
defrauded party.[19]
The Courts ruling
We affirm the CA ruling dismissing petitioners complaint on
the ground of prescription.
Prescription, as a mode of acquiring ownership and other
real rights over immovable property, is concerned with lapse of
time in the manner and under conditions laid down by law,
namely, that the possession should be in the concept of an
owner, public, peaceful, uninterrupted, and adverse. Acquisitive
prescription of real rights may be ordinary or
extraordinary. Ordinary acquisitive prescription requires
possession in good faith and with just title for 10 years. In
extraordinary prescription, ownership and other real rights over
immovable property are acquired through uninterrupted adverse
possession for 30 years without need of title or of good faith.[20]
Here, petitioner himself admits the adverse nature of
respondents possession with his assertion that Macarios
fraudulent acquisition of Dionisias share created a constructive
trust. In a constructive trust, there is neither a promise nor any
fiduciary relation to speak of and the so-called trustee (Macario)
neither accepts any trust nor intends holding the property for the
beneficiary (Salvacion, Aspren, Isabel). The relation of trustee
and cestui que trust does not in fact exist, and the holding of a
constructive trust is for the trustee himself, and therefore, at all
times adverse.[21] Prescription may supervene even if the trustee
does not repudiate the relationship.[22]
Then, too, respondents uninterrupted adverse possession
for 55 years of 109 sq. m. of Lot No. 552 was
established. Macario occupied Dionisias share in 1945 although
his claim that Dionisia donated it to him in 1945 was only made
in a 1948 affidavit. We also agree with the CA that Macarios
possession of Dionisias share was public and adverse since his
other co-owners, his three other sisters, also occupied portions
of Lot No. 552. Indeed, the 1977 sale made by Macario and his
two daughters in favor of his son Roger confirms the adverse
nature of Macarios possession because said sale of 225 sq. m.
[23]
was an act of ownership over Macarios original share and
Dionisias share. In 1985, Roger also exercised an act of
ownership when he sold 114 sq. m. to Caridad Atienza. It was
only in the year 2000, upon receipt of the summons to answer
petitioners complaint, that respondents peaceful possession of
the remaining portion (109 sq. m.) was interrupted. By then,
however, extraordinary acquisitive prescription has already set in
in favor of respondents. That the RTC found Macarios 1948

affidavit void is of no moment. Extraordinary prescription is

unconcerned with Macarios title or good faith. Accordingly, the
RTC erred in ruling that Macario cannot acquire by prescription
the shares of Salvacion, Aspren, and Isabel, in Dionisias 114-sq.
m. share from Lot No. 552.
Moreover, the CA correctly dismissed petitioners complaint
as an action for reconveyance based on an implied or
constructive trust prescribes in 10 years from the time the right of
action accrues.[24] This is the other kind of prescription under
the Civil Code, called extinctive prescription, where rights and
actions are lost by the lapse of time.[25] Petitioners action for
recovery of possession having been filed 55 years after Macario
occupied Dionisias share, it is also barred by extinctive
prescription. The CA while condemning Macarios fraudulent act
of depriving his three sisters of their shares in Dionisias share,
equally emphasized the fact that Macarios sisters wasted their
opportunity to question his acts.
WHEREFORE, we DENY the petition for review on
certiorari for lack of merit and AFFIRM the assailed Decision
dated April 28, 2008 and Resolution dated July 22, 2008 of the
Court of Appeals in CA-G.R. CV No. 87480.
No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 187451
August 29, 2012
JESUS VIRTUCIO, represented by ABDON
VIRTUCIO, Petitioner,
vs.
JOSE ALEGARBES, Respondent.
PERALTA, J., Acting Chairperson,*
VILLARAMA, JR.,**
PEREZ,***
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 seeks to
reverse and set aside the February 25, 2009 Decision1of the
Court of Appeals (CA), in CA-G.R. CV No. 72613, reversing and
setting aside the February 19, 2001 Decision2 of the Regional
Trial Court, Branch 1, Isabela, Basi Ian (RTC), in Civil Case No.
685-627, an action for "Recovery of Possession and Ownership
with Preliminary Injunction."
The Facts
Respondent Jose Alegarbes (Alegarbes) filed Homestead
Application No. V-33203 (E-V-49150) for a 24-hectare tract of
unsurveyed land situated in Baas, Lantawan, Basilan in 1949.
His application was approved on January 23, 1952.3 In 1955,
however, the land was subdivided into three (3) lots Lot Nos.

138,139 and 140, Pls-19 - as a consequence of a public land

subdivision. Lot 139 was allocated to Ulpiano
Custodio (Custodio), who filed Homestead Application No. 184493 (E-18-2958). Lot 140 was allocated to petitioner Jesus
Virtucio (Virtucio), who filed Homestead Application No. 18-4421
(E-18-2924).4
Alegarbes opposed the homestead applications filed by Custodio
and Virtucio, claiming that his approved application covered the
whole area, including Lot Nos. 139 and 140.5
On October 30, 1961, the Director of Lands rendered a decision
denying Alegarbes' protest and amending the latter's application
to exclude Lots 139 and 140. Only Lot 138 was given due
course. The applications of Custodio and Virtucio for Lots 139
and 140, respectively, were likewise given due course.6
Alegarbes then appealed to the Secretary of Agriculture and
Natural Resources, who dismissed his appeal on July 28, 1967.
He then sought relief from the Office of the President (OP),
which, however, affirmed the dismissal order of the Secretary of
Agriculture and Natural Resources in a decision, dated October
25, 1974. Alegarbes moved for a reconsideration, but the motion
was subsequently denied.7
On May 11, 1989, an order of execution8 was issued by the
Lands Management Bureau of the Department of Environment
and Natural Resources to enforce the decision of the OP. It
ordered Alegarbes and all those acting in his behalf to vacate the
subject lot, but he refused.
On September 26, 1997, Virtucio then filed a complaint9 for
"Recovery of Possession and Ownership with Preliminary
Injunction" before the RTC.
In his Answer,10 Alegarbes claimed that the decision of the
Bureau of Lands was void ab initio considering that the Acting
Director of Lands acted without jurisdiction and in violation of the
provisions of the Public Land Act. Alegarbes argued that the said
decision conferred no rights and imposed no duties and left the
parties in the same position as they were before its issuance. He
further alleged that the patent issued in favor of Virtucio was
procured through fraud and deceit, thus, void ab initio.
Alegarbes further argued, by way of special and/or affirmative
defenses, that the approval of his homestead application on
January 23, 1952 by the Bureau of Lands had already attained
finality and could not be reversed, modified or set aside. His
possession of Lot Nos. 138, 139 and 140 had been open,
continuous, peaceful and uninterrupted in the concept of an
owner for more than 30 years and had acquired such lots by
acquisitive prescription.
In his Amended and Supplemental Answer,11 Alegarbes also
averred that his now deceased brother, Alejandro Alegarbes, and
the latter's family helped him develop Lot 140 in 1955. Alejandro
and his family, as well as Alegarbes' wife and children, had been
permanently occupying the said lot and, introducing permanent
improvements thereon since 1960.

The RTC Ruling

The RTC rendered its decision on February 19, 2001, favoring
Virtucio. The decretal portion of which reads:
WHEREFORE, upon the merit of this case, this court finds for
the plaintiff and against the defendant by:
1. Ordering the defendant and all those acting in his behalf to
vacate Lot No. 140, Pls-19, located at Lower Baas, Lantawan,
Basilan and surrender the possession and ownership thereof to
plaintiff;
2. Ordering the defendant to pay the plaintiff the amount of
Fifteen Thousand Pesos (P 15,000.00) as attorney's fees and
another Ten Thousand Pesos (P 10,000.00) as expenses for
litigation; and
3. To pay the cost of the suit in the amount of Five Hundred
Pesos (500.00).
SO ORDERED.12
Not in conformity, Alegarbes appealed his case before the CA.
The CA Ruling
On February 25, 2009, the CA promulgated its decision declaring
Alegarbes as the owner of Lot No. 140, Pls-19, thereby reversing
and setting aside the decision of the RTC. The CA ruled that
Alegarbes became ipso jure owner of Lot 140 and, therefore,
entitled to retain possession of it.
Consequently, the awards of attorney's fees, litigation expenses
and costs of suit were deleted.
In so ruling, the CA explained that even if the decision to approve
Virtucio's homestead application over Lot 140 had become final,
Alegarbes could still acquire the said lot by acquisitive
prescription. The decisions on the issues of the approval of
Virtucio's homestead application and its validity were impertinent
as Alegarbes had earlier put in issue the matter of ownership of
Lot 140 which he claimed by virtue of adverse possession.
The CA also found reversible error on the part of the RTC in
disregarding the evidence before it and relying entirely upon the
decisions of the administrative bodies, none of which touched
upon the issue of Alegarbes' open, continuous and exclusive
possession of over thirty (30) years of an alienable land. The CA
held that the Director of Lands, the Secretary of Agriculture and
Natural Resources and the OP did not determine whether
Alegarbes' possession of the subject property had ipso jure
segregated Lot 140 from the mass of public land and, thus, was
beyond their jurisdiction.
Aggrieved, Virtucio filed this petition.
ISSUES
Virtucio assigned the following errors in seeking the reversal of
the assailed decision of the CA, to wit:
1. The Court of Appeals erred in setting aside the judgment
of the trial court, which awarded the lot in question to the
respondent by virtue of acquisitive prescription and ordered
herein petitioner to surrender the ownership and
possession of the same to them.13

2. The Court of Appeals gravely erred in disregarding the

decision in CA-G.R. CV-26286 for Recovery of Possession
and Ownership, Custodio vs. Alegarbes which contains
same factual circumstances as in this case and ruled
against JOSE ALEGARBES.14
3. The Court of Appeals erred in deleting the award of
attorney's fees to the petitioner.15
The lone issue in this case is whether or not Alegarbes acquired
ownership over the subject property by acquisitive prescription.
Ruling of the Court
The petition must fail.
Indeed, it is fundamental that questions of fact are not
reviewable in petitions for review on certiorari under Rule 45 of
the Rules of Court. Only questions of law distinctly set forth shall
be raised in the petition.16
Here, the main issue is the alleged acquisition of ownership by
Alegarbes through acquisitive prescription and the character and
length of possession of a party over a parcel of land subject of
controversy is a factual issue.17 The Court, however, is not
precluded from reviewing facts when the case falls within the
recognized exceptions, to wit:
(a) When the findings are grounded entirely on speculation,
surmises, or conjectures;
(b) When the inference made is manifestly mistaken, absurd, or
impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the CA went beyond the issues of
the case, or its findings are contrary to the admissions of both
the appellant and the appellee;
(g) When the CAs findings are contrary to those by the trial
court;
(h) When the findings are conclusions without citation of specific
evidence on which they are based;
(i) When the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondent;
(j) When the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on
record; or
(k) When the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would
justify a different conclusion.18 [Emphasis supplied]
In the case at bench, the findings and conclusions of the CA are
apparently contrary to those of the RTC, hence, the need to
review the facts in order to arrive at the proper conclusion.
On Acquisitive Prescription
Virtucio insists that the period of acquisitive prescription was
interrupted on October 30, 1961 (or in 1954 when Alegarbes filed
the protest) when the Director of Lands rendered a decision

giving due course to his homestead application and that of

Ulpiano Custodio. Virtucio further claims that since 1954, several
extrajudicial demands were also made upon Alegarbes
demanding that he vacate said lot. Those demands constitute
the "extrajudicial demand" contemplated in Article 1155, thus,
tolling the period of acquisitive prescription.19
Article 1106 of the New Civil Code, in relation to its Article 712,
provides that prescription is a mode of acquiring ownership
through the lapse of time in the manner and under the conditions
laid down by law. Under the same law, it states that acquisitive
prescription may either be ordinary or extraordinary.20 Ordinary
acquisitive prescription requires possession of things in good
faith and with just title for a period of ten years,21 while
extraordinary acquisitive prescription requires uninterrupted
adverse possession of thirty years, without need of title or of
good faith.22
There are two kinds of prescription provided in the Civil Code.
One is acquisitive, that is, the acquisition of a right by the lapse
of time as expounded in par. 1, Article 1106. Other names for
acquisitive prescription are adverse possession and usucapcion.
The other kind is extinctive prescription whereby rights and
actions are lost by the lapse of time as defined in Article 1106
and par. 2, Article 1139. Another name for extinctive prescription
is litigation of action.23 These two kinds of prescription should not
be interchanged.
Article 1155 of the New Civil Code refers to the interruption of
prescription of actions. Interruption of acquisitive prescription, on
the other hand, is found in Articles 1120-1125 of the same Code.
Thus, Virtucios reliance on Article 1155 for purposes of tolling
the period of acquisitive prescription is misplaced. The only kinds
of interruption that effectively toll the period of acquisitive
prescription are natural and civil interruption.24
Civil interruption takes place with the service of judicial summons
to the possessor.25 When no action is filed, then there is no
occasion to issue a judicial summons against the respondents.
The period of acquisitive prescription continues to run.
In this case, Virtucio claims that the protest filed by Alegarbes
against his homestead application interrupted the thirty (30)-year
period of acquisitive prescription. The law, as well as
jurisprudence, however, dictates that only a judicial summons
can effectively toll the said period.
In the case of Heirs of Marcelina Azardon-Crisologo v.
Raon,26 the Court ruled that a mere Notice of Adverse Claim did
not constitute an effective interruption of possession. In the case
of Heirs of Bienvenido and Araceli Tanyag v. Gabriel,27 which
also cited the Raon Case, the Court stated that the acts of
declaring again the property for tax purposes and obtaining a
Torrens certificate of title in one's name cannot defeat another's
right of ownership acquired through acquisitive prescription.28
In the same vein, a protest filed before an administrative agency
and even the decision resulting from it cannot effectively toll the

running of the period of acquisitive prescription. In such an

instance, no civil interruption can take place. Only in cases filed
before the courts may judicial summons be issued and, thus,
interrupt possession. Records show that it was only in 1997
when Virtucio filed a case before the RTC. The CA was,
therefore, correct in ruling that Alegarbesbecame ipso jure owner
of Lot 140 entitling him to retain possession of it because he was
in open, continuous and exclusive possession for over thirty (30)
years of alienable public land.Virtucio emphasizes that the CA
erred in disregarding the decisions of the administrative agencies
which amended Alegarbes' homestead application excluding Lot
140 and gave due course to his own application for the said lot,
which decisions were affirmed by the RTC.
Well-settled is the rule that factual findings of the lower courts
are entitled to great weight and respect on appeal and, in fact,
are accorded finality when supported by substantial evidence on
the record.29 It appears, however, that the conclusion made by
the RTC was not substantially supported. Even the RTC itself
noted in its decision:
The approval of a Homestead Application merely authorizes the
applicant to take possession of the land so that he could comply
with the requirements prescribed by law before a final patent
could be issued in his favor what divests the government of
title to the land is the issuance of a patent and its subsequent
registration with the Register of Deeds.30
A perusal of the records would reveal that there was no issuance
of any patent in favor of either parties. This simply means that
the land subject of the controversy remains to be in the name of
the State. Hence, neither Virtucio nor Alegarbes can claim
ownership. There was, therefore, no substantial and legal basis
for the RTC to declare that Virtucio was entitled to possession
and ownership of Lot 140.
It can be argued that the lower court had the decisions of the
administrative agencies, which ultimately attained finality, as
legal bases in ruling that Virtucio had the right of possession and
ownership. In fact, the Department of Environment and Natural
Resources (DENR) even issued the Order of Execution31 on May
11, 1989 ordering Alegarbes to vacate Lot 140 and place Virtucio
in peaceful possession of it. The CA, however, was correct in
finding that:
But appellant had earlier put in issue the matter of ownership of
Lot 140 which he claims by virtue of adverse possession. On this
issue, the cited decisions are impertinent. Even if the decision to
approve appellee's homestead application over Lot 140 had
become final, appellant could still acquire the said lot by
acquisitive prescription.32
In the case of Heirs of Gamos v. Heirs of Frando,33 the Court
ruled that the mere application for a patent, coupled with the fact
of exclusive, open, continuous and notorious possession for the
required period, is sufficient to vest in the applicant the grant
applied for.34 It likewise cited the cases of Susi v. Razon35 and

Pineda v. CA,36 where the Court ruled that the possession of a

parcel of agricultural land of the public domain for the prescribed
period of 30 years ipso jure converts the lot into private
property.37
In this case, Alegarbes had applied for homestead patent as
early as 1949. He had been in exclusive, open, continuous and
notorious possession of Lot 140 for at least 30 years. By the time
the DENR issued its order of execution in 1989, Alegarbes had
Lot 140 in his possession for more than 30 years. Even more so
when Virtucio filed the complaint before the RTC in 1997,
Alegarbes was already in possession of the subject property for
forty-eight (48) years.
The CA correctly observed that the RTC erred in disregarding
the evidence before it and relying entirely upon the decisions of
the Director of Lands, the Secretary of Agriculture and Natural
Resources and the OP, which never touched the issue of
whether Alegarbes open, continuous and exclusive possession
of over thirty (30) years of alienable land had ipso jure
segregated Lot 140 from the mass of public land and beyond the
jurisdiction of these agencies.38
When the CA ruled that the RTC was correct in relying on the
abovementioned decisions, it merely recognized the primary
jurisdiction of these administrative agencies. It was of the view
that the RTC was not correct in the other aspects of the case.
Thus, it declared Alegarbes as owner ipso jure of Lot 140 and
entitled to retain possession of it. There is no reason for the
Court to disturb these findings of the CA as they were supported
by substantial evidence, hence, are conclusive and binding upon
this Court.39
On the CA Decision involving a similar case
Virtucio insists that the CA gravely erred in disregarding its
decision in Custodio v. Alegarbes, CA-G.R. CV 26286, for
Recovery of Possession and Ownership, which involved the
same factual circumstances and ruled against Alegarbes.
It must be noted that the subject property in the said case was
Lot 139 allocated to Custodio and that Virtucio was not a party to
that case. The latter cannot enjoy whatever benefits said
favorable judgment may have had just because it involved
similar factual circumstances. The Court also found from the
records that the period of acquisitive prescription in that case
was effectively interrupted by Custodio's filing of a complaint,
which is wanting in this case.
Moreover, it is settled that a decision of the CA does not
establish judicial precedent.40 "The principle of stare
decisis enjoins adherence by lower courts to doctrinal rules
established by this Court in its final decisions. It is based on the
principle that once a question of law has been examined and
decided, it should be deemed settled and closed to further
argument. "41
The Court agrees with the position of Alegarbes that by Virtucio's
insistence that it was erroneous for the CA to disregard its earlier

decision in CA-G.R. CV 26286, he, in effect, calls upon this

Court to adhere to that decision by invoking the stare decisis
principle, which is not legally possible because only final
decisions of this Court are considered precedents.42
In view of the foregoing, the Court need not dwell on the
complaint of Virtucio with regard to the deletion of the award of
attorney's fees in his favor. It is ludicrous for the CA to order
Alegarbes to pay attorney's fees, as a measure of damages, and
costs, after finding him to have acquired ownership over the
property by acquisitive prescription.
WHEREFORE, the petition is DENIED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159508
August 29, 2012
JUAN B. BANEZ, JR., Petitioner,
vs.
HON. CRISANTO C. CONCEPCION, IN HIS CAPACITY AS
THE PRESIDING JUDGE OF THE RTC-BULACAN, MALOLOS
CITY, AND THE ESTATE OF THE LATE RODRIGO GOMEZ,
REPRESENTED BY ITS ADMINISTRATRIX, TSUI YUK
YING, Respondents.
DECISION
BERSAMIN, J.:
The petitioner has directly come to the Court via petition
for certiorari1 filed on September 4, 2003 to assail the orders
dated March 24, 2003 (reversing an earlier order issued on
February 18, 2003 granting his motion to dismiss on the ground
of the action being already barred by prescription, and reinstating
the action),2 April 21, 2003 (denying his motion for
reconsideration),3and August 19, 2003 (denying his second
motion for reconsideration and ordering him to file his answer
within 10 days from notice despite the principal defendant not
having been yet validly served with summons and copy of the
complaint),4 all issued by the Regional Trial Court (RTC), Branch
12, in Malolos City in Civil Case No. 722-M-2002,5 an action for
the recovery of ownership and possession. He alleges that
respondent Presiding Judge thereby acted with grave abuse of
discretion amounting to lack or excess of jurisdiction.
Antecedents
The present controversy started almost four decades ago when
Leodegario B. Ramos (Ramos), one of the defendants in Civil
Case No. 722-M-2002, discovered that a parcel of land with an
area of 1,233 square meters, more or less, which was a portion
of a bigger tract of land with an area of 3,054 square meters,
more or less, located in Meycauayan, Bulacan that he had
adjudicated solely to himself upon his mothers death on
November 16, 1982 had been earlier transferred by his mother to

one Ricardo Asuncion, who had, in turn, sold it to the late

Rodrigo Gomez.
On February 1, 1990, Ramos, alleging that Gomez had induced
him to sell the 1,233 square meters to Gomez on the
understanding that Gomez would settle Ramos obligation to
three other persons, commenced in the RTC in Valenzuela an
action against Gomez, also known as Domingo Ng Lim, seeking
the rescission of their contract of sale and the payment of
damages, docketed as Civil Case No. 3287-V-90 entitled
Leodegario B. Ramos v. Rodrigo Gomez, a.k.a. Domingo Ng
Lim.6
On October 9, 1990, before the Valenzuela RTC could decide
Civil Case No. 3287-V-90 on the merits, Ramos and Gomez
entered into a compromise agreement.7 The RTC approved their
compromise agreement through its decision rendered on the
same date.8
The petitioner, being then the counsel of Ramos in Civil Case
No. 3287-V-90, assisted Ramos in entering into the compromise
agreement "to finally terminate this case." The terms and
conditions of the compromise agreement were as follows:
COME NOW, the Parties, assisted by their respective counsels,
and before this Honorable Court, most respectfully submit this
COMPROMISE AGREEMENT for approval, as to finally
terminate this case, the terms and conditions of which being as
follows:
1. That out of the total area of Three Thousand and Fifty Four
(3,054) sq. m., more or less, covered by formerly O.C.T. No. P2492 (M), Registry of Deeds of Bulacan, known as Lot No. 6821,
Cad-337 Lot 4020-E, Csd-04-001618-D, and now by the
Reconstituted Transfer Certificate of Title No. T-10179-P (M)
defendant shall cause survey of said property, at its own
expense, to segregate the area of One Thousand Two Hundred
Thirty-Three, (1,233) sq. m. more or less, to take along lines two
(2) to three (3), then to four (4) and up to five (5) of said plan,
Csd-04-001618-D;
2. That upon completion of the technical survey and plan,
defendant shall cause the registration of the Deed of Absolute
Sale executed by plaintiff over the 1,233 sq. m. in his favor and
that defendant shall deliver the survey and plan pertaining to the
1,821 sq, m. to the plaintiff with both parties defraying the cost of
registration and titling over their respective shares;
3. That to carry out the foregoing, plaintiff shall entrust the
Owners Duplicate of said TCT No. T-10179-P (M), Registry of
Deeds of Meycauayan, Bulacan, to the defendant, upon approval
of this COMPROMISE AGREEMENT by the Court;
4. That upon the approval of this Compromise Agreement plaintiff
shall execute a Deed of Absolute Sale in favor of defendant over
the 1,233 sq. m. surveyed and segregated from the 1,821 sq. m.
which should remain with the plaintiff and to be titled in his name;
5. That plaintiff obligates himself to return his loan obligation to
the defendant, in the principal sum of P 80,000.00 plus P

20,000.00 for the use thereof, and an additional sum of P

10,000.00 in the concept of attorneys fees, which sums shall be
guaranteed by a post-dated check, in the amount of P
110,000.00 in plaintiffs name with his prior endorsement, drawn
and issued by plaintiffs counsel, for a period of Sixty (60) days
from October 9, 1990;
6. That in the event the check issued pursuant to paragraph 5
hereof, is dishonored for any reason whatsoever, upon
presentment for payment, then this Compromise Agreement,
shall be considered null and void and of no effect whatsoever;
7. That upon faithful compliance with the terms and conditions of
this COMPROMISE AGREEMENT and the Decision based
thereon, the parties hereto shall have respectively waived,
conceded and abandoned all claims and rights of action of
whatever kind or nature, against each other over the subject
property.
WHEREFORE, premises considered, the parties hereto hereby
jointly and severally pray before this Honorable Court to approve
this COMPROMISE AGREEMENT and thereupon render its
Decision based thereon terminating the case.
One of the stipulations of the compromise agreement was for
Ramos to execute a deed of absolute sale in favor of Gomez
respecting the parcel of land with an area of 1,233 square
meters, and covered by Transfer Certificate of Title (TCT) No. T13005 P(M) in the name of Ramos.9 Another stipulation was for
the petitioner to issue post-dated checks totaling P 110,000.00 to
guarantee the payment by Ramos of his monetary obligations
towards Gomez as stated in the compromise agreement broken
down as follows: (a) P 80,000.00 as Ramos loan obligation to
Gomez; (b) P 20,000.00 for the use of the loan; and
(c) P 10,000.00 as attorneys fees. Of these amounts,
only P 80,000.00 was ultimately paid to Gomez, because the
petitioners check dated April 23, 1991 for the balance
of P 30,000.00 was dishonored for insufficiency of funds.
Gomez meanwhile died on November 7, 1990. He was survived
by his wife Tsui Yuk Ying and their minor children (collectively to
be referred to as the Estate of Gomez). The Estate of Gomez
sued Ramos and the petitioner for specific performance in the
RTC in Caloocan City to recover the balance of P 30,000.00
(Civil Case No. C-15750). On February 28, 1994, however, Civil
Case No. C-15750 was amicably settled through a compromise
agreement, whereby the petitioner directly bound himself to pay
to the Estate of Gomez P 10,000.00 on or before March 15,
1994; P 10,000.00 on or before April 15, 1994; and P 10,000.00
on or before May 15, 1994.
The Estate of Gomez performed the obligations of Gomez under
the first paragraph of the compromise agreement of October 9,
1990 by causing the survey of the bigger tract of land containing
an area of 3,054 square meters, more or less, in order to
segregate the area of 1,233 square meters that should be
transferred by Ramos to Gomez in accordance with Ramos

undertaking under the second paragraph of the compromise

agreement of October 9, 1990. But Ramos failed to cause the
registration of the deed of absolute sale pursuant to the second
paragraph of the compromise agreement of October 9, 1990
despite the Estate of Gomez having already complied with
Gomezs undertaking to deliver the approved survey plan and to
shoulder the expenses for that purpose. Nor did Ramos deliver
to the Estate of Gomez the owners duplicate copy of TCT No. T10179 P(M) of the Registry of Deeds of Meycauayan, Bulacan,
as stipulated under the third paragraph of the compromise
agreement of October 9, 1990. Instead, Ramos and the
petitioner caused to be registered the 1,233 square meter portion
in Ramoss name under TCT No. T-13005-P(M) of the Registry
of Deeds of Meycauayan, Bulacan.
Accordingly, on July 6, 1995, the Estate of Gomez brought a
complaint for specific performance against Ramos and the
petitioner in the RTC in Valenzuela (Civil Case No. 4679-V95)10 in order to recover the 1,233 square meter lot. However,
the Valenzuela RTC dismissed the complaint on April 1, 1996
upon the motion of Ramos and the petitioner on the ground of
improper venue because the objective was to recover the
ownership and possession of realty situated in Meycauayan,
Bulacan, and because the proper recourse was to enforce the
judgment by compromise Agreement rendered on October 9,
1990 through a motion for execution.
The Estate of Gomez appealed the order of dismissal to the
Court of Appeals (CA), which ruled on July 24, 2001 to affirm the
Valenzuela RTC and to dismiss the appeal (CA-G.R. CV No.
54231).
On September 20, 2002, the Estate of Gomez commenced Civil
Case No. 722-M-2002 in the Valenzuela RTC, ostensibly to
revive the judgment by compromise rendered on October 9,
1990 in Civil Case No. 3287-V-90, praying that Ramos be
ordered to execute the deed of absolute sale covering the 1,233
square meter lot pursuant to the fourth stipulation of the
compromise agreement of October 9, 1990. The petitioner was
impleaded as a party-defendant because of his having
guaranteed the performance by Ramos of his obligation and for
having actively participated in the transaction.
On January 8, 2003, the petitioner moved for the dismissal of
Civil Case No. 722-M-2002, alleging that the action was already
barred by res judicata and by prescription; that he was not a real
party-in-interest; and that the amount he had guaranteed with his
personal check had already been paid by Ramos with his own
money.11
Initially, on February 18, 2003,12 the RTC granted the petitioners
motion to dismiss, finding that the right of action had already
prescribed due to more than 12 years having elapsed from the
approval of the compromise agreement on October 9, 1990,
citing Article 1143 (3) of the Civil Code (which provides a 10-year

period within which a right of action based upon a judgment must

be brought from).
On March 24, 2003,13 however, the RTC reversed itself upon
motion of the Estate of Gomez and set aside its order of
February 18, 2003. The RTC reinstated Civil Case No. 722-M2002, holding that the filing of the complaint for specific
performance on July 6, 1995 in the Valenzuela RTC (Civil Case
No. 4679-V-95) had interrupted the prescriptive period pursuant
to Article 1155 of the Civil Code.
The petitioner sought reconsideration, but the RTC denied his
motion for that purpose on April 21, 2003.
On May 12, 2003, the petitioner filed a second motion for
reconsideration, maintaining that the Estate of Gomezs right of
action had already prescribed; and that the judgment by
compromise of October 9, 1990 had already settled the entire
controversy between the parties.
On August 19, 2003,14 the RTC denied the second motion for
reconsideration for lack of merit.
Hence, this special civil action for certiorari commenced on
September 4, 2003 directly in this Court.
Issues
The petitioner insists that:
xxx the lower court acted with grave abuse of discretion,
amounting to lack of, or in excess of jurisdiction, when, after
having correctly ordered the dismissal of the case below, on the
ground of prescription under Art. 1144, par. 3, of the Civil Code, it
reconsidered and set aside the same, on the factually baseless
and legally untenable Motion for Reconsideration of Private
Respondent, insisting, with grave abuse of discretion, if not
bordering on ignorance of law, and too afraid to face reality, that
it is Art. 1155 of the same code, as invoked by Private
Respondents, that applies, and required herein petitioner to file
his answer, despite petitioners first Motion for Reconsideration,
which it treated as a mere scrap of paper, yet, at the same [sic]
again it insisted that Article 1155 of the Civil Code should apply,
and, thereafter when, with like, if not greater grave abuse of
discretion, amounting to lack, or in excess of jurisdiction, it again
denied petitioners Second Motion for Reconsideration for lack of
merit, and giving petitioner a non-extendible period of ten 10 days
from notice, to file his answer.15
In his reply to the Estate of Gomezs comment,16 the petitioner
elucidated as follows:
1) Whether or not, the Honorable public respondent Judge
gravely abused his discretion, amounting to lack of, or in excess
of jurisdiction, when, after ordered the dismissal of Civil Case
No. 722-M-2002, as prescription has set in, under Art. 1143 of
the Civil Code, he set aside and reconsidered his said Order, on
motion of plaintiff, by thereafter denied petitioners Motion for
Reconsideration, and Second Motion for Reconsideration,
insisting, despite his being presumed to know the law, that the

said action is not barred by prescription, under Art. 1145 of the

Civil Code;
2) Whether or not, the present pending action, Civil Case No.
722-M-2002, before Branch 12 of the Regional Trial Court of
Malolos, Bulacan, is barred, and should be ordered be
dismissed, on the ground of prescription, under the law and the
rules, and applicable jurisprudence.
3) Whether or not, the same action may be dismissed on other
valid grounds.17
The petitioner submits that Civil Case No. 722-M-2002 was one
for the revival of the judgment upon a compromise agreement
rendered in Civil Case No. 3287-V-90 that attained finality on
October 9, 1990; that considering that an action for revival must
be filed within 10 years from the date of finality, pursuant to
Article 1144 of the Civil Code,18in relation to Section 6, Rule 39 of
the Rules of Court,19 Civil Case No. 722-M-2002 was already
barred by prescription, having been filed beyond the 10-year
prescriptive period; that the RTC gravely abused its discretion in
reinstating the complaint despite prescription having already set
in; that the dismissal of Civil Case No. 722-M-2002 was proper
also because the judgment had already been fully satisfied; that
the claim relative to the 1,233 square meter lot under the
compromise agreement had been waived, abandoned, or
otherwise extinguished on account of the failure of the Estate of
Gomezs counsel to move for the issuance of a writ of execution;
and that the Estate of Gomez could not rely upon the pendency
and effects of the appeal from the action for specific performance
after its dismissal had been affirmed by the CA on grounds of
improper venue, the plaintiffs lack of personality, and improper
remedy (due to the proper remedy being by execution of the
judgment).
The Estate of Gomez countered that the filing on July 6, 1995 of
the action for specific performance in the RTC in Valenzuela
stopped the running of the prescriptive period; that the period
commenced to run again after the CA dismissed that action on
July 24, 2001; that the total elapsed period was only five years
and 11 months; and that the action for the revival of judgment
filed on September 20, 2002 was within the period of 10 years to
enforce a final and executory judgment by action.
Ruling
We dismiss the petition for certiorari.
The orders that the petitioner seeks to challenge and to annul
are the orders denying his motion to dismiss. It is settled,
however, that an order denying a motion to dismiss, being
merely interlocutory, cannot be the basis of a petition
for certiorari. An interlocutory order is not the proper subject of
a certiorari challenge by virtue of its not terminating the
proceedings in which it is issued. To allow such order to be the
subject of review by certiorari not only delays the administration
of justice, but also unduly burdens the courts.20

But a petition for certiorari may be filed to assail an interlocutory

order if it is issued without jurisdiction, or with excess of
jurisdiction, or in grave abuse of discretion amounting to lack or
excess of jurisdiction. This is because as to such order there is
no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law. Rule 65 of the Rules of Court expressly
recognizes the exception by providing as follows:
Section 1. Petition for certiorari. When any tribunal, board or
officer exercising judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction, or with grave abuse
of discretion amounting to lack or excess of jurisdiction, and
there is no appeal, or any plain, speedy, and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or
modifying the proceedings of such tribunal, board or officer, and
granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the
judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and a
sworn certification of non-forum shopping as provided in the third
paragraph of section 3, Rule 46. (1a)
The exception does not apply to this challenge. The petitioner
has not demonstrated how the assailed orders could have been
issued without jurisdiction, or with excess of jurisdiction, or in
grave abuse of discretion amounting to lack or excess of
jurisdiction. Nor has he convinced us that he had no plain,
speedy, and adequate remedy in the ordinary course of law. In
fact and in law, he has, like filing his answer and going to pre-trial
and trial. In the end, should he still have the need to seek the
review of the decision of the RTC, he could also even appeal the
denial of the motion to dismiss. That, in reality, was his proper
remedy in the ordinary course of law.
Yet another reason to dismiss the petition for certiorari exists.
Although the Court, the CA and the RTC have concurrence of
jurisdiction to issue writs of certiorari, the petitioner had no
unrestrained freedom to choose which among the several courts
might his petition for certiorari be filed in. In other words, he must
observe the hierarchy of courts, the policy in relation to which
has been explicitly defined in Section 4 of Rule 65 concerning
the petitions for the extraordinary writs of certiorari, prohibition
and mandamus, to wit:
Section 4. When and where petition filed. - The petition shall be
filed not later than sixty (60) days from notice of the judgment,
order or resolution. In case a motion for reconsideration or new
trial is timely filed, whether such motion is required or not, the
sixty (60) day period shall be counted from notice of the denial of
the said motion.
The petition shall be filed in the Supreme Court or, if it relates to
the acts or omissions of a lower court or of a corporation, board,
officer or person, in the Regional Trial Court exercising

jurisdiction over the territorial area as defined by the Supreme

Court. It may also be filed in the Court of Appeals whether or not
the same is in the aid of its appellate jurisdiction, or in the
Sandiganbayan if it is in aid of its appellate jurisdiction. If it
involves the acts or omissions of a quasi-judicial agency, unless
otherwise provided by law or these rules, the petition shall be
filed in and cognizable only by the Court of Appeals.
No extension of time to file the petition shall be granted except
for compelling reason and in no case exceeding fifteen (15)
days. (4a)21 (Emphasis supplied)
Accordingly, his direct filing of the petition for certiorari in this
Court instead of in the CA should be disallowed considering that
he did not present in the petition any special and compelling
reasons to support his choice of this Court as the forum.
The Court must enjoin the observance of the policy on the
hierarchy of courts, and now affirms that the policy is not to be
ignored without serious consequences. The strictness of the
policy is designed to shield the Court from having to deal with
causes that are also well within the competence of the lower
courts, and thus leave time to the Court to deal with the more
fundamental and more essential tasks that the Constitution has
assigned to it. The Court may act on petitions for the
extraordinary writs of certiorari, prohibition and mandamus only
when absolutely necessary or when serious and important
reasons exist to justify an exception to the policy. This was why
the Court stressed in Vergara, Sr. v. Suelto:22
xxx. The Supreme Court is a court of last resort, and must so
remain if it is to satisfactorily perform the functions assigned to it
by the fundamental charter and immemorial tradition. It cannot
and should not be burdened with the task of dealing with causes
in the first instance. Its original jurisdiction to issue the so-called
extraordinary writs should be exercised only where absolutely
necessary or where serious and important reasons exist therefor.
Hence, that jurisdiction should generally be exercised relative to
actions or proceedings before the Court of Appeals, or before
constitutional or other tribunals, bodies or agencies whose acts
for some reason or another are not controllable by the Court of
Appeals. Where the issuance of an extraordinary writ is also
within the competence of the Court of Appeals or a Regional Trial
Court, it is in either of these courts that the specific action for the
writs procurement must be presented. This is and should
continue to be the policy in this regard, a policy that courts and
lawyers must strictly observe. (Emphasis supplied)
In People v. Cuaresma,23 the Court has also amplified the need
for strict adherence to the policy of hierarchy of courts. There,
noting "a growing tendency on the part of litigants and lawyers to
have their applications for the so-called extraordinary writs, and
sometimes even their appeals, passed upon and adjudicated
directly and immediately by the highest tribunal of the land," the
Court has cautioned lawyers and litigants against taking a direct
resort to the highest tribunal, viz:

xxx. This Courts original jurisdiction to issue writs

of certiorari (as well as prohibition, mandamus, quo warranto,
habeas corpus and injunction) is not exclusive. It is shared by
this Court with Regional Trial Courts x x x, which may issue the
writ, enforceable in any part of their respective regions. It is also
shared by this Court, and by the Regional Trial Court, with the
Court of Appeals x x x, although prior to the effectivity of Batas
Pambansa Bilang 129 on August 14, 1981, the latter's
competence to issue the extraordinary writs was restricted to
those "in aid of its appellate jurisdiction." This concurrence of
jurisdiction is not, however, to be taken as according to parties
seeking any of the writs an absolute, unrestrained freedom of
choice of the court to which application therefor will be directed.
There is after all a hierarchy of courts. That hierarchy is
determinative of the venue of appeals, and should also serve as
a general determinant of the appropriate forum for petitions for
the extraordinary writs. A becoming regard for that judicial
hierarchy most certainly indicates that petitions for the issuance
of extraordinary writs against first level ("inferior") courts should
be filed with the Regional Trial Court, and those against the
latter, with the Court of Appeals. A direct invocation of the
Supreme Court's original jurisdiction to issue these writs should
be allowed only when there are special and important reasons
therefor, clearly and specifically set out in the petition. This is
established policy. It is a policy that is necessary to prevent
inordinate demands upon the Courts time and attention which
are better devoted to those matters within its exclusive
jurisdiction, and to prevent further over-crowding of the Court's
docket. Indeed, the removal of the restriction on the jurisdiction
of the Court of Appeals in this regard, supra resulting from the
deletion of the qualifying phrase, "in aid of its appellate
jurisdiction" was evidently intended precisely to relieve this
Court pro tanto of the burden of dealing with applications for the
extraordinary writs which, but for the expansion of the Appellate
Court corresponding jurisdiction, would have had to be filed with
it.
xxxx
The Court therefore closes this decision with the declaration for
the information and evidence of all concerned, that it will not only
continue to enforce the policy, but will require a more strict
observance thereof. (Emphasis supplied)
There being no special, important or compelling reason that
justified the direct filing of the petition for certiorari in this Court in
violation of the policy on hierarchy of courts, its outright dismissal
is unavoidable.
Still, even granting that the petition for certiorari might be directly
filed in this Court, its dismissal must also follow because its
consideration and resolution would unavoidably demand the
consideration and evaluation of evidentiary matters. The Court is
not a trier of facts, and cannot accept the petition for certiorari for
that reason.

Although commenced ostensibly for the recovery of possession

and ownership of real property, Civil Case No. 722-M-2002 was
really an action to revive the judgment by compromise dated
October 9, 1990 because the ultimate outcome would be no
other than to order the execution of the judgment by
compromise. Indeed, it has been held that "there is no
substantial difference between an action expressly called one for
revival of judgment and an action for recovery of property under
a right adjudged under and evidenced by a final judgment."24 In
addition, the parties themselves have treated the complaint in
Civil Case No. 722-M-2002 as one for revival. Accordingly, the
parties should be fully heard on their respective claims like in any
other independent action.1wphi1
The petitioners defense of prescription to bar Civil Case No.
722-M-2002 presents another evidentiary concern. Article 1144
of the Civil Code requires, indeed, that an action to revive a
judgment must be brought before it is barred by prescription,
which was ten years from the accrual of the right of action.25 It is
clear, however, that such a defense could not be determined in
the hearing of the petitioners motion to dismiss considering that
the complaint did not show on its face that the period to bring the
action to revive had already lapsed. An allegation of prescription,
as the Court put it in Pineda v. Heirs of Eliseo Guevara,26 "can
effectively be used in a motion to dismiss only when the
complaint on its face shows that indeed the action has already
prescribed, [o]therwise, the issue of prescription is one involving
evidentiary matters requiring a full blown trial on the merits and
cannot be determined in a mere motion to dismiss."
At any rate, the mere lapse of the period per se did not render
the judgment stale within the context of the law on prescription,
for events that effectively suspended the running of the period of
limitation might have intervened. In other words, the Estate of
Gomez was not precluded from showing such events, if any. The
Court recognized this possibility of suspension in Lancita v.
Magbanua:27
In computing the time limited for suing out of an execution,
although there is authority to the contrary, the general rule is that
there should not be included the time when execution is stayed,
either by agreement of the parties for a definite time, by
injunction, by the taking of an appeal or writ of error so as to
operate as a supersedeas, by the death of a party or otherwise.
Any interruption or delay occasioned by the debtor will extend
the time within which the writ may be issued without scire facias.
Verily, the need to prove the existence or non-existence of
significant matters, like supervening events, in order to show
either that Civil Case No. 722-M-2002 was batTed by
prescription or not was present and undeniable. Moreover, the
petitioner himself raised factual issues in his motion to dismiss,
like his averment of full payment or discharge of the obligation of
Ramos and the waiver or abandonment of rights under the
compromise agreement. The proof thereon cannot be received

in certiorari proceedings before the Court, but should be

established in the RTC.
WHEREFORE, the Court DISMISSES the petition for certiorari;
and DIRECTS the petitioner to pay the cost of suit.
SO ORDERED
1169 PRINCIPLE OF DELAY

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 129018 November 15, 2001
CARMELITA LEAO, assisted by her husband GREGORIO
CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES
FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the decision1 of
the Court of Appeals affirming that of the Regional Trial Court,
Malolos, Branch 72 ordering petitioner Leao to pay respondent
Hermogenes Fernando the sum of P183,687.70 corresponding
to her outstanding obligations under the contract to sell, with
interest and surcharges due thereon, attorney's fees and
costs.1wphi1.nt
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor and
Carmelita Leao, as vendee executed a contract to sell involving
a piece of land, Lot No. 876-B, with an area of 431 square
meters, located at Sto. Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leao bound herself to pay
Hermogenes Fernando the sum of one hundred seven thousand
and seven hundred and fifty pesos (P107,750.00) as the total
purchase price of the lot. The manner of paying the total
purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY
FIVE (P10,775.00) PESOS, shall be paid at the signing of this
contract as DOWN PAYMENT, the balance of NINETY SIX
THOUSAND NINE HUNDRED SEVENTY FIVE PESOS
(P96,975.00) shall be paid within a period of TEN (10) years at a
monthly amortization of P1,747.30 to begin from December 7,
1985 with interest at eighteen per cent (18%) per annum based
on balances."4
The contract also provided for a grace period of one month
within which to make payments, together with the one
corresponding to the month of grace. Should the month of grace
expire without the installments for both months having been

satisfied, an interest of 18% per annum will be charged on the

unpaid installments.5
Should a period of ninety (90) days elapse from the expiration of
the grace period without the overdue and unpaid installments
having been paid with the corresponding interests up to that
date, respondent Fernando, as vendor, was authorized to
declare the contract cancelled and to dispose of the parcel of
land, as if the contract had not been entered into. The payments
made, together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation of
the premises and as liquidated damages.6
After the execution of the contract, Carmelita Leao made
several payments in lump sum.7 Thereafter, she constructed a
house on the lot valued at P800,000.00.8 The last payment that
she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision in an
ejectment case9 earlier filed by respondent Fernando ordering
petitioner Leao to vacate the premises and to pay P250.00 per
month by way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the premises,
attorney's fees and costs of the suit.10 On August 24, 1993, the
trial court issued a writ of execution which was duly served on
petitioner Leao.
On September 27, 1993, petitioner Leao filed with the Regional
Trial Court of Malolos, Bulacan a complaint for specific
performance with preliminary injunction.11 Petitioner Leao
assailed the validity of the judgment of the municipal trial
court12 for being violative of her right to due process and for
being contrary to the avowed intentions of Republic Act No. 6552
regarding protection to buyers of lots on installments. Petitioner
Leao deposited P18,000.00 with the clerk of court, Regional
Trial Court, Bulacan, to cover the balance of the total cost of Lot
876-B.13
On November 4, 1993, after petitioner Leao posted a cash
bond of P50,000.00,14 the trial court issued a writ of preliminary
injunction15 to stay the enforcement of the decision of the
municipal trial court.16
On February 6, 1995, the trial court rendered a decision, the
dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered as follows:
"1. The preliminary injunction issued by this court per its order
dated November 4, 1993 is hereby made permanent;
"2. Ordering the plaintiff to pay to the defendant the sum of
P103,090.70 corresponding to her outstanding obligations under
the contract to sell (Exhibit "A" Exhibit "B") consisting of the
principal of said obligation together with the interest and
surcharges due thereon as of February 28, 1994, plus interest
thereon at the rate of 18% per annum in accordance with the
provision of said contract to be computed from March 1, 1994,
until the same becomes fully paid;

"3. Ordering the defendant to pay to plaintiff the amount of

P10,000 as and by way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the suit
in Civil Case No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
On February 21, 1995, respondent Fernando filed a motion for
reconsideration18 and the supplement19 thereto. The trial court
increased the amount of P103,090.70 to P183,687.00 and
ordered petitioner Leao ordered to pay attorney's fees.20
According to the trial court, the transaction between the parties
was an absolute sale, making petitioner Leao the owner of the
lot upon actual and constructive delivery thereof. Respondent
Fernando, the seller, was divested of ownership and cannot
recover the same unless the contract is rescinded pursuant to
Article 1592 of the Civil Code which requires a judicial or notarial
demand. Since there had been no rescission, petitioner Leao,
as the owner in possession of the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase price
is payable within a ten-year period, yet the same contract clearly
specifies that the purchase price shall be payable in monthly
installments for which the corresponding penalty shall be
imposed in case of default. The plaintiff certainly cannot ignore
the binding effect of such stipulation by merely asserting that the
ten-year period for payment of the whole purchase price has not
yet lapsed. In other words, the plaintiff has clearly defaulted in
the payment of the amortizations due under the contract as
recited in the statement of account (Exhibit "2") and she should
be liable for the payment of interest and penalties in accordance
with the stipulations in the contract pertaining thereto."21
The trial court disregarded petitioner Leaos claim that she
made a downpayment of P10,000.00, at the time of the
execution of the contract.
The trial court relied on the statement of account22 and the
summary23 prepared by respondent Fernando to determine
petitioner Leao's liability for the payment of interests and
penalties.
The trial court held that the consignation made by petitioner
Leao in the amount of P18,000.00 did not produce any legal
effect as the same was not done in accordance with Articles
1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leao appealed the decision to the Court of
Appeals.24 On January 22, 1997, Court of Appeals promulgated a
decision affirming that of the Regional Trial Court in toto.25 On
February 11, 1997, petitioner Leao filed a motion for
reconsideration.26 On April 18, 1997, the Court of Appeals denied
the motion.27

Hence, this petition.28

The Issues
The issues to be resolved in this petition for review are (1)
whether the transaction between the parties in an absolute sale
or a conditional sale; (2) whether there was a proper cancellation
of the contract to sell; and (3) whether petitioner was in delay in
the payment of the monthly amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction between
the parties was a conditional sale not an absolute sale. The
intention of the parties was to reserve the ownership of the land
in the seller until the buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and
conveyance "subject to conditions" set forth in the contract to
sell.29
Second, what was transferred was the possession of the
property, not ownership. The possession is even limited by the
following: (1) that the vendee may continue therewith "as long as
the VENDEE complies with all the terms and conditions
mentioned, and (2) that the buyer may not sell, cede, assign,
transfer or mortgage or in any way encumber any right, interest
or equity that she may have or acquire in and to the said parcel
of land nor to lease or to sublease it or give possession to
another person without the written consent of the seller.30
Finally, the ownership of the lot was not transferred to Carmelita
Leao. As the land is covered by a torrens title, the act of
registration of the deed of sale was the operative act that could
transfer ownership over the lot.31 There is not even a deed that
could be registered since the contract provides that the seller will
execute such a deed "upon complete payment by the VENDEE
of the total purchase price of the property" with the stipulated
interest.32
In a contract to sell real property on installments, the full
payment of the purchase price is a positive suspensive condition,
the failure of which is not considered a breach, casual or serious,
but simply an event that prevented the obligation of the vendor to
convey title from acquiring any obligatory force.33 The transfer of
ownership and title would occur after full payment of the price.34
In the case at bar, petitioner Leao's non-payment of the
installments after April 1, 1989, prevented the obligation of
respondent Fernando to convey the property from arising. In fact,
it brought into effect the provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592 of the Civil
Code is inapplicable to the case at bar.35 However, any attempt
to cancel the contract to sell would have to comply with the
provisions of Republic Act No. 6552, the "Realty Installment
Buyer Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller
to cancel the contract upon non-payment of an installment by the

buyer, which is simply an event that prevents the obligation of

the vendor to convey title from acquiring binding force.36 The law
also provides for the rights of the buyer in case of cancellation.
Thus, Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to fifty percent of the total payments made and, after
five years of installments, an additional five percent every year
but not to exceed ninety percent of the total payment
made: Provided, Thatthe actual cancellation of the contract shall
take place after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to
the buyer." [Emphasis supplied]
The decision in the ejectment case37 operated as the notice of
cancellation required by Sec. 3(b). As petitioner Leao was not
given then cash surrender value of the payments that she made,
there was still no actual cancellation of the contract.
Consequently, petitioner Leao may still reinstate the contract by
updating the account during the grace period and before actual
cancellation.38
Should petitioner Leao wish to reinstate the contract, she would
have to update her accounts with respondent Fernando in
accordance with the statement of account39 which amount was
P183,687.00.40
On the issue of whether petitioner Leao was in delay in paying
the amortizations, we rule that while the contract provided that
the total purchase price was payable within a ten-year period,
the same contract specified that the purchase price shall be paid
in monthly installments for which the corresponding penalty shall
be imposed in case of default. Petitioner Leao cannot ignore
the provision on the payment of monthly installments by claiming
that the ten-year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins.1wphi1.nt
In the case at bar, respondent Fernando performed his part of
the obligation by allowing petitioner Leao to continue in
possession and use of the property. Clearly, when petitioner
Leao did not pay the monthly amortizations in accordance with
the terms of the contract, she was in delay and liable for
damages.41 However, we agree with the trial court that the default
committed by petitioner Leao in respect of the obligation could
be compensated by the interest and surcharges imposed upon
her under the contract in question.42
It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulation shall control.43 Thus, as there is no ambiguity in the

language of the contract, there is no room for construction, only

compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition and AFFIRM the
decision of the Court of Appeals44 in toto.
No costs.
SO ORDERED.
Davide, Jr., Puno, Kapunan, and Ynares-Santiago, JJ., concur.
SECOND DIVISION
[G.R. No. 127695. December 3, 2001]
HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS,
ROQUE R. BACUS, SR., SATURNINO R. BACUS, PRISCILA
VDA. DE CABANERO, CARMELITA B. SUQUIB,
BERNARDITA B. CARDENAS, RAUL R. BACUS, MEDARDO
R. BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS,
FELICISIMA B. JUDICO, and DOMINICIANA B.
TANGAL, petitioners, vs. HON. COURT OF APPEALS and
SPOUSES FAUSTINO DURAY and VICTORIANA
DURAY, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996, of
the Court of Appeals in CA-G.R. CV No. 37566, affirming the
decision dated August 3, 1991, of the Regional Trial Court of
Cebu City, Branch 6, in Civil Case No. CEB-8935.
The facts, as culled from the records, are as follows:
On June 1, 1984, Luis Bacus leased to private respondent
Faustino Duray a parcel of agricultural land in Bulacao, Talisay,
Cebu. Designated as Lot No. 3661-A-3-B-2, it had an area of
3,002 square meters, covered by Transfer Certificate of Title No.
48866. The lease was for six years, ending May 31, 1990. The
contract contained an option to buy clause. Under said option,
the lessee had the exclusive and irrevocable right to buy 2,000
square meters of the property within five years from a year after
the effectivity of the contract, at P200 per square meter. That
rate shall be proportionately adjusted depending on the peso
rate against the US dollar, which at the time of the execution of
the contract was fourteen pesos. [1]
Close to the expiration of the contract, Luis Bacus died on
October 10, 1989. Thereafter, on March 15, 1990, the Duray
spouses informed Roque Bacus, one of the heirs of Luis Bacus,
that they were willing and ready to purchase the property under
the option to buy clause. They requested Roque Bacus to
prepare the necessary documents, such as a Special Power of
Attorney authorizing him to enter into a contract of sale,[2] on
behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the
property, Faustino Durays adverse claim was annotated by the
Register of Deeds of Cebu, at the back of TCT No. 63269,

covering the segregated 2,000 square meter portion of Lot No.

3661-A-3-B-2-A.[3]
Subsequently, on April 5, 1990, Duray filed a complaint for
specific performance against the heirs of Luis Bacus with
the Lupon Tagapamayapa of BarangayBulacao, asking that he
be allowed to purchase the lot specifically referred to in the lease
contract with option to buy. At the hearing, Duray presented a
certification[4] from the manager of Standard Chartered Bank,
Cebu City, addressed to Luis Bacus, stating that at the request of
Mr. Lawrence Glauber, a bank client, arrangements were being
made to allow Faustino Duray to borrow funds of approximately
P700,000 to enable him to meet his obligations under the
contract with Luis Bacus.[5]
Having failed to reach an agreement before the Lupon, on April
27, 1990, private respondents filed a complaint for specific
performance with damages against petitioners before the
Regional Trial Court, praying that the latter, (a) execute a deed of
sale over the subject property in favor of private respondents; (b)
receive the payment of the purchase price; and (c) pay the
damages.
On the other hand, petitioners alleged that before Luis Bacus
death, private respondents conveyed to them the formers lack of
interest to exercise their option because of insufficiency of funds,
but they were surprised to learn of private respondents
demand. In turn, they requested private respondents to pay the
purchase price in full but the latter refused. They further alleged
that private respondents did not deposit the money as required
by the Lupon and instead presented a bank certification which
cannot be deemed legal tender.
On October 30, 1990, private respondents manifested in court
that they caused the issuance of a cashiers check in the amount
of P650,000[6] payable to petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of
private respondents, the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and orders
the defendants to specifically perform their obligation in the
option to buy and to execute a document of sale over the
property covered by Transfer Certificate of Title # T-63269 upon
payment by the plaintiffs to them in the amount of Six Hundred
Seventy-Five Thousand Six Hundred Seventy-Five
(P675,675.00) Pesos within a period of thirty (30) days from the
date this decision becomes final.
SO ORDERED.[7]
Unsatisfied, petitioners appealed to the respondent Court of
Appeals which denied the appeal on November 29, 1996, on the
ground that the private respondents exercised their option to buy
the leased property before the expiration of the contract of
lease. It held:
... After a careful review of the entire records of this case, we are
convinced that the plaintiffs-appellees validly and effectively
exercised their option to buy the subject property. As opined by

the lower court, the readiness and preparedness of the plaintiff

on his part, is manifested by his cautionary letters, the prepared
bank certification long before the date of May 31, 1990, the final
day of the option, and his filing of this suit before said date. If the
plaintiff-appellee Francisco Duray had no intention to purchase
the property, he would not have bothered to write those letters to
the defendant-appellants (which were all received by them) and
neither would he be interested in having his adverse claim
annotated at the back of the T.C.T. of the subject property, two
(2) months before the expiration of the lease. Moreover, he even
went to the extent of seeking the help of the Lupon
Tagapamayapa to compel the defendants-appellants to
recognize his right to purchase the property and for them to
perform their corresponding obligation.[8]
xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby
AFFIRMED.[9]
Hence, this petition where petitioners aver that the Court of
Appeals gravely erred and abused its discretion in:
I. ...UPHOLDING THE TRIAL COURTS RULING IN THE
SPECIFIC PERFORMANCE CASE BY ORDERING
PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE A
DOCUMENT OF SALE OVER THE PROPERTY IN QUESTION
(WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF
P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE
THE DECISION BECOMES FINAL;
II. ...DISREGARDING LEGAL PRINCIPLES, SPECIFIC
PROVISIONS OF LAW AND JURISPRUDENCE IN
UPHOLDING THE DECISION OF THE TRIAL COURT TO THE
EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED
THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE
PRESENTATION OF THE CERTIFICATION OF THE BANK
MANAGER OF A BANK DEPOSIT IN THE NAME OF ANOTHER
PERSON FOR LOAN TO RESPONDENTS WAS EQUIVALENT
TO A VALID TENDER OF PAYMENT AND A SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE
OF THE OPTION TO BUY; AND
III UPHOLDING THE TRIAL COURTS RULING THAT THE
PRESENTATION OF A CASHERS (SIC) CHECK BY THE
RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN
AFTER THE TERMINATION OF THE TRIAL ON THE MERITS
WITH BOTH PARTIES ALREADY HAVING RESTED THEIR
CASE, WAS STILL VALID COMPLIANCE OF THE CONDITION
FOR THE PRIVATE RESPONDENTS (PLAINTIFFS THEREIN)
EXERCISE OF RIGHT OF OPTION TO BUY AND HAD A
FORCE OF VALID AND FULL TENDER OF PAYMENT WITHIN
THE AGREED PERIOD.[10]
Petitioners insist that they cannot be compelled to sell the
disputed property by virtue of the nonfulfillment of the obligation
under the option contract of the private respondents.

Private respondents first aver that petitioners are unclear if Rule

agreement. Consequently, since the obligation was not yet due,
65 or Rule 45 of the Rules of Court govern their petition, and that consignation in court of the purchase price was not yet required.
petitioners only raised questions of facts which this Court cannot Consignation is the act of depositing the thing due with the court
properly entertain in a petition for review. They claim that even
or judicial authorities whenever the creditor cannot accept or
assuming that the instant petition is one under Rule 45, the same refuses to accept payment and it generally requires a prior
must be denied for the Court of Appeals has correctly
tender of payment. In instances, where no debt is due and
determined that they had validly exercised their option to buy the owing, consignation is not proper.[14] Therefore, petitioners
leased property before the contract expired.
contention that private respondents failed to comply with their
In response, petitioners state that private respondents erred in
obligation under the option to buy because they failed to actually
initially classifying the instant petition as one under Rule 65 of
deliver the purchase price or consign it in court before the
the Rules of Court. They argue that the petition is one under
contract expired and before they execute a deed, has no leg to
Rule 45 where errors of the Court of Appeals, whether
stand on.
evidentiary or legal in nature, may be reviewed.
Corollary, private respondents did not incur in delay when they
We agree with private respondents that in a petition for review
did not yet deliver payment nor make a consignation before the
under Rule 45, only questions of law may be raised.[11] However, expiration of the contract. In reciprocal obligations, neither party
a close reading of petitioners arguments reveal the following
incurs in delay if the other does not comply or is not ready to
legal issues which may properly be entertained in the instant
comply in a proper manner with what is incumbent upon
petition:
him. Only from the moment one of the parties fulfills his
a) When private respondents opted to buy the property covered
obligation, does delay by the other begin.[15]
by the lease contract with option to buy, were they already
In this case, private respondents, as early as March 15, 1990,
required to deliver the money or consign it in court before
communicated to petitioners their intention to buy the property
petitioner executes a deed of transfer?
and they were at that time undertaking to meet their obligation
b) Did private respondents incur in delay when they did not
before the expiration of the contract on May 31, 1990. However,
deliver the purchase price or consign it in court on or before the
petitioners refused to execute the deed of sale and it was their
expiration of the contract?
demand to private respondents to first deliver the money before
On the first issue, petitioners contend that private respondents
they would execute the same which prompted private
failed to comply with their obligation because there was neither
respondents to institute a case for specific performance in
actual delivery to them nor consignation in court or with the
the Lupong Tagapamayapa and then in the RTC. On October
Municipal, City or Provincial Treasurer of the purchase price
30, 1990, after the case had been submitted for decision but
before the contract expired. Private respondents bank certificate before the trial court rendered its decision, private respondents
stating that arrangements were being made by the bank to
issued a cashiers check in petitioners favor purportedly to
release P700,000 as a loan to private respondents cannot be
bolster their claim that they were ready to pay the purchase
considered as legal tender that may substitute for delivery of
price. The trial court considered this in private respondents
payment to petitioners nor was it a consignation.
favor and we believe that it rightly did so, because at the time the
Obligations under an option to buy are reciprocal obligations.
check was issued, petitioners had not yet executed a deed of
[12]
The performance of one obligation is conditioned on the
sale nor expressed readiness to do so. Accordingly, as there was
simultaneous fulfillment of the other obligation.[13] In other words, no compliance yet with what was incumbent upon petitioners
in an option to buy, the payment of the purchase price by the
under the option to buy, private respondents had not incurred in
creditor is contingent upon the execution and delivery of a deed
delay when the cashiers check was issued even after the
of sale by the debtor. In this case, when private respondents
contract expired.
opted to buy the property, their obligation was to advise
WHEREFORE, the instant petition is DENIED. The decision
petitioners of their decision and their readiness to pay the
dated November 29, 1996 of the Court of Appeals is hereby
price. They were not yet obliged to make actual payment. Only
AFFIRMED.
upon petitioners actual execution and delivery of the deed of
Costs against petitioners.
sale were they required to pay. As earlier stated, the latter was
SO ORDERED.
contingent upon the former. In Nietes vs. Court of Appeals, 46
SCRA 654 (1972), we held that notice of the creditors decision
MEGAWORLD GLOBUS ASIA, INC.,
G.R. No. 181206
to exercise his option to buy need not be coupled with actual
Petitioner,
payment of the price, so long as this is delivered to the owner of
Present:
the property upon performance of his part of the
CORONA,* J.,

- versus -

MILA S. TANSECO,
Respondent.

CARPIO MORALES,
coup de etat, civil disturbances or for other reasons beyond its
Actingcontrol, the Project may not be completed or it can only be
NACHURA,*** completed at a financial loss to the SELLER. In any event, all
BRION, and construction on or of the Project shall remain the property of the
ABAD, JJ. SELLER. (Underscoring supplied)
Promulgated:

Tanseco paid all installments due up to January, 1998,

October 9, 2009leaving unpaid the balance of P2,520,305.63 pending delivery of
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - the unit.[2] Megaworld, however, failed to deliver the unit within
---- x
the stipulated period on October 31, 1998 or April 30, 1999, the
last day of the six-month grace period.
DECISION
A few days shy of three years later, Megaworld, by notice
CARPIO MORALES, J.:
dated April 23, 2002 (notice of turnover), informed Tanseco that
On July 7, 1995, petitioner Megaworld Globus Asia, Inc.
the unit was ready for inspection preparatory to delivery.
(Megaworld) and respondent Mila S. Tanseco (Tanseco) entered [3] Tanseco replied through counsel, by letter of May 6, 2002,
into a Contract to Buy and Sell[1] a 224 square-meter (more or
that in view of Megaworlds failure to deliver the unit on time, she
less) condominium unit at a pre-selling project, The Salcedo
was demanding the return of P14,281,731.70 representing the
Park, located along Senator Gil Puyat Avenue, Makati City.
total installment payment she had made, with interest at 12% per
annum from April 30, 1999, the expiration of the six-month grace
The purchase price was P16,802,037.32, to be paid as
period. Tanseco pointed out that none of the excepted causes of
follows: (1) 30% less the reservation fee of P100,000,
delay existed.[4]
or P4,940,611.19, by postdated check payable on July 14, 1995;
(2) P9,241,120.50 through 30 equal monthly installments
Her demand having been unheeded, Tanseco filed on
of P308,037.35 from August 14, 1995 to January 14, 1998; and
June 5, 2002 with the Housing and Land Use Regulatory Boards
(3) the balance of P2,520,305.63 on October 31, 1998, the
(HLURB) Expanded National Capital Region Field Office a
stipulated delivery date of the unit; provided that if the
complaint against Megaworld for rescission of contract, refund of
construction is completed earlier, Tanseco would pay the balance payment, and damages.[5]
within seven days from receipt of a notice of turnover.
In its Answer, Megaworld attributed the delay to the 1997
Section 4 of the Contract to Buy and Sell provided for the
Asian financial crisis which was beyond its control; and argued
construction schedule as follows:
that default had not set in, Tanseco not having made any judicial
or extrajudicial demand for delivery before receipt of the notice of
4. CONSTRUCTION SCHEDULE The construction of turnover.[6]
the Project and the unit/s herein purchased shall be completed
and delivered not later than October 31, 1998 with additional
By Decision of May 28, 2003,[7] the HLURB Arbiter
grace period of six (6) months within which to complete the
dismissed Tansecos complaint for lack of cause of action, finding
Project and the unit/s, barring delays due to fire, earthquakes,
that Megaworld had effected delivery by the notice of turnover
the elements, acts of God, war, civil disturbances, strikes or
before Tanseco made a demand. Tanseco was thereupon
other labor disturbances, government and economic controls
ordered to pay Megaworld the balance of the purchase price,
making it, among others, impossible or difficult to obtain the
plus P25,000 as moral damages, P25,000 as exemplary
necessary materials, acts of third person, or any other cause or
damages, and P25,000 as attorneys fees.
conditions beyond the control of the SELLER. In this event, the
completion and delivery of the unit are deemed extended
On appeal by Tanseco, the HLURB Board of
accordingly without liability on the part of the SELLER. The
Commissioners, by Decision of November 28, 2003,[8] sustained
foregoing notwithstanding, the SELLER reserves the right to
the HLURB Arbiters Decision on the ground of laches for failure
withdraw from this transaction and refund to the BUYER without
to demand rescission when the right thereto accrued. It deleted
interest the amounts received from him under this contract if for
the award of damages, however. Tansecos Motion for
any reason not attributable to SELLER, such as but not limited to Reconsideration having been denied,[9] she appealed to the
fire, storms, floods, earthquakes, rebellion, insurrection, wars,
Office of the President which dismissed the appeal by Decision

of April 28, 2006[10] for failure to show that the findings of the
HLURB were tainted with grave abuse of discretion. Her Motion
for Reconsideration having been denied by Resolution dated
August 30, 2006,[11] Tanseco filed a Petition for Review under
Rule 43 with the Court of Appeals.[12]
By Decision of September 28, 2007,[13] the appellate court
granted Tansecos petition, disposing thus:
WHEREFORE, premises considered, petition is
hereby GRANTED and the assailed May 28, 2003 decision of
the HLURB Field Office, the November 28, 2003 decision of the
HLURB Board of Commissioners in HLURB Case No. REM-A030711-0162, the April 28, 2006 Decision andAugust 30,
2006 Resolution of the Office of the President in O.P. Case No.
05-I-318, are hereby REVERSED and SET ASIDE and a new
one entered: (1) RESCINDING, as prayed for by TANSECO, the
aggrieved party, the contract to buy and sell;
(2) DIRECTING MEGAWORLD TO PAY TANSECO the amount
she had paid totaling P14,281,731.70 with Twelve (12%) Percent
interest per annum from October 31, 1998;
(3)ORDERING MEGAWORLD TO PAY TANSECO P200,000.00
by way of exemplary damages;
(4) ORDERING MEGAWORLD TO PAYTANSECO P200,000.00
as attorneys fees; and (5) ORDERING MEGAWORLD TO
PAY TANSECO the cost of suit. (Emphasis in the
original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil
Code, no judicial or extrajudicial demand is needed to put the
obligor in default if the contract, as in the herein parties
contract, states the date when the obligation should be
performed; that time was of the essence because Tanseco relied
on Megaworlds promise of timely delivery when she agreed to
part with her money; that the delay should bereckoned from
October 31, 1998, there being no force majeure to warrant the
application of the April 30, 1999 alternative date; and that
specific performance could not be ordered in lieu of rescission as
the right to choose the remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages on a
finding of bad faith on the part of Megaworld in forcing her to
accept its long-delayed delivery; and attorneys fees, she having
been compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by
Resolution of January 8, 2008,[14] Megaworld filed the present
Petition for Review on Certiorari, echoing its position before the
HLURB, adding that Tanseco had not shown any basis for the
award of damages and attorneys fees.[15]

Tanseco, on the other hand, maintained her position too,

and citing Megaworlds bad faith which became evident when it
insisted on making the delivery despite the long delay,[16] insisted
that she deserved the award of damages and attorneys fees.
Article 1169 of the Civil Code provides:
Art. 1169.
Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1)

When the obligation or the law expressly so declares; or

(2)
When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3)
When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other
begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal
obligations, i.e., to complete and deliver the condominium unit on
October 31, 1998 or six months thereafter on the part of
Megaworld, and to pay the balance of the purchase price at or
about the time of delivery on the part of Tanseco. Compliance by
Megaworld with its obligation is determinative of compliance by
Tanseco with her obligation to pay the balance of the purchase
price. Megaworld having failed to comply with its obligation
under the contract, it is liable therefor.[17]
That Megaworlds sending of a notice of turnover preceded
Tansecos demand for refund does not abate her cause. For
demand would have been useless, Megaworld admittedly having
failed in its obligation to deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or

when it is otherwise declared by stipulation, or when the nature
of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.[18]
The Court cannot generalize the 1997 Asian financial crisis to be
unforeseeable and beyond the control of a business
corporation. A real estate enterprise engaged in the pre-selling
of condominium units is concededly a master in projections on
commodities and currency movements, as well as business
risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, hence, not
an instance of caso fortuito.[19] Megaworlds excuse for its delay
does not thus lie.
As for Megaworlds argument that Tansecos claim is considered
barred by laches on account of her belated demand, it does not
lie too. Laches is a creation of equity and its application is
controlled by equitable considerations.[20] It bears noting that
Tanseco religiously paid all the installments due up to January,
1998, whereas Megaworld reneged on its obligation to deliver
within the stipulated period. A circumspect weighing of equitable
considerations thus tilts the scale of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No. 957[21] which
reads:
Sec. 23. Non-Forfeiture of Payments. - No installment payment
made by a buyer in a subdivision or condominium project for the
lot or unit he contracted to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice to the
owner or developer, desists from further payment due to the
failure of the owner or developer to develop the subdivision or
condominium project according to the approved plans and within
the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amou
nt paid including amortization interestsbut excluding
delinquency
interests, with interest thereon at the legal rate. (Emphasis
and underscoring supplied),

executory, conformably withEastern Shipping Lines, Inc. v. Court

of Appeals.[22]
The award of P200,000 attorneys fees and of costs of suit is in
order too, the parties having stipulated in the Contract to Buy
and Sell that these shall be borne by the losing party in a suit
based thereon,[23] not to mention that Tanseco was compelled to
retain the services of counsel to protect her interest. And so is
the award of exemplary damages. With pre-selling ventures
mushrooming in the metropolis, there is an increasing need to
correct the insidious practice of real estate companies of
proffering all sorts of empty promises to entice innocent buyers
and ensure the profitability of their projects.
The Court finds the appellate courts award of P200,000 as
exemplary damages excessive, however. Exemplary damages
are imposed not to enrich one party or impoverish another but to
serve as a deterrent against or as a negative incentive to curb
socially deleterious actions.[24] The Court finds that P100,000 is
reasonable in this case.
Finally, since Article 1191[25] of the Civil Code does not apply to a
contract to buy and sell, the suspensive condition of full payment
of the purchase price not having occurred to trigger the
obligation to convey title, cancellation, not rescission, of the
contract is thus the correct remedy in the premises.[26]
WHEREFORE, the challenged Decision of the Court of Appeals
is, in light of the foregoing, AFFIRMED with MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the parties
is cancelled. Petitioner, Megaworld Globus Asia, Inc., is directed
to pay respondent, Mila S. Tanseco, the amount
of P14,281,731.70, to bear 6% interest per annum starting May
6, 2002 and 12% interest per annum from the time the judgment
becomes final and executory; and to pay P200,000 attorneys
fees, P100,000 exemplary damages, and costs of suit.
Costs against petitioner.
SO ORDERED.

Tanseco is, as thus prayed for, entitled to be reimbursed the total

amount she paid Megaworld.
While the appellate court correctly awarded P14,281,731.70
then, the interest rate should, however, be 6% per annum
accruing from the date of demand on May 6, 2002, and then
12% per annum from the time this judgment becomes final and

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

GENERAL MILLING CORPORATION,

Petitioner,

- versus -

SPS. LIBRADO RAMOS and REMEDIOS RAMOS,

Respondents.

WHEREAS, the MORTGAGOR/S has/have agreed to

guarantee and secure the full and faithful compliance of
[MORTGAGORS]obligation/s with the MORTGAGEE by a First
Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon,
situated in the Barrio/s of Banaybanay, Municipality of Lipa City,
Province of Batangas, Philippines, his/her/their title/s thereto
being evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the amount of
TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable
within a x x x day term and to secure the payment of the same
plus interest of twelve percent (12%) per annum.

x----------------------------------------------------------------------------------------x
DECISION

Spouses Ramos eventually were unable to settle their account

with GMC. They alleged that they suffered business losses
because of the negligence of GMC and its violation of the
Growers Contract.[3]

VELASCO, JR., J.:

The Case
This is a petition for review of the April 15, 2010 Decision
of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400
entitledSpouses Librado Ramos & Remedios Ramos v. General
Milling Corporation, et al., which affirmed the May 31, 2005
Decision of the Regional Trial Court (RTC), Branch 12 in Lipa
City, in Civil Case No. 00-0129 for Annulment and/or Declaration
of Nullity of Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC)
entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC
was to supply broiler chickens for the spouses to raise on their
land in Barangay Banaybanay,Lipa City, Batangas.[1] To
guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece of
real property upon which their conjugal home was built. The
spouses further agreed to put up a surety bond at the rate of
PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of
Real Estate Mortgage extended to Spouses Ramos a maximum
credit line of PhP 215,000 payable within an indefinite period
with an interest of twelve percent (12%) per annum.[2]
The Deed of Real Estate Mortgage contained the following
provision:

On March 31, 1997, the counsel for GMC notified Spouses

Ramos that GMC would institute foreclosure proceedings on
their mortgaged property.[4]
On May 7, 1997, GMC filed a Petition for Extrajudicial
Foreclosure of Mortgage. On June 10, 1997, the property subject
of the foreclosure was subsequently sold by public auction to
GMC after the required posting and publication.[5] It was
foreclosed for PhP 935,882,075, an amount representing the
losses on chicks and feeds exclusive of interest at 12% per
annum and attorneys fees.[6] To complicate matters, on October
27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations.[7]
On March 3, 2000, Spouses Ramos filed a Complaint for
Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the
extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of
posting and publication of notices under Act No. 3135, as
amended, or An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriffs
affidavit to prove compliance with the requirements on posting
and publication of notices. It was further alleged that the Deed of
Real Estate Mortgage had no fixed term. A prayer for moral and
exemplary damages and attorneys fees was also included in the
complaint.[8] Librado Ramos alleged that, when the property was
foreclosed, GMC did not notify him at all of the foreclosure.[9]

During the trial, the parties agreed to limit the issues to the
following: (1) the validity of the Deed of Real Estate Mortgage;
(2) the validity of the extrajudicial foreclosure; and (3) the party
liable for damages.[10]
In its Answer, GMC argued that it repeatedly reminded
Spouses Ramos of their liabilities under the Growers Contract. It
argued that it was compelled to foreclose the mortgage because
of Spouses Ramos failure to pay their obligation. GMC insisted
that it had observed all the requirements of posting and
publication of notices under Act No. 3135.[11]

3.
Defendant-corporation General Milling Corporation
is ordered to pay Spouses Librado and Remedios Ramos
attorneys fees in the total amount of P 57,000.00 representing
acceptance fee of P30,000.00 and P3,000.00 appearance fee for
nine (9) trial dates or a total appearance fee of P 27,000.00;
4.
The claims for moral and exemplary damages are
denied for lack of merit.
IT IS SO ORDERED.[13]
The Ruling of the Appellate Court

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled
that the Deed of Real Estate Mortgage was valid even if its term
was not fixed. Since the duration of the term was made to
depend exclusively upon the will of the debtors-spouses, the trial
court cited jurisprudence and said that the obligation is not due
and payable until an action is commenced by the mortgagee
against the mortgagor for the purpose of having the court fix the
date on and after which the instrument is payable and the date of
maturity is fixed in pursuance thereto.[12]
The trial court held that the action of GMC in moving for
the foreclosure of the spouses properties was premature,
because the latters obligation under their contract was not yet
due.
The trial court awarded attorneys fees because of the
premature action taken by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the spouses became due.

The RTC ruled, thus:

On appeal, GMC argued that the trial court erred in: (1)
declaring the extrajudicial foreclosure proceedings null and void;
(2) ordering GMC to pay Spouses Ramos attorneys fees; and
(3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but
anchored its ruling on a different ground. Contrary to the findings
of the trial court, the CA ruled that the requirements of posting
and publication of notices under Act No. 3135 were complied
with. The CA, however, still found that GMCs action against
Spouses Ramos was premature, as they were not in default
when the action was filed on May 7, 1997.[14]

The CA ruled:
In this case, a careful scrutiny of the evidence on record
shows that defendant-appellant GMC made no demand to
spouses Ramos for the full payment of their obligation. While it
was alleged in the Answer as well as in the Affidavit constituting
the direct testimony of Joseph Dominise, the principal witness of
defendant-appellant GMC, that demands were sent to spouses
Ramos, the documentary evidence proves otherwise. A perusal
of the letters presented and offered as evidence by defendantappellant GMC did not demand but only request spouses
Ramos to go to the office of GMC to discuss the settlement of
their account.[15]

WHEREFORE, premises considered, judgment is

rendered as follows:
1.
The Extra-Judicial Foreclosure Proceedings under
docket no. 0107-97 is hereby declared null and void;
2.
The Deed of Real Estate Mortgage is hereby declared
valid and legal for all intents and puposes;

According to the CA, however, the RTC erroneously

awarded attorneys fees to Spouses Ramos, since the
presumption of good faith on the part of GMC was not
overturned.
The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing

considerations, the Decision of
the Regional Trial Court of Lipa City, Branch 12, dated May 21,
2005 is hereby AFFIRMED with MODIFICATION by deleting the
award of attorneys fees to plaintiffs-appellees spouses Librado
Ramos and Remedios Ramos.[16]

(b) Matters not assigned as errors on appeal but are evidently

plain or clerical errors within contemplation of law;

Hence, We have this appeal.

(d) Matters not specifically assigned as errors on appeal but

raised in the trial court and are matters of record having some
bearing on the issue submitted which the parties failed to raise or
which the lower court ignored;

The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT
ALLEGED AND DISCUSSED IN THE LOWER COURT AND
LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD
WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT
PETITIONER GMC MADE NO DEMAND TO RESPONDENT
SPOUSES FOR THE FULL PAYMENT OF THEIR OBLIGATION
CONSIDERING THAT THE LETTER DATED MARCH 31, 1997
OF PETITIONER GMC TO RESPONDENT SPOUSES IS
TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS.[17]
The Ruling of this Court

(c) Matters not assigned as errors on appeal but consideration of

which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of a justice or to
avoid dispensing piecemeal justice;

(e) Matters not assigned as errors on appeal but closely related

to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there
would be a just and complete resolution of the appeal if there is a
ruling on whether the Spouses Ramos were actually in default of
their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC
asserts error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the
contrary, it claims that its March 31, 1997 letter is akin to a
demand.

Can the CA consider matters not alleged?

We disagree.
GMC asserts that since the issue on the existence of the
demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair
play, justice, and due process.[18]
In their Comment,[19] respondents-spouses aver that the
CA has ample authority to rule on matters not assigned as errors
on appeal if these are indispensable or necessary to the just
resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,
We explained that an appellate court has a broad
discretionary power in waiving the lack of assignment of errors in
the following instances:
[20]

(a) Grounds not assigned as errors but affecting the jurisdiction

of the court over the subject matter;

There are three requisites necessary for a finding of

default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtors
performance.[21]
According to the CA, GMC did not make a demand on
Spouses Ramos but merely requested them to go to GMCs
office to discuss the settlement of their account. In spite of the
lack of demand made on the spouses, however, GMC proceeded
with the foreclosure proceedings. Neither was there any
provision in the Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the

following:

Manila

Those obliged to deliver or to do something incur in delay

from the time the obligee judicially or extrajudicially demands
from them the fulfilment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:

THIRD DIVISION

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such
provision on demand not being necessary for delay to exist,
We agree with the appellate court that GMC should have first
made a demand on the spouses before proceeding to foreclose
the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds
application to the instant case:
The issue of whether demand was made before the foreclosure
was effected is essential. If demand was made and duly received
by the respondents and the latter still did not pay, then they were
already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due
and demandable. This meant that respondents had not defaulted
in their payments and the foreclosure by petitioner was
premature. Foreclosure is valid only when the debtor is in
default in the payment of his obligation.[22]
In turn, whether or not demand was made is a question of
fact.[23] This petition filed under Rule 45 of the Rules of Court
shall raise only questions of law. For a question to be one of law,
it must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law provides
on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is
one of fact.[24] It need not be reiterated that this Court is not a
trier of facts.[25] We will defer to the factual findings of the trial
court, because petitioner GMC has not shown any
circumstances making this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CAG.R. CR-H.C. No. 85400 is AFFIRMED.
SO ORDERED.
Republic of the Philippines
Supreme Court

R.S. Tomas, Inc. v. Rizal Cement Co

x---------------------------------------------- - - - -x
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of
the Rules of Court filed by petitioner R.S. Tomas, Inc. against
respondent Rizal Cement Company, Inc. assailing the Court of
Appeals (CA) Decision[1] dated December 19, 2005 and
Resolution[2] dated June 6, 2006 in CA-G.R. CV No. 61049. The
assailed decision reversed and set aside the Regional Trial
Court[3] (RTC) Decision[4] dated June 5, 1998 in Civil Case No.
92-1562.
The facts of the case, as culled from the records, are as
follows:
On December 28, 1990, respondent and petitioner entered
into a Contract[5] for the supply of labor, materials, and technical
supervision of the following projects:
1. J.O. #P-90-212 Wiring and installation of primary and
secondary lines system.
2. J.O. #P-90-213 Supply and installation of primary
protection and disconnecting switch.
3. J.O. #P-90-214 Rewinding and conversion of one (1) unit
3125 KVA, 34.5 KV/2.4 KV, 3 Transformer to 4000 KVA, 34.5
KV/480V, 3 Delta Primary, Wye with neutral secondary.[6]
Petitioner agreed to perform the above-mentioned job orders.
Specifically, it undertook to supply the labor, equipment,
supervision, and materials as specified in the detailed scope of
work.[7] For its part, respondent agreed to pay the total sum
of P2,944,000.00 in consideration of the performance of the job
orders. Petitioner undertook to complete the projects within one
hundred twenty (120) days from the effectivity of the contract.[8] It

was agreed upon that petitioner would be liable to respondent for

liquidated damages in the amount ofP29,440.00 per day of delay
in the completion of the projects which shall be limited to 10% of
the project cost.[9] To secure the full and faithful performance of
all its obligations and responsibilities under the contract,
petitioner obtained from Times Surety & Insurance Co. Inc.
(Times Insurance) a performance bond[10] in an amount
equivalent to fifty percent (50%) of the contract price
or P1,458,618.18. Pursuant to the terms of the contract,
respondent made an initial payment of P1,458,618.18 on
January 8, 1991.[11]
In a letter[12] dated March 9, 1991, petitioner requested for an
extension of seventy-five (75) days within which to complete the
projects because of the need to import some of the materials
needed. In the same letter, it also asked for a price adjustment
of P255,000.00 to cover the higher cost of materials.[13] In
another letter[14] dated March 27, 1991, petitioner requested for
another 75 days extension for the completion of the transformer
portion of the projects for failure of its supplier to deliver the
materials.
On June 14, 1991,[15] petitioner manifested its desire to complete
the project as soon as possible to prevent further losses and
maintain goodwill between the companies. Petitioner requested
for respondents assistance by facilitating the acquisition of
materials and supplies needed to complete J.O. #P-90-212 and
J.O. #P-90-213 by directly paying the suppliers. It further sought
that it be allowed to back out from J.O. #P-90-214 covering the
rewinding and conversion of the damaged transformer.
In response[16] to petitioners requests, respondent, through
counsel, manifested its observation that petitioners financial
status showed that it could no longer complete the projects as
agreed upon. Respondent also informed petitioner that it was
already in default having failed to complete the projects within
120 days from the effectivity of the contract. Respondent further
notified petitioner that the former was terminating the contract. It
also demanded for the refund of the amount already paid to
petitioner, otherwise, the necessary action would be instituted.
Respondent sent another demand letter[17] to Times Insurance for
the payment of P1,472,000.00 pursuant to the performance bond
it issued.
On November 14, 1991,[18] respondent entered into two contracts
with Geostar Philippines, Inc. (Geostar) for the completion of the
projects commenced but not completed by petitioner for a total
consideration of P3,435,000.00.
On December 14, 1991, petitioner reiterated its desire to
complete J.O. #P-90-212 and J.O. #P-90-213 and to exclude
J.O. #P-90-214,[19] but the same was denied by respondent in a

letter[20] dated January 14, 1992. In the same letter, respondent

pointed out that amicable settlement is impossible. Hence,
the Complaint for Sum of Money[21] filed by respondent against
petitioner and Times Surety & Insurance Co., Inc. praying for the
payment of the following: P493,695.00 representing the amount
which they owed respondent from the downpayment and
advances made by the latter vis--vis the work
accomplishment; P2,550,945.87 representing the amount
incurred in excess of the cost of the projects as agreed
upon; P294,000.00 as liquidated damages; plus interest and
attorneys fees.[22]
Times Insurance did not file any pleading nor appeared in court.
For its part, petitioner denied[23] liability and claimed instead that
it failed to complete the projects due to respondents fault. It
explained that it relied in good faith on respondents
representation that the transformer subject of the contract could
still be rewound and converted but upon dismantling the core-coil
assembly, it discovered that the coils were already badly
damaged and the primary bushing broken. This discovery
allegedly entailed price adjustment. Petitioner thus requested
respondent for additional time within which to complete the
project and additional amount to finance the same. Petitioner
also insisted that the proximate cause of the delay is the
misrepresentation of the respondent on the extent of the defect
of the transformer.
After the presentation of the parties respective evidence, the
RTC rendered a decision on June 5, 1998 in favor of petitioner,
the dispositive portion of which reads:
Wherefore, finding defendant-contractors evidence more
preponderant than that of the plaintiff, judgment is hereby
rendered in favor of the defendant-contractor against the plaintiff
and hereby orders:
(1) that the instant case be DISMISSED;
(2) that plaintiff pays defendant the amount of P4,000,000.00;
for moral and exemplary & other damages;
(3) P100,000.00 for attorneys fees and cost of suit.
SO ORDERED.[24]
The RTC held that the failure of petitioner to complete the
projects was not solely due to its fault but more on respondents
misrepresentation and bad faith.[25] Therefore, the Court
dismissed respondents complaint. Since respondent was found

to have committed deceit in its dealings with petitioner, the court

awarded damages in favor of the latter.[26]
Respondent, however, successfully obtained a favorable
decision when its appeal was granted by the CA. The appellate
court reversed and set aside the RTC decision and awarded
respondent P493,695.34 for the excess payment made to
petitioner, P508,510.00 for the amount spent in contracting
Geostar and P294,400.00 as liquidated damages.[27] Contrary to
the conclusion of the RTC, the CA found that petitioner failed to
prove that respondent made fraudulent misrepresentation to
induce the former to enter into the contract. It further held that
petitioner was given the opportunity to inspect the transformer
before offering its bid. [28] This being so, the CA added that
petitioners failure to avail of such opportunity is inexcusable,
considering that it is a company engaged in the electrical
business and the contract involved a sizable amount of money.
[29]
As to the condition of the subject transformer unit, the
appellate court found the testimony of petitioners president
insufficient to prove that the same could no longer be rewound or
converted.[30] Considering that advance payments had been
made to petitioner, the court deemed it necessary to require it to
return to respondent the excess amounts, vis--vis its actual
accomplishment.[31] In addition to the refund of the excess
payment, the CA also ordered the reimbursement of what
respondent paid to Geostar for the unfinished projects of
petitioner as well as the payment of liquidated damages as
stipulated in the contract.[32]
Aggrieved, petitioner comes before the Court in this petition for
review on certiorari under Rule 45 of the Rules of Court raising
the following issues: (1) whether or not respondent was guilty of
fraud or misrepresentation as to the actual condition of the
transformer subject of the contract;[33] (2) whether or not the
evidence presented by petitioner adequately established the true
nature and condition of the subject transformer;[34] (3) whether or
not petitioner is guilty of inexcusable delay in the completion of
the projects;[35] (4) whether or not petitioner is liable for
liquidated damages;[36] and (5) whether or not petitioner is liable
for the cost of the contract between respondent and Geostar.[37]

misrepresentation and fraud committed by respondent as to the

true nature of the subject transformer. The trial court found that
respondent indeed failed to inform petitioner of the true condition
of the transformer which amounted to fraud thereby justifying the
latters failure to complete the projects. The CA, however, had a
different conclusion and decided in favor of respondent.
Ultimately, the issue before us is whether or not there was
breach of contract which essentially is a factual matter not
usually reviewable in a petition filed under Rule 45.[40]
In resolving the issues, the Court inquires into the probative
value of the evidence presented before the trial court.
[41]
Petitioner, indeed, endeavors to convince us to determine
once again the weight, credence, and probative value of the
evidence presented before the trial court.[42] While in general, the
findings of fact of the CA are final and conclusive and cannot be
reviewed on appeal to the Court because it is not a trier of facts,
[43]
there are recognized exceptions[44] as when the findings of
fact are conflicting, which is obtaining in this case. The conflicting
conclusions of the trial and appellate courts impel us to reexamine the evidence presented.
After a thorough review of the records of the case, we find no
reason to depart from the conclusions of the CA.
It is undisputed that petitioner and respondent entered into a
contract for the supply of labor, materials, and technical
supervision primarily for the rewinding and conversion of one (1)
unit of transformer and related works aimed at providing the
power needs of respondent. As agreed upon by the parties, the
projects were to be completed within 120 days from the
effectivity of the contract. Admittedly, however, respondent failed,
not only to perform its part of the contract on time but, in fact, to
complete the projects. Petitioner tried to exempt itself from the
consequences of said breach by passing the fault to respondent.
It explained that its failure to complete the project was due to the
misrepresentation of the respondent. It claimed that more time
and money were needed, because the condition of the subject
transformer was worse than the representations of respondent.
Is this defense tenable?
We answer in the negative.

The petition is without merit.

The case stemmed from an action for sum of money or damages
arising from breach of contract. The contract involved in this
case refers to the rewinding and conversion of one unit of
transformer to be installed and energized to supply respondents
power requirements.[38] This project was embodied in three (3)
job orders, all of which were awarded to petitioner who
represented itself to be capable, competent, and duly licensed to
handle the projects.[39] Petitioner, however, failed to complete the
projects within the agreed period allegedly because of

Records show that petitioner indeed asked for price adjustment

and extension of time within which to complete the projects. In its
letter[45] dated March 9, 1991, petitioner anchored its request for
extension on the following grounds:
1.
To maximize the existing 3125 KVA to 4000 KVA
capacity using the same core, we will replace the secondary
windings from rectangular type to copper sheet which is more
accurate in winding to the required number of turns than using

parallel rectangular or circular type of copper magnet wires.

However, these copper sheets are not readily available locally in
volume quantities, and therefore, we will be importing this
material and it will take 60 days minimum time for its delivery.
2.
We also find it difficult to source locally the
replacement for the damaged high voltage bushing.
3.
The delivery of power cable no. 2/0 will also be
delayed. This will take 90 days to deliver from January 1991.[46]
Also in its letter[47] dated March 27, 1991, petitioner informed
respondent that the projects would be completed within the
contract time table but explained that the delivery of the
transformer would only be delayed. The reasons advanced by
petitioner to justify the delay are as follows:
1. Our supplier for copper sheets cannot complete the
delivery until April 30, 1991.
2. Importation of HV Bushing will take approximately 45 days
delivery per advice of our supplier. x x x[48]
Clearly, in the above letters, petitioner justified its inability to
complete the projects within the stipulated period on the alleged
unavailability of the materials to be used to perform the projects
as stated in the job orders. Nowhere in said letters did petitioner
claim that it could not finish the projects, particularly the
conversion of the transformer unit because the defects were
worse than the representation of respondent. In other words,
there was no allegation of fraud, bad faith, concealment or
misrepresentation on the part of respondent as to the true
condition of the subject transformer. Even in its letter[49] dated
May 25, 1991, petitioner only requested respondent that
payment to the first progress billing be released as soon as
possible and without deduction. It further proposed that
respondent make a direct payment to petitioners suppliers.
It was only in its June 14, 1991 letter[50] when petitioner raised its
observations that the subject transformer needed more repairs
than what it knew during the bidding. [51] In the same letter,
however, petitioner repeated its request that direct payment be
made by respondent to petitioners suppliers.[52] More
importantly, petitioner admitted that it made a judgment error
when it quoted for only P440,770.00 for the contract relating to
J.O. #P-90-214 based on limited information.
It can be inferred from the foregoing facts that there was
not only a delay but a failure to complete the projects as stated in

the contract; that petitioner could not complete the projects

because it did not have the materials needed; and that it is in
need of financial assistance.
As the Court sees it, the bid submitted by petitioner may
have been sufficient to be declared the winner but it failed to
anticipate all expenses necessary to complete the
projects. [53] When it incurred expenses it failed to foresee, it
began requesting for price adjustment to cover the cost of high
voltage bushing and difference in cost of copper sheet and
rectangular wire.[54] However, the scope of work presented by
respondent specifically stated that the wires to be used shall be
pure copper and that there was a need to supply new bushings
for the complete rewinding and conversion of 3125 KVA to 4 MVA
Transformer.[55] In other words, petitioner was aware that there
was a need for complete replacement of windings to copper and
of secondary bushings. [56] It is, therefore, improper for petitioner
to ask for additional amount to answer for the expenses that
were already part and parcel of the undertaking it was bound to
perform. For petitioner, the contract entered into may have
turned out to be an unwise investment, but there is no one to
blame but petitioner for plunging into an undertaking without fully
studying it in its entirety.[57]
The Court likewise notes that petitioner repeatedly asked for
extension allegedly because it needed to import the materials
and that the same could not be delivered on time. Petitioner also
repeatedly requested that respondent make a direct payment to
the suppliers notwithstanding the fact that it contracted with
respondent for the supply of labor, materials, and technical
supervision. It is, therefore, expected that petitioner would be
responsible in paying its suppliers because respondent is not
privy to their (petitioner and its suppliers) contract. This is
especially true in this case since respondent had already made
advance payments to petitioner. It appears, therefore, that in
offering its bid, the source and cost of materials were not
seriously taken into consideration. It appears, further, that
petitioner had a hard time in fulfilling its obligations under the
contract that is why it asked for financial assistance from
respondent. This is contrary to petitioners representation that it
was capable, competent, and duly licensed to handle the
projects.
As to the alleged damaged condition of the subject transformer,
we quote with approval the CA conclusion in this wise:
In the same vein, We cannot readily accept the testimony of
Tomas that the transformer unit was severely damaged and was
beyond repair as it was not substantiated with any other
evidence. R.S. Tomas could have presented an independent
expert witness whose opinion may corroborate its stance that the

transformer unit was indeed incapable of being restored. To our

mind, the testimony of Tomas is self-serving as it is easy to
concoct, yet difficult to verify.[58]
This lack of evidence, coupled with petitioners failure to raise the
same at the earliest opportunity, belies petitioners claim that it
could not complete the projects because the subject transformer
could no longer be repaired.
Assuming for the sake of argument that the subject
transformer was indeed in a damaged condition even before the
bidding which makes it impossible for petitioner to perform its
obligations under the contract, we also agree with the CA that
petitioner failed to prove that respondent was guilty of bad faith,
fraud, deceit or misrepresentation.
Bad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known duty through
some motive or interest or ill will that partakes of the nature of
fraud.[59] Fraud has been defined to include an inducement
through insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose. Deceit
exists where the party, with intent to deceive, conceals or omits
to state material facts and, by reason of such omission or
concealment, the other party was induced to give consent that
would not otherwise have been given.[60] These are allegations of
fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked,
and that is why they are never presumed.[61] In this case, the
evidence presented is insufficient to prove that respondent acted
in bad faith or fraudulently in dealing with petitioner.
Petitioner in fact admitted that its representatives were given the
opportunity to inspect the subject transformer before it offered its
bid. If indeed the transformer was completely sealed, it should
have demanded that the same be opened if it found it necessary
before it offered its bid. As contractor, petitioner had been remiss
in its obligation to obtain as much information as possible on the
actual condition of the subject transformer or at least it should
have provided a qualification in its bid so as to make clear its
right to claim contract price and time adjustment.[62] As aptly held
by the CA, considering that petitioner is a company engaged in
the electrical business and the contract it had entered into
involved a sizable amount of money, its failure to conduct an
inspection of the subject transformer is inexcusable.[63]
In sum, the evidence presented by the parties lead to the
following conclusions: (1) that the projects were not completed
by petitioner; (2) that petitioner was given the opportunity to
inspect the subject transformer; (3) that petitioner failed to

thoroughly study the entirety of the projects before it offered its

bid; (4) that petitioner failed to complete the projects because of
the unavailability of the required materials and that petitioner
needed financial assistance; (5) that the evidence presented by
petitioner were inadequate to prove that the subject transformer
could no longer be repaired; and (6) that there was no evidence
to show that respondent was in bad faith, acted fraudulently, or
guilty of deceit and misrepresentation in dealing with petitioner.
In view of the foregoing disquisitions, we find that there was not
only delay but non-completion of the projects undertaken by
petitioner without justifiable ground. Undoubtedly, petitioner is
guilty of breach of contract. Breach of contract is defined as the
failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to
perform any promise which forms the whole or part of the
contract.[64] In the present case, petitioner did not complete the
projects. This gives respondent the right to terminate the contract
by serving petitioner a written notice. The contract specifically
stated that it may be terminated for any of the following causes:
1. Violation by Contractor of the terms and conditions of this
Contract;
2. Non-completion of the Work within the time agreed upon,
or upon the expiration of extension agreed upon;
3. Institution of insolvency or receivership proceedings
involving Contractor; and
4.

Other causes provided by law applicable to this contract.[65]

Consequently, and pursuant to the agreement of the parties,

[66]
petitioner is liable for liquidated damages in the amount
of P29,440.00 per day of delay, which shall be limited to a
maximum of 10% of the project cost or P294,400.00. In this
case, petitioner bound itself to complete the projects within 120
days from December 29, 1990. However, petitioner failed to fulfill
the same prompting respondent to engage the services of
another contractor on November 14, 1991. Thus, despite the
lapse of eleven months from the time of the effectivity of the
contract entered into between respondent and petitioner, the
latter had not completed the projects. Undoubtedly, petitioner
may be held to answer for liquidated damages in its maximum
amount which is 10% of the contract price. While we have
reduced the amount of liquidated damages in some cases,
[67]
because of partial fulfillment of the contract and/or the amount
is unconscionable, we do not find the same to be applicable in
this case. It must be recalled that the contract entered into by
petitioner consists of three projects, all of which were not

completed by petitioner. Moreover, the percentage of work

accomplishment was not adequately shown by petitioner. Hence,
we apply the general rule not to ignore the freedom of the parties
to agree on such terms and conditions as they see fit as long as
they are not contrary to law, morals, good customs, public order
or public policy.[68] Thus, as agreed upon by the parties, we apply
the 10% liquidated damages.
Considering that petitioner was already in delay and in
breach of contract, it is liable for damages that are the natural
and probable consequences of its breach of obligation.[69] Since
advanced payments had been made by respondent, petitioner is
bound to return the excessvis--vis its work accomplishments. In
order to finish the projects, respondent had to contract the
services of another contractor. We, therefore, find no reason to
depart from the CA conclusion requiring the return of the excess
payments as well as the payment of the cost of contracting
Geostar, in addition to liquidated damages.[70]
WHEREFORE, premises considered, the petition is
hereby DENIED. The Court of Appeals Decision dated
December 19, 2005 and Resolution dated June 6, 2006 in CAG.R. CV No. 61049 are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191431
March 13, 2013
RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,
vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed
under Rule 45 of the Rules of Court, assailing the
decision2 dated July 30, 2009 and the resolution3 dated February
19, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86083.
The CA rulings affirmed with modification the decision dated
September 27, 2004 of the Regional Trial Court (RTC) of Bacoor,
Cavite, Branch 19, in Civil Case No. BCV-99-146 which granted
respondent Atty. Delfin Grupes claim for payment of sum of
money against petitioners Rodolfo G. Cruz and Esperanza
Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24,
1999, when the mini bus owned and operated by Cruz and
driven by one Arturo Davin collided with the Toyota Corolla car of
Gruspe; Gruspes car was a total wreck. The next day, on

October 25, 1999, Cruz, along with Leonardo Q. Ibias went to

Gruspes office, apologized for the incident, and executed a Joint
Affidavit of Undertaking promising jointly and severally to replace
the Gruspes damaged car in 20 days, or until November 15,
1999, of the same model and of at least the same quality; or,
alternatively, they would pay the cost of Gruspes car amounting
to P350,000.00, with interest at
12% per month for any delayed payment after November 15,
1999, until fully paid.5 When Cruz and Leonardo failed to comply
with their undertaking, Gruspe filed a complaint for collection of
sum of money against them on November 19, 1999 before the
RTC.
In their answer, Cruz and Leonardo denied Gruspes allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon,
without explaining and informing them of its contents; Cruz
affixed his signature so that his mini bus could be released as it
was his only means of income; Leonardo, a barangay official,
accompanied Cruz to Gruspes office for the release of the mini
bus, but was also deceived into signing the Joint Affidavit of
Undertaking.
Leonardo died during the pendency of the case and was
substituted by his widow, Esperanza. Meanwhile, Gruspe sold
the wrecked car for P130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor
of Gruspe and ordered Cruz and Leonardo to
payP220,000.00,6 plus 15% per annum from November 15, 1999
until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the
interest rate to 12% per annum pursuant to the Joint Affidavit of
Undertaking.7 It declared that despite its title, the Joint Affidavit of
Undertaking is a contract, as it has all the essential elements of
consent, object certain, and consideration required under Article
1318 of the Civil
Code. The CA further said that Cruz and Leonardo failed to
present evidence to support their contention of vitiated consent.
By signing the Joint Affidavit of Undertaking, they voluntarily
assumed the obligation for the damage they caused to Gruspes
car; Leonardo, who was not a party to the incident, could have
refused to sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza
assail the CA ruling, contending that the Joint Affidavit of
Undertaking is not a contract that can be the basis of an
obligation to pay a sum of money in favor of Gruspe. They
consider an affidavit as different from a contract: an affidavits
purpose is simply to attest to facts that are within his knowledge,
while a contract requires that there be a meeting of the minds
between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a
contract, Cruz and Esperanza claim that it is invalid because

Cruz and Leonardos consent thereto was vitiated; the contract

was prepared by Gruspe who is a lawyer, and its contents were
never explained to them. Moreover, Cruz and Leonardo were
simply forced to affix their signatures, otherwise, the mini van
would not be released.
Also, they claim that prior to the filing of the complaint for sum of
money, Gruspe did not make any demand upon them. Hence,
pursuant to Article 1169 of the Civil Code, they could not be
considered in default. Without this demand, Cruz and Esperanza
contend that Gruspe could not yet take any action.
THE COURTS RULING
The Court finds the petition partly meritorious and accordingly
modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not
conclusive of the nature of its contents.8 In the construction or
interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. If the terms of the document are
clear and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the
words appear to be contrary to the parties evident intention, the
latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking
readily discloses that it contains stipulations characteristic of a
contract. As quoted in the CA decision,10 the Joint Affidavit of
Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same
model and of at least the same quality. In the event that they
cannot replace the car within the same period, they would pay
the cost of Gruspes car in the total amount of P350,000.00, with
interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. These, as read by the CA,
are very simple terms that both Cruz and Leonardo could easily
understand.
There is also no merit to the argument of vitiated
consent.1wphi1 An allegation of vitiated consent must be
proven by preponderance of evidence; Cruz and Leonardo failed
to support their allegation.
Although the undertaking in the affidavit appears to be onerous
and lopsided, this does not necessarily prove the alleged vitiation
of consent. They, in fact, admitted the genuineness and due
execution of the Joint Affidavit and Undertaking when they said
that they signed the same to secure possession of their vehicle.
If they truly believed that the vehicle had been illegally
impounded, they could have refused to sign the Joint Affidavit of
Undertaking and filed a complaint, but they did not. That the
release of their mini bus was conditioned on their signing the

Joint Affidavit of Undertaking does not, by itself, indicate that

their consent was forced they may have given it grudgingly, but
it is not indicative of a vitiated consent that is a ground for the
annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint
Affidavit of Undertaking, the CA did not commit any legal error
that merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is
material in the computation of interest on the amount due. The
RTC ordered Cruz and Leonardo to pay Gruspe "P350,000.00 as
cost of the car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid."11 The 15% interest (later
modified by the CA to be 12%) was computed from November
15, 1999 the date stipulated in the Joint Affidavit of
Undertaking for the payment of the value of Gruspes car. In the
absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a demand has
been made, Cruz and Leonardo could not be said to be in
default.12 "In order that the debtor may be in default, it is
necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially."13 Default generally
begins from the moment the creditor demands the performance
of the obligation. In this case, demand could be considered to
have been made upon the filing of the complaint on November
19, 1999, and it is only from this date that the interest should be
computed.
Although the CA upheld the Joint Affidavit of Undertaking, we
note that it imposed interest rate on a per annum basis, instead
of the per month basis that was stated in the Joint Affidavit of
Undertaking without explaining its reason for doing so.14 Neither
party, however, questioned the change. Nonetheless, the Court
affirms the change in the interest rate from 12% per month to
12% per annum, as we find the interest rate agreed upon in the
Joint Affidavit of Undertaking excessive.15
WHEREFORE, we AFFIRM the decision dated July 30, 2009
and the resolution dated February 19, 2010 of the Court of
Appeals in CA-G.R. CV No. 86083, subject to the Modification
that the twelve percent (12%) per annum interest imposed on the
amount due shall accrue only from November 19, 1999, when
judicial demand was made.
SO ORDERED.

1174 DOCRINE OF FORTOUITOUS EVENT

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55300 March 15, 1990
FRANKLIN G. GACAL and CORAZON M. GACAL, the latter
assisted by her husband, FRANKLIN G. GACAL,petitioners,
vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO
SAMSON C. ANIMAS, in his capacity as PRESIDING JUDGE of
the COURT OF FIRST INSTANCE OF SOUTH COTABATO,
BRANCH I, respondents.
Vicente A. Mirabueno for petitioners.
Siguion Reyna, Montecillo & Ongsiako for private respondent.
PARAS, J.:
This is a, petition for review on certiorari of the decision of the
Court of First Instance of South Cotabato, Branch
1, *promulgated on August 26, 1980 dismissing three (3)
consolidated cases for damages: Civil Case No. 1701, Civil Case
No. 1773 and Civil Case No. 1797 (Rollo, p. 35).
The facts, as found by respondent court, are as follows:
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal,
Bonifacio S. Anislag and his wife, Mansueta L. Anislag, and the
late Elma de Guzman, were then passengers boarding
defendant's BAC 1-11 at Davao Airport for a flight to Manila, not
knowing that on the same flight, Macalinog, Taurac Pendatum
known as Commander Zapata, Nasser Omar, Liling Pusuan
Radia, Dimantong Dimarosing and Mike Randa, all of Marawi
City and members of the Moro National Liberation Front (MNLF),
were their co-passengers, three (3) armed with grenades, two (2)
with .45 caliber pistols, and one with a .22 caliber pistol. Ten (10)
minutes after take off at about 2:30 in the afternoon, the
hijackers brandishing their respective firearms announced the
hijacking of the aircraft and directed its pilot to fly to Libya. With
the pilot explaining to them especially to its leader, Commander
Zapata, of the inherent fuel limitations of the plane and that they
are not rated for international flights, the hijackers directed the
pilot to fly to Sabah. With the same explanation, they relented
and directed the aircraft to land at Zamboanga Airport,
Zamboanga City for refueling. The aircraft landed at 3:00 o'clock
in the afternoon of May 21, 1976 at Zamboanga Airport. When
the plane began to taxi at the runway, it was met by two armored
cars of the military with machine guns pointed at the plane, and it
stopped there. The rebels thru its commander demanded that a
DC-aircraft take them to Libya with the President of the
defendant company as hostage and that they be given $375,000
and six (6) armalites, otherwise they will blow up the plane if their
demands will not be met by the government and Philippine Air
Lines. Meanwhile, the passengers were not served any food nor
water and it was only on May 23, a Sunday, at about 1:00 o'clock

in the afternoon that they were served 1/4 slice of a sandwich

and 1/10 cup of PAL water. After that, relatives of the hijackers
were allowed to board the plane but immediately after they
alighted therefrom, an armored car bumped the stairs. That
commenced the battle between the military and the hijackers
which led ultimately to the liberation of the surviving crew and the
passengers, with the final score of ten (10) passengers and three
(3) hijackers dead on the spot and three (3) hijackers captured.
City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal
suffered injuries in the course of her jumping out of the plane
when it was peppered with bullets by the army and after two (2)
hand grenades exploded inside the plane. She was hospitalized
at General Santos Doctors Hospital, General Santos City, for two
(2) days, spending P245.60 for hospital and medical expenses,
Assistant City Fiscal Bonifacio S. Anislag also escaped unhurt
but Mrs. Anislag suffered a fracture at the radial bone of her left
elbow for which she was hospitalized and operated on at the San
Pedro Hospital, Davao City, and therefore, at Davao Regional
Hospital, Davao City, spending P4,500.00. Elma de Guzman
died because of that battle. Hence, the action of damages
instituted by the plaintiffs demanding the following damages, to
wit:
Civil Case No. 1701
City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal
actual damages: P245.60 for hospital and medical expenses of
Mrs Gacal; P8,995.00 for their personal belongings which were
lost and not recovered; P50,000.00 each for moral damages;
and P5,000.00 for attorney's fees, apart from the prayer for an
award of exemplary damages (Record, pp. 4-6, Civil Case No.
1701).
Civil Case No. 1773
xxx xxx xxx
Civil Case No. 1797
xxx xxx xxx
The trial court, on August 26, 1980, dismissed the complaints
finding that all the damages sustained in the premises were
attributed to force majeure.
On September 12, 1980 the spouses Franklin G. Gacal and
Corazon M. Gacal, plaintiffs in Civil Case No. 1701, filed a notice
of appeal with the lower court on pure questions of law (Rollo, p.
55) and the petition for review oncertiorari was filed with this
Court on October 20, 1980 (Rollo, p. 30).
The Court gave due course to the petition (Rollo, p. 147) and
both parties filed their respective briefs but petitioner failed to file
reply brief which was noted by the Court in the resolution dated
May 3, 1982 (Rollo, p. 183).
Petitioners alleged that the main cause of the unfortunate
incident is the gross, wanton and inexcusable negligence of
respondent Airline personnel in their failure to frisk the
passengers adequately in order to discover hidden weapons in
the bodies of the six (6) hijackers. They claimed that despite the

prevalence of skyjacking, PAL did not use a metal detector which

is the most effective means of discovering potential skyjackers
among the passengers (Rollo, pp. 6-7).
Respondent Airline averred that in the performance of its
obligation to safely transport passengers as far as human care
and foresight can provide, it has exercised the utmost diligence
of a very cautious person with due regard to all circumstances,
but the security checks and measures and surveillance
precautions in all flights, including the inspection of baggages
and cargo and frisking of passengers at the Davao Airport were
performed and rendered solely by military personnel who under
appropriate authority had assumed exclusive jurisdiction over the
same in all airports in the Philippines.
Similarly, the negotiations with the hijackers were a purely
government matter and a military operation, handled by and
subject to the absolute and exclusive jurisdiction of the military
authorities. Hence, it concluded that the accident that befell RPC1161 was caused by fortuitous event, force majeure and other
causes beyond the control of the respondent Airline.
The determinative issue in this case is whether or not hijacking
or air piracy during martial law and under the circumstances
obtaining herein, is a caso fortuito or force majeure which would
exempt an aircraft from payment of damages to its passengers
whose lives were put in jeopardy and whose personal belongings
were lost during the incident.
Under the Civil Code, common carriers are required to exercise
extraordinary diligence in their vigilance over the goods and for
the safety of passengers transported by them, according to all
the circumstances of each case (Article 1733). They are
presumed at fault or to have acted negligently whenever a
passenger dies or is injured (Philippine Airlines, Inc. v. National
Labor Relations Commission, 124 SCRA 583 [1983]) or for the
loss, destruction or deterioration of goods in cases other than
those enumerated in Article 1734 of the Civil Code (Eastern
Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA
463 [1987]).
The source of a common carrier's legal liability is the contract of
carriage, and by entering into said contract, it binds itself to carry
the passengers safely as far as human care and foresight can
provide. There is breach of this obligation if it fails to exert
extraordinary diligence according to all the circumstances of the
case in exercise of the utmost diligence of a very cautious
person (Isaac v. Ammen Transportation Co., 101 Phil. 1046
[1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]).
It is the duty of a common carrier to overcome the presumption
of negligence (Philippine National Railways v. Court of Appeals,
139 SCRA 87 [1985]) and it must be shown that the carrier had
observed the required extraordinary diligence of a very cautious
person as far as human care and foresight can provide or that
the accident was caused by a fortuitous event (Estrada v.
Consolacion, 71 SCRA 523 [1976]). Thus, as ruled by this Court,

no person shall be responsible for those "events which could not

be foreseen or which though foreseen were inevitable. (Article
1174, Civil Code). The term is synonymous with caso
fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the
same sense as "force majeure" (Words and Phrases Permanent
Edition, Vol. 17, p. 362).
In order to constitute a caso fortuito or force majeure that would
exempt a person from liability under Article 1174 of the Civil
Code, it is necessary that the following elements must concur:
(a) the cause of the breach of the obligation must be
independent of the human will (the will of the debtor or the
obligor); (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation
in, or aggravation of the injury to the creditor (Lasam v. Smith, 45
Phil. 657 [1924]; Austria v. Court of Appeals, 39 SCRA 527
[1971]; Estrada v. Consolacion, supra; Vasquez v. Court of
Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court
of Appeals, 144 SCRA 596 [1986]). Caso fortuito or force
majeure, by definition, are extraordinary events not foreseeable
or avoidable, events that could not be foreseen, or which, though
foreseen, are inevitable. It is, therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed, but it must be one impossible to foresee or
to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same (Republic v. Luzon Stevedoring
Corporation, 21 SCRA 279 [1967]).
Applying the above guidelines to the case at bar, the failure to
transport petitioners safely from Davao to Manila was due to the
skyjacking incident staged by six (6) passengers of the same
plane, all members of the Moro National Liberation Front
(MNLF), without any connection with private respondent, hence,
independent of the will of either the PAL or of its passengers.
Under normal circumstances, PAL might have foreseen the
skyjacking incident which could have been avoided had there
been a more thorough frisking of passengers and inspection of
baggages as authorized by R.A. No. 6235. But the incident in
question occurred during Martial Law where there was a military
take-over of airport security including the frisking of passengers
and the inspection of their luggage preparatory to boarding
domestic and international flights. In fact military take-over was
specifically announced on October 20, 1973 by General Jose L.
Rancudo, Commanding General of the Philippine Air Force in a
letter to Brig. Gen. Jesus Singson, then Director of the Civil
Aeronautics Administration (Rollo, pp. 71-72) later confirmed
shortly before the hijacking incident of May 21, 1976 by Letter of
Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72).
Otherwise stated, these events rendered it impossible for PAL to
perform its obligations in a nominal manner and obviously it
cannot be faulted with negligence in the performance of duty

taken over by the Armed Forces of the Philippines to the

exclusion of the former.
Finally, there is no dispute that the fourth element has also been
satisfied. Consequently the existence of force majeure has been
established exempting respondent PAL from the payment of
damages to its passengers who suffered death or injuries in their
persons and for loss of their baggages.
PREMISES CONSIDERED, the petition is hereby DISMISSED
for lack of merit and the decision of the Court of First Instance of
South Cotabato, Branch I is hereby AFFIRMED.
SO ORDERED
G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D.
GALANO, Court of First Instance of Manila, Branch XIII,
JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First
Instance, Manila, and AMELIA TAN, respondents.
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of execution in
this case is a more fundamental question. Should the Court allow
a too literal interpretation of the Rules with an open invitation to
knavery to prevail over a more discerning and just approach?
Should we not apply the ancient rule of statutory construction
that laws are to be interpreted by the spirit which vivifies and not
by the letter which killeth?
This is a petition to review on certiorari the decision of the Court
of Appeals in CA-G.R. No. 07695 entitled "Philippine Airlines,
Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing the
petition for certiorari against the order of the Court of First
Instance of Manila which issued an alias writ of execution
against the petitioner.
The petition involving the alias writ of execution had its
beginnings on November 8, 1967, when respondent Amelia Tan,
under the name and style of Able Printing Press commenced a
complaint for damages before the Court of First Instance of
Manila. The case was docketed as Civil Case No. 71307,
entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then
presided over by the late Judge Jesus P. Morfe rendered
judgment on June 29, 1972, in favor of private respondent
Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL)
as follows:
WHEREFORE, judgment is hereby rendered, ordering the
defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount
of P75,000.00 as actual damages, with legal interest thereon
from plaintiffs extra-judicial demand made by the letter of July
20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount

of P18,200.00, representing the unrealized profit of 10% included
in the contract price of P200,000.00 plus legal interest thereon
from July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount
of P20,000.00 as and for moral damages, with legal interest
thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount
of P5,000.00 damages as and for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's
counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of
Appeals. The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision,
the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is
condemned to pay plaintiff the sum of P25,000.00 as damages
and P5,000.00 as attorney's fee, judgment is affirmed, with
costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial
court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly
opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution
denying the respondent's motion for reconsideration for lack of
merit.
No further appeal having been taken by the parties, the judgment
became final and executory and on May 31, 1977, judgment was
correspondingly entered in the case.
The case was remanded to the trial court for execution and on
September 2,1977, respondent Amelia Tan filed a motion praying
for the issuance of a writ of execution of the judgment rendered
by the Court of Appeals. On October 11, 1977, the trial court,
presided over by Judge Galano, issued its order of execution
with the corresponding writ in favor of the respondent. The writ
was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13
of the Court of First Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan
moved for the issuance of an alias writ of execution stating that
the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion
for the issuance of an alias writ of execution stating that it had
already fully paid its obligation to plaintiff through the deputy
sheriff of the respondent court, Emilio Z. Reyes, as evidenced by
cash vouchers properly signed and receipted by said Emilio Z.
Reyes.
On March 3,1978, the Court of Appeals denied the issuance of
the alias writ for being premature, ordering the executing sheriff
Emilio Z. Reyes to appear with his return and explain the reason

for his failure to surrender the amounts paid to him by petitioner

PAL. However, the order could not be served upon Deputy
Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ
of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to
withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978,
the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to Withdraw
'Motion for Partial Alias Writ of Execution with Substitute Motion
for Alias Writ of Execution is hereby granted, and the motion for
partial alias writ of execution is considered withdrawn.
Let an Alias Writ of Execution issue against the defendant for the
fall satisfaction of the judgment rendered. Deputy Sheriff Jaime
K. del Rosario is hereby appointed Special Sheriff for the
enforcement thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias
writ of execution issued on the same day directing Special
Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when
respondent Amelia Tan made an extra-judicial demand through a
letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash
the alias writ of execution stating that no return of the writ had as
yet been made by Deputy Sheriff Emilio Z. Reyes and that the
judgment debt had already been fully satisfied by the petitioner
as evidenced by the cash vouchers signed and receipted by the
server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a
notice of garnishment on the depository bank of petitioner, Far
East Bank and Trust Company, Rosario Branch, Binondo,
Manila, through its manager and garnished the petitioner's
deposit in the said bank in the total amount of P64,408.00 as of
May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:
I
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED
WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY THE
IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER
AS DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES
SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS
SILENT AS TO THE PAYMENT THEREOF.
IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF

PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR
SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of
the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's
decision with approval:
The issuance of the questioned alias writ of execution under the
circumstances here obtaining is justified because even with the
absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained
(sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the
earlier order of the court for him to appear for this purpose.
(Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking
cognizance of this circumstance, the order of May 11, 1978
directing the issuance of an alias writ was therefore issued.
(Annex D. Petition). The need for such a return as a condition
precedent for the issuance of an alias writ was justifiably
dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an
abhorent situation whereby the mischief of an erring officer of the
court could be utilized to impede indefinitely the undisputed and
awarded rights which a prevailing party rightfully deserves to
obtain and with dispatch. The final judgment in this case should
not indeed be permitted to become illusory or incapable of
execution for an indefinite and over extended period, as had
already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere
debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of the
suit and is very aptly called the life of the law (Ipekdjian
Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19
SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of
procedure. Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to inform
the court and the parties, of any and all actions taken under the
writ of execution. Where such information can be established in
some other manner, the absence of an executing officer's return
will not preclude a judgment from being treated as discharged or
being executed through an alias writ of execution as the case
may be. More so, as in the case at bar. Where the return cannot
be expected to be forthcoming, to require the same would be to
compel the enforcement of rights under a judgment to rest on an
impossibility, thereby allowing the total avoidance of judgment
debts. So long as a judgment is not satisfied, a plaintiff is entitled
to other writs of execution (Government of the Philippines v.

Echaus and Gonzales, 71 Phil. 318). It is a well known legal

maxim that he who cannot prosecute his judgment with effect,
sues his case vainly.
More important in the determination of the propriety of the trial
court's issuance of an alias writ of execution is the issue of
satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the
payment made to the absconding sheriff by check in his name
operate to satisfy the judgment debt? The Court rules that the
plaintiff who has won her case should not be adjudged as having
sued in vain. To decide otherwise would not only give her an
empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia
Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as rightfully
hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from
the start, before 1967, without need of her going to court to
enforce her rights. And all because PAL did not issue the checks
intended for her, in her name.
Under the peculiar circumstances of this case, the payment to
the absconding sheriff by check in his name did not operate as a
satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Article 1240 of
the Civil Code provides:
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)
Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446, 111
ALR 65). 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 (Hendry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by an
officer authorized by law to accept it will, therefore, satisfy the
debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v.
Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person so
authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at

bar, to the sheriff should be valid payment to extinguish the

judgment debt.
There are circumstances in this case, however, which compel a
different conclusion.
The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were
not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
parties so agree, a debtor has no rights, except at his own peril,
to substitute something in lieu of cash as medium of payment of
his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47
Am. St. Rep. 402). Consequently, unless authorized to do so by
law or by consent of the obligee a public officer has no authority
to accept anything other than money in payment of an obligation
under a judgment being executed. Strictly speaking, the
acceptance by the sheriff of the petitioner's checks, in the case
at bar, does not, per se, operate as a discharge of the judgment
debt.
Since a negotiable instrument is only a substitute for money and
not money, the delivery of such an instrument does not, by itself,
operate as payment (See. 189, Act 2031 on Negs. Insts.; Art.
1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil.
255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager's check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or
creditor. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished
and remains suspended until the payment by commercial
document is actually realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan
and not the Sheriff's, there would have been no payment. After
dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value
for what had been awarded her. Because the checks were drawn
in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there

would have been payment in full legal contemplation. The
reasoning is logical but is it valid and proper? Logic has its limits
in decision making. We should not follow rulings to their logical
extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain
cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going to
the wrong party. The situation is entirely different where a Sheriff
seizes a car, a tractor, or a piece of land. Logic often has to give
way to experience and to reality. Having paid with checks, PAL
should have done so properly.
Payment in money or cash to the implementing officer may be
deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers.
Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his
hands decides to abscond.
As a protective measure, therefore, the courts encourage the
practice of payments by cheek provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved,
escrow arrangements with a bank and carefully supervised by
the court would be the safer procedure. Actual transfer of funds
takes place within the safety of bank premises. These practices
are perfectly legal. The object is always the safe and incorrupt
execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a
particular payee are made out in the name of another. Making
the checks payable to the judgment creditor would have
prevented the encashment or the taking of undue advantage by
the sheriff, or any person into whose hands the checks may have
fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the
private party respondent Amelia Tan, the petitioner corporation,
utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting
consequences of the checks drawn, nevertheless, in this
instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the
name of the errant Sheriff and not the name of the rightful payee.
Petitioner thereby created a situation which permitted the said

Sheriff to personally encash said checks and misappropriate the

proceeds thereof to his exclusive personal benefit. For the
prejudice that resulted, the petitioner himself must bear the fault.
The judicial guideline which we take note of states as follows:
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible
by his act of confidence must bear the loss. (Blondeau, et al. v.
Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself,
the judgment debtor whose act made possible the loss had but
itself to blame.
The attention of this Court has been called to the bad practice of
a number of executing officers, of requiring checks in satisfaction
of judgment debts to be made out in their own names. If a sheriff
directs a judgment debtor to issue the checks in the sheriff's
name, claiming he must get his commission or fees, the debtor
must report the sheriff immediately to the court which ordered
the execution or to the Supreme Court for appropriate
disciplinary action. Fees, commissions, and salaries are paid
through regular channels. This improper procedure also allows
such officers, who have sixty (60) days within which to make a
return, to treat the moneys as their personal finds and to deposit
the same in their private accounts to earn sixty (60) days
interest, before said finds are turned over to the court or
judgment creditor (See Balgos v. Velasco, 108 SCRA 525
[1981]). Quite as easily, such officers could put up the defense
that said checks had been issued to them in their private or
personal capacity. Without a receipt evidencing payment of the
judgment debt, the misappropriation of finds by such officers
becomes clean and complete. The practice is ingenious but evil
as it unjustly enriches court personnel at the expense of litigants
and the proper administration of justice. The temptation could be
far greater, as proved to be in this case of the absconding sheriff.
The correct and prudent thing for the petitioner was to have
issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a person
other than the intended payee, without the latter's agreement or
consent, are as many as the ways that an artful mind could
concoct to get around the safeguards provided by the law on
negotiable instruments. An angry litigant who loses a case, as a
rule, would not want the winning party to get what he won in the
judgment. He would think of ways to delay the winning party's
getting what has been adjudged in his favor. We cannot condone
that practice especially in cases where the courts and their
officers are involved. We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. The officer must
enforce an execution of a money judgment by levying on all the
property, real and personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution, or on a sufficient

amount of such property, if they be sufficient, and selling the

same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be
considered satisfied and therefore the orders of the respondent
judge granting the alias writ of execution may not be pronounced
as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a
judgment to be executed there is the requisite of payment by the
officer to the judgment creditor, or his attorney, so much of the
proceeds as will satisfy the judgment and none such payment
had been concededly made yet by the absconding Sheriff to the
private respondent Amelia Tan. The ultimate and essential step
to complete the execution of the judgment not having been
performed by the City Sheriff, the judgment debt legally and
factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction
of a judgment. Under unusual circumstances as those obtaining
in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or
judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360,
363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's
Law Dictionary), whereas the satisfaction of a judgment is the
payment of the amount of the writ, or a lawful tender thereof, or
the conversion by sale of the debtor's property into an amount
equal to that due, and, it may be done otherwise than upon an
execution (Section 47, Rule 39). Levy and delivery by an
execution officer are not prerequisites to the satisfaction of a
judgment when the same has already been realized in fact
(Section 47, Rule 39). Execution is for the sheriff to accomplish
while satisfaction of the judgment is for the creditor to achieve.
Section 15, Rule 39 merely provides the sheriff with his duties as
executing officer including delivery of the proceeds of his levy on
the debtor's property to satisfy the judgment debt. It is but to
stress that the implementing officer's duty should not stop at his
receipt of payments but must continue until payment is delivered
to the obligor or creditor.
Finally, we find no error in the respondent court's pronouncement
on the inclusion of interests to be recovered under the alias writ
of execution. This logically follows from our ruling that PAL is
liable for both the lost checks and interest. The respondent
court's decision in CA-G.R. No. 51079-R does not totally
supersede the trial court's judgment in Civil Case No. 71307. It
merely modified the same as to the principal amount awarded as
actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
hereby DISMISSED. The judgment of the respondent Court of
Appeals is AFFIRMED and the trial court's issuance of the alias
writ of execution against the petitioner is upheld without

prejudice to any action it should take against the errant sheriff

Emilio Z. Reyes. The Court Administrator is ordered to follow up
the actions taken against Emilio Z. Reyes.
SO ORDERED.
Fernan, C.J., Cruz, Paras, Bidin, Grio-Aquino, Medialdea and
Regalado, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 126389 July 10, 1998
SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE
DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and MILAGROS
DIMAANO, respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to
set aside the Decision 1 promulgated on July 31, 1996, and
Resolution 2 dated September 12, 1996 of the Court of
Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de Jesus vda.
de Dimaano, et al. vs. Southeastern College, Inc.", which
reduced the moral damages awarded below from P1,000,000.00
to P200,000.00. 4 The Resolution under attack denied petitioner's
motion for reconsideration.
Private respondents are owners of a house at 326 College Road,
Pasay City, while petitioner owns a four-storey school building
along the same College Road. On October 11, 1989, at about
6:30 in the morning, a powerful typhoon "Saling" hit Metro
Manila. Buffeted by very strong winds, the roof of petitioner's
building was partly ripped off and blown away, landing on and
destroying portions of the roofing of private respondents' house.
After the typhoon had passed, an ocular inspection of the
destroyed building was conducted by a team of engineers
headed by the city building official, Engr. Jesus L. Reyna.
Pertinent aspects of the latter's Report 5 dated October 18, 1989
stated, as follows:
5. One of the factors that may have led to this calamitous event
is the formation of the building in the area and the general
direction of the wind. Situated in the peripheral lot is an almost
U-shaped formation of 4-storey building. Thus, with the strong
winds having a westerly direction, the general formation of the
building becomes a big funnel-like structure, the one situated
along College Road, receiving the heaviest impact of the strong
winds. Hence, there are portions of the roofing, those located on
both ends of the building, which remained intact after the storm.

6. Another factor and perhaps the most likely reason for the
dislodging of the roofing structural trusses is the improper
anchorage of the said trusses to the roof beams. The 1/2'
diameter steel bars embedded on the concrete roof beams which
serve as truss anchorage are not bolted nor nailed to the
trusses. Still, there are other steel bars which were not even bent
to the trusses, thus, those trusses are not anchored at all to the
roof beams.
It then recommended that "to avoid any further loss and damage
to lives, limbs and property of persons living in the vicinity," the
fourth floor of subject school building be declared as a "structural
hazard."
In their Complaint 6 before the Regional Trial Court of Pasay City,
Branch 117, for damages based on culpa aquiliana, private
respondents alleged that the damage to their house rendered the
same uninhabitable, forcing them to stay temporarily in others'
houses. And so they sought to recover from petitioner
P117,116.00, as actual damages, P1,000,000.00, as moral
damages, P300,000.00, as exemplary damages and
P100,000.00, for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school building had
withstood several devastating typhoons and other calamities in
the past, without its roofing or any portion thereof giving way;
that it has not been remiss in its responsibility to see to it that
said school building, which houses school children, faculty
members, and employees, is "in tip-top condition"; and
furthermore, typhoon "Saling" was "an act of God and therefore
beyond human control" such that petitioner cannot be
answerable for the damages wrought thereby, absent any
negligence on its part.
The trial court, giving credence to the ocular inspection report to
the effect that subject school building had a "defective roofing
structure," found that, while typhoon "Saling" was accompanied
by strong winds, the damage to private respondents' houses
"could have been avoided if the construction of the roof of
[petitioner's] building was not faulty." The dispositive portion of
the lower court's decision 7 reads, thus:
WHEREFORE, in view of the foregoing, the Court renders
judgment (sic) in favor of the plaintiff (sic) and against the
defendants, (sic) ordering the latter to pay jointly and severally
the former as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that
the defendants (sic) did in a wanton fraudulent, reckless,
oppressive or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as
errors, 8 that:
I

THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON

"SALING", AS AN ACT OF GOD, IS NOT "THE SOLE AND
ABSOLUTE REASON" FOR THE RIPPING-OFF OF THE
SMALL PORTION OF THE ROOF OF SOUTHEASTERN'S
FOUR (4) STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT "THE
CONSTRUCTION OF THE ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY" NOTWITHSTANDING THE
ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT
NOT AS GRAVE AS TYPHOON "SALING" WHICH IS THE
DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND
MORAL DAMAGES AS WELL AS ATTORNEY'S FEES AND
LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT
ALL AS DIMAANOS HAVE ALREADY SOLD THEIR
PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS
CASE MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE
OF THE WRIT OF EXECUTION INSPITE OF THE
PERFECTION OF SOUTHEASTERN'S APPEAL WHEN THERE
IS NO COMPELLING REASON FOR THE ISSUANCE
THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with
modification the trial court's disposition by reducing the award of
moral damages from P1,000,000.00 to P200,000.00. Hence,
petitioner's resort to this Court, raising for resolution the issues
of:
1. Whether or not the award of actual damages [sic] to
respondent Dimaanos on the basis of speculation or conjecture,
without proof or receipts of actual damage, [sic] legally feasible
or justified.
2. Whether or not the award of moral damages to respondent
Dimaanos, with the latter having suffered, actual damage has
legal basis.
3. Whether or not respondent Dimaanos who are no longer the
owner of the property, subject matter of the case, during its
pendency, has the right to pursue their complaint against
petitioner when the case was already moot and academic by the
sale of the property to third party.
4. Whether or not the award of attorney's fees when the case
was already moot academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others
by typhoon "Saling" being an act of God.
6. Whether or not the issuance of a writ of execution pending
appeal, ex-parte or without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues, is
whether the damage on the roof of the building of private

respondents resulting from the impact of the falling portions of

the school building's roof ripped off by the strong winds of
typhoon "Saling", was, within legal contemplation, due to
fortuitous event? If so, petitioner cannot be held liable for the
damages suffered by the private respondents. This conclusion
finds support in Article 1174 of Civil Code, which provides:
Art 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature
of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
The antecedent of fortuitous event or caso fortuito is found in
the Partidas which defines it as "an event which takes place by
accident and could not have been foreseen." 9 Escriche
elaborates it as "an unexpected event or act of God which could
neither be foreseen nor resisted." 10 Civilist Arturo M. Tolentino
adds that "[f]ortuitous events may be produced by two general
causes: (1) by nature, such as earthquakes, storms, floods,
epidemics, fires, etc. and (2) by the act of man, such as an
armed invasion, attack by bandits, governmental prohibitions,
robbery, etc." 11
In order that a fortuitous event may exempt a person from
liability, it is necessary that he be free from any previous
negligence or misconduct by reason of which the loss may have
been occasioned. 12 An act of God cannot be invoked for the
protection of a person who has been guilty of gross negligence in
not trying to forestall its possible adverse consequences. When a
person's negligence concurs with an act of God in producing
damage or injury to another, such person is not exempt from
liability by showing that the immediate or proximate cause of the
damages or injury was a fortuitous event. When the effect is
found to be partly the result of the participation of man
whether it be from active intervention, or neglect, or failure to act
the whole occurrence is hereby humanized, and removed
from the rules applicable to acts of God. 13
In the case under consideration, the lower court accorded full
credence to the finding of the investigating team that subject
school building's roofing had "no sufficient anchorage to hold it in
position especially when battered by strong winds." Based on
such finding, the trial court imputed negligence to petitioner and
adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record,
this Court believes otherwise, notwithstanding the general rule
that factual findings by the trail court, especially when affirmed
by the appellate court, are binding and conclusive upon this
Court. 14 After a careful scrutiny of the records and the pleadings
submitted by the parties, we find exception to this rule and hold
that the lower courts misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous
event, a natural occurrence which may be foreseen but is
unavoidable despite any amount of foresight, diligence or

care. 15 In order to be exempt from liability arising from any

adverse consequence engendered thereby, there should have
been no human participation amounting to a negligent act. 16In
other words; the person seeking exoneration from liability must
not be guilty of negligence. Negligence, as commonly
understood, is conduct which naturally or reasonably creates
undue risk or harm to others. It may be the failure to observe that
degree of care, precaution, and vigilance which the
circumstances justify demand, 17 or the omission to do something
which a prudent and reasonable man, guided by considerations
which ordinarily regulate the conduct of human affairs, would
do. 18 From these premises, we proceed to determine whether
petitioner was negligent, such that if it were not, the damage
caused to private respondents' house could have been avoided?
At the outset, it bears emphasizing that a person claiming
damages for the negligence of another has the burden of proving
the existence of fault or negligence causative of his injury or loss.
The facts constitutive of negligence must be affirmatively
established by competent evidence, 19 not merely by
presumptions and conclusions without basis in fact. Private
respondents, in establishing the culpability of petitioner, merely
relied on the aforementioned report submitted by a team which
made an ocular inspection of petitioner's school building after the
typhoon. As the term imparts, an ocularinspection is one by
means of actual sight or viewing. 20 What is visual to the eye
through, is not always reflective of the real cause behind. For
instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude that a third person
shot the victim. It could have been self-inflicted or caused
accidentally by a stray bullet. The relationship of cause and
effect must be clearly shown.
In the present case, other than the said ocular inspection, no
investigation was conducted to determine the real cause of the
partial unroofing of petitioner's school building. Private
respondents did not even show that the plans, specifications and
design of said school building were deficient and defective.
Neither did they prove any substantial deviation from the
approved plans and specifications. Nor did they conclusively
establish that the construction of such building was basically
flawed. 21
On the other hand, petitioner elicited from one of the witnesses
of private respondents, city building official Jesus Reyna, that the
original plans and design of petitioner's school building were
approved prior to its construction. Engr. Reyna admitted that it
was a legal requirement before the construction of any building
to obtain a permit from the city building official (city engineer,
prior to the passage of the Building Act of 1977). In like manner,
after construction of the building, a certification must be secured
from the same official attesting to the readiness for occupancy of
the edifice. Having obtained both building permit and certificate

of occupancy, these are, at the very least, prima facieevidence of

the regular and proper construction of subject school building. 22
Furthermore, when part of its roof needed repairs of the damage
inflicted by typhoon "Saling", the same city official gave the gosignal for such repairs without any deviation from the original
design and subsequently, authorized the use of the entire
fourth floor of the same building. These only prove that subject
building suffers from no structural defect, contrary to the report
that its "U-shaped" form was "structurally defective." Having
given his unqualified imprimatur, the city building official is
presumed to have properly performed his duties 23 in connection
therewith.
In addition, petitioner presented its vice president for finance and
administration who testified that an annual maintenance
inspection and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its
maintenance supervisor to attest to the extent of such regular
inspection but private respondents agreed to dispense with his
testimony and simply stipulated that it would be corroborative of
the vice president's narration.
Moreover, the city building official, who has been in the city
government service since 1974, admitted in open court that no
complaint regarding any defect on the same structure has ever
been lodged before his office prior to the institution of the case at
bench. It is a matter of judicial notice that typhoons are common
occurrences in this country. If subject school building's roofing
was not firmly anchored to its trusses, obviously, it could not
have withstood long years and several typhoons even stronger
than "Saling."
In light of the foregoing, we find no clear and convincing
evidence to sustain the judgment of the appellate court. We thus
hold that petitioner has not been shown negligent or at fault
regarding the construction and maintenance of its school building
in question and that typhoon "Saling" was the proximate cause of
the damage suffered by private respondents' house.
With this disposition on the pivotal issue, private respondents'
claim for actual and moral damages as well as attorney's fees
must fail. 24 Petitioner cannot be made to answer for a purely
fortuitous event. 25 More so because no bad faith or willful act to
cause damage was alleged and proven to warrant moral
damages.
Private respondents failed to adduce adequate and competent
proof of the pecuniary loss they actually incurred. 26It is not
enough that the damage be capable of proof but must be
actually proved with a reasonable degree of certainty, pointing
out specific facts that afford a basis for measuring whatever
compensatory damages are borne. 27 Private respondents
merely submitted an estimated amount needed for the repair of
the roof their subject building. What is more, whether the
"necessary repairs" were caused ONLY by petitioner's alleged
negligence in the maintenance of its school building, or included

the ordinary wear and tear of the house itself, is an essential

question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed
by petitioner.
As regards the sixth issue, however, the writ of execution issued
on April 1, 1993 by the trial court is hereby nullified and set
aside. Private respondents are ordered to reimburse any amount
or return to petitioner any property which they may have received
by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged
Decision is REVERSED. The complaint of private respondents in
Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993 in
said case is SET ASIDE. Accordingly, private respondents are
ORDERED to return to petitioner any amount or property
received by them by virtue of said writ. Costs against the private
respondents.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 147324
May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and
Radio Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE
CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing
the Decision of the Court of Appeals, dated 27 February 2001, in
CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been
engaged in the coordination of the provision of various
communication facilities for the military bases of the United
States of America (US) in Clark Air Base, Angeles, Pampanga
and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its
personnel or those of American companies contracted by it to

operate said facilities. The USDCA contracted with said

American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on the
other hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation (Philcomsat) for
the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five (5)
years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew
that the Military Bases Agreement between the Republic of the
Philippines and the US (RP-US Military Bases Agreement),
which was the basis for the occupancy of the Clark Air Base and
Subic Naval Base in Cubi Point, was to expire in 1991. Under
Section 25, Article XVIII of the 1987 Constitution, foreign military
bases, troops or facilities, which include those located at the US
Naval Facility in Cubi Point, shall not be allowed in the
Philippines unless a new treaty is duly concurred in by the
Senate and ratified by a majority of the votes cast by the people
in a national referendum when the Congress so requires, and
such new treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth
station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements that was supposed to extend
the term of the use by the US of Subic Naval Base, among
others.5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for
the continuing relationship between the two countries in the spirit
of friendship, cooperation and sovereign equality: Now,
therefore, be it Resolved by the Senate, as it is hereby resolved,
To express its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time reaffirming its
desire to continue friendly relations with the government and
people of the United States of America.6
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy,
notifying it of the Philippines termination of the RP-US Military
Bases Agreement. The Note Verbalestated that since the RP-US
Military Bases Agreement, as amended, shall terminate on 31
December 1992, the withdrawal of all US military forces from
Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08

November 1992 in view of the withdrawal of US military

personnel from Subic Naval Base after the termination of the RPUS Military Bases Agreement. Globe invoked as basis for the
letter of termination Section 8 (Default) of the Agreement, which
provides:
Neither party shall be held liable or deemed to be in default for
any failure to perform its obligation under this Agreement if such
failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from performing
its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall
mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction
or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe,
stating that "we expect [Globe] to know its commitment to pay
the stipulated rentals for the remaining terms of the Agreement
even after [Globe] shall have discontinue[d] the use of the earth
station after November 08, 1992."7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice shall
be served to PHILCOMSAT at least sixty (60) days prior to the
expected date of termination. Notwithstanding the non-use of the
earth station, [Globe] shall continue to pay PHILCOMSAT for the
rental of the actual number of T1 circuits in use, but in no case
shall be less than the first two (2) T1 circuits, for the remaining
life of the agreement. However, should PHILCOMSAT make use
or sell the earth station subject to this agreement, the obligation
of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be agreed upon
by the parties.8
After the US military forces left Subic Naval Base, Philcomsat
sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial
Court of Makati a Complaint against Globe, praying that the latter
be ordered to pay liquidated damages under the Agreement, with
legal interest, exemplary damages, attorneys fees and costs of
suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the
RP-US Military Bases Agreement and the non-ratification by the
Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe

explained that the occurrence of said events exempted it from

paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of
Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency
(computed at the exchange rate prevailing at the time of
compliance or payment) representing rentals for the month of
December 1992 with interest thereon at the legal rate of twelve
percent (12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three
Hundred Thousand (P300,000.00) Pesos as and for attorneys
fees;
3. Ordering the DISMISSAL of defendants counterclaim for lack
of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of
Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the
non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from complying
with its obligations under the Agreement; (2) Globe is not liable
to pay the rentals for the remainder of the term of the Agreement;
and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in
holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992; hence,
it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for
the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate
of the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine
Governments Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines
which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the
issuance of a formal order by Cdr. Walter Corliss of the US Navy,

the issuance of the letter notification from ATT and the complete
withdrawal of all US military forces and personnel from Cubi
Point, which prevented further use of the earth station under the
Agreement.
However, the Court of Appeals ruled that although Globe sought
to terminate Philcomsats services by 08 November 1992, it is
still liable to pay rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US military
forces and personnel completely withdrew from Cubi Point only
on 31 December 1992.10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN
ADOPTING A DEFINITION OF FORCE MAJEUREDIFFERENT
FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE
1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT
GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM
OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF
SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN
DELETING THE TRIAL COURTS AWARD OF ATTORNEYS
FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military
Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8
should be deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties definition of force majeure in Section 8 of
the Agreement as "circumstances beyond the control of the party
involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes
or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons
or other catastrophies or acts of God," should be deemed subject
to Article 1174 which defines fortuitous events as events which
could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in
holding that Globe is not liable to pay for the rental of the earth
station for the entire term of the Agreement because it runs
counter to what was plainly stipulated by the parties in Section 7

thereof. Moreover, said ruling is inconsistent with the appellate

courts pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsats services
effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in
December 1992. Philcomsat points out that it was Globe which
proposed the five-year term of the Agreement, and that the other
provisions of the Agreement, such as Section 4.114 thereof,
evince the intent of Globe to be bound to pay rentals for the
entire five-year term.15
Philcomsat also maintains that contrary to the appellate courts
findings, it is entitled to attorneys fees and exemplary
damages.16
In its Comment to Philcomsats Petition, Globe asserts that
Section 8 of the Agreement is not contrary to Article 1174 of the
Civil Code because said provision does not prohibit parties to a
contract from providing for other instances when they would be
exempt from fulfilling their contractual obligations. Globe also
claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from
complying with its obligations under the Agreement.17 On the
issue of the propriety of awarding attorneys fees and exemplary
damages to Philcomsat, Globe maintains that Philcomsat is not
entitled thereto because in refusing to pay rentals for the
remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that
the Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November
1992.20
In its Comment, Philcomsat claims that Globes petition should
be dismissed as it raises a factual issue which is not cognizable
by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due
course to Philcomsats Petition in G.R. No.
147324 and required the parties to submit their respective
memoranda.22
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by Globe
in G.R. No. 147334 and required both parties to submit their
memoranda.23
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two cases, reiterating
their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether
the termination of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security,
and the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force majeure which would
exempt Globe from complying with its obligation to pay rentals

under its Agreement with Philcomsat; (2) whether Globe is liable

to pay rentals under the Agreement for the month of December
1992; and (3) whether Philcomsat is entitled to attorneys fees
and exemplary damages.
No reversible error was committed by the Court of Appeals in
issuing the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the
Agreement cannot be given effect because the enumeration of
events constituting force majeure therein unduly expands the
concept of a fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends that under Article
1174 of the Civil Code, an event must be unforeseen in order to
exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security and the withdrawal of US
military forces and personnel from Cubi Point were not
unforeseeable, but were possibilities known to it and Globe at
the time they entered into the Agreement, such events cannot
exempt Globe from performing its obligation of paying rentals for
the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to
events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of
God," or natural occurrences such as floods or typhoons,24 or an
"act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that
the following events shall be deemed events constituting force
majeure:
1. Any law, order, regulation, direction or request of the Philippine
Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable
but beyond the control of the parties. There is nothing in the
enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a

contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public
policy.27
Article 1159 of the Civil Code also provides that "[o]bligations
arising from contracts have the force of law between the
contracting parties and should be complied with in good
faith."28 Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would be
to alter the real intent of the parties, and would run contrary to
the function of the courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and
Globe freely agreed upon has the force of law between them.30
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the
following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal
manner; and (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court
that the abovementioned requisites are present in the instant
case. Philcomsat and Globe had no control over the non-renewal
of the term of the RP-US Military Bases Agreement when the
same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate. Neither
did the parties have control over the subsequent withdrawal of
the US military forces and personnel from Cubi Point in
December 1992:
Obviously the non-ratification by the Senate of the RP-US
Military Bases Agreement (and its Supplemental Agreements)
under its Resolution No. 141. (Exhibit "2") on September 16,
1991 is beyond the control of the parties. This resolution was
followed by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US
Government notifying the latter of the formers termination of the
RP-US Military Bases Agreement (as amended) on 31
December 1992 and that accordingly, the withdrawal of all U.S.
military forces from Subic Naval Base should be completed by
said date. Subsequently, defendant [Globe] received a formal
order from Cdr. Walter F. Corliss II Commander USN dated July
31, 1992 and a notification from ATT dated July 29, 1992 to
terminate the provision of T1s services (via an IBS Standard B
Earth Station) effective November 08, 1992. Plaintiff [Philcomsat]
was furnished with copies of the said order and letter by the
defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note
Verbale of the Philippine Government to the US Government are

acts, direction or request of the Government of the Philippines

and circumstances beyond the control of the defendant. The
formal order from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of all the
military forces and personnel from Cubi Point in the year-end
1992 are also acts and circumstances beyond the control of the
defendant.
Considering the foregoing, the Court finds and so holds that the
afore-narrated circumstances constitute "force majeure or
fortuitous event(s) as defined under paragraph 8 of the
Agreement.

From the foregoing, the Court finds that the defendant is

exempted from paying the rentals for the facility for the remaining
term of the contract.
As a consequence of the termination of the RP-US Military
Bases Agreement (as amended) the continued stay of all US
Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any
position to render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military forces
and personnel left or withdrew from Cubi Point in the year end
December 1992, there was no longer any necessity for the
plaintiff to continue maintaining the IBS facility.32 (Emphasis in
the original.)
The aforementioned events made impossible the continuation of
the Agreement until the end of its five-year term without fault on
the part of either party. The Court of Appeals was thus correct in
ruling that the happening of such fortuitous events rendered
Globe exempt from payment of rentals for the remainder of the
term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying
rentals even though Philcomsat cannot be compelled to perform
its corresponding obligation under the Agreement. As noted by
the appellate court:
We also point out the sheer inequity of PHILCOMSATs position.
PHILCOMSAT would like to charge GLOBE rentals for the
balance of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered due to an
act of the government which was clearly beyond GLOBEs
control. The binding effect of a contract on both parties is based
on the principle that the obligations arising from contracts have
the force of law between the contracting parties, and there must
be mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the
contract while leaving the other party free therefrom (Allied
Banking Corporation v. Court of Appeals, 284 SCRA 357).33
With respect to the issue of whether Globe is liable for payment
of rentals for the month of December 1992, the Court likewise

affirms the appellate courts ruling that Globe should pay the
same.
Although Globe alleged that it terminated the Agreement with
Philcomsat effective 08 November 1992 pursuant to the formal
order issued by Cdr. Corliss of the US Navy, the date when they
actually ceased using the earth station subject of the Agreement
was not established during the trial.34 However, the trial court
found that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992.35 Thus,
until that date, the USDCA had control over the earth station and
had the option of using the same. Furthermore, Philcomsat could
not have removed or rendered ineffective said communication
facility until after 31 December 1992 because Cubi Point was
accessible only to US naval personnel up to that time. Hence,
the Court of Appeals did not err when it affirmed the trial courts
ruling that Globe is liable for payment of rentals until December
1992.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorneys fees and exemplary
damages.
The award of attorneys fees is the exception rather than the
rule, and must be supported by factual, legal and equitable
justifications.36 In previously decided cases, the Court awarded
attorneys fees where a party acted in gross and evident bad
faith in refusing to satisfy the other partys claims and compelled
the former to litigate to protect his rights;37 when the action filed
is clearly unfounded,38 or where moral or exemplary damages
are awarded.39 However, in cases where both parties have
legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of both
parties were sustained in part, an award of attorneys fees would
not be warranted.40
Exemplary damages may be awarded in cases involving
contracts or quasi-contracts, if the erring party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.41 In the
present case, it was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for payment
of rentals. It was established during the trial of the case before
the trial court that Globe had valid grounds for refusing to comply
with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No.
63619 is AFFIRMED.
SO ORDERED.
Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr.,
JJ., concur.
Footnotes
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 147839
June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals (CA) in
CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati
(RTC) in Civil Case No. 92-322 and upheld the causes of action
for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the
CA Resolution dated April 11, 2001 which denied petitioner's
motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from
respondent fire insurance policies with book debt endorsements.
The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been
sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."2 The policies defined book debts as
the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all
amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex
in Cagayan de Oro City, owned by petitioner, was consumed by
fire. Included in the items lost or destroyed in the fire were stocks
of ready-made clothing materials sold and delivered by IMC and
LSPI.
On February 4, 1992, respondent filed a complaint for damages
against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC was P2,119,205.00

while with LSPI it was P535,613.00; that respondent paid the

claims of IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that respondent
made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of
contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties; that it never
consented to paying the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an
amicable settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely
accidental; that the cause of the fire was not attributable to the
negligence of the petitioner; that it has not been established that
petitioner is the debtor of IMC and LSPI; that since the sales
invoices state that "it is further agreed that merely for purpose of
securing the payment of purchase price, the above-described
merchandise remains the property of the vendor until the
purchase price is fully paid", IMC and LSPI retained ownership of
the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11,
2000, the CA rendered its decision setting aside the decision of
the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by
the plaintiff-appellant to the insured Inter Capitol Marketing
Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by
the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus
legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the thing
sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception
under Article 1504 (1) of the Civil Code, to the general rule that if
the thing is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the principle of res
perit domino; that petitioner's obligation to IMC and LSPI is not
the delivery of the lost goods but the payment of its unpaid
account and as such the obligation to pay is not extinguished,

even if the fire is considered a fortuitous event; that by

subrogation, the insurer has the right to go against petitioner;
that, being a fire insurance with book debt endorsements, what
was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by
the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on
the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER
CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL
RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE
HAD TRANSFERRED TO PETITIONER UPON DELIVERY
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE
CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire insurance
but the express terms of the policies; that it was not credit that
was insured since respondent paid on the occasion of the loss of
the insured goods to fire and not because of the non-payment by
petitioner of any obligation; that, even if the insurance is deemed
as one over credit, there was no loss as the accounts were not
yet due since no prior demands were made by IMC and LSPI
against petitioner for payment of the debt and such demands
came from respondent only after it had already paid IMC and
LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of
the goods, petitioner-buyer IMC and LSPI assumed the risk of
loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could
be maintained thereon by IMC and LSPI since all risk had
transferred to petitioner upon delivery of the goods; that
petitioner was not privy to the insurance contract or the payment
between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real
interest on the part of respondent in the obligation to pay, limiting
its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the
ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods
as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the readymade clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that
the fire was caused through petitioner's negligence in failing to
provide stringent measures of caution, care and maintenance on

its property because electric wires do not usually short circuit

unless there are defects in their installation or when there is lack
of proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing to
pay respondent's valid claim and should be liable to respondent
for contracted lawyer's fees, litigation expenses and cost of
suit.17
As a general rule, in petitions for review, the jurisdiction of this
Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any
of them.18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are
generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions
in which factual issues may be resolved by this Court, such as:
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the CA went beyond
the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they
are based; (9) when the facts set forth in the petition as well as in
the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence
on record; and (11) when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.21 Exceptions (4),
(5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance
policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss
of the ready-made clothing materials sold and delivered to
petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and
readily understood, there is no room for construction.22 In this
case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines."23 ; and
defined book debts as the "unpaid account still appearing in the
Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."24 Nowhere is it provided in the

questioned insurance policies that the subject of the insurance is

the goods sold and delivered to the customers and dealers of the
insured.
Indeed, when the terms of the agreement are clear and explicit
that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood literally
just as they appear on the face of the contract.25 Thus, what
were insured against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the loss through
fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it
expressly reserved ownership of the goods by stipulating in the
sales invoices that "[i]t is further agreed that merely for purpose
of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until
the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504
of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the buyer or
to a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods.
They have an insurable interest until full payment of the value of
the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who
bears the risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has
substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable interest as
"every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that
a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which
the expectancy arises.

Therefore, an insurable interest in property does not necessarily

imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an
interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it
be injured or destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its
destruction.30Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien.31 In this case, the
insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a
fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is
not for loss of goods by fire but for petitioner's accounts with IMC
and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner's obligation is for the payment of money.
As correctly stated by the CA, where the obligation consists in
the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve
him of his liability.33 The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation
consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver
a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely
by its class or genus without any particular designation or
physical segregation from all others of the same class, the loss
or destruction of anything of the same kind even without the
debtor's fault and before he has incurred in delay will not have
the effect of extinguishing the obligation.35 This rule is based on
the principle that the genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money is generic; therefore,
it is not excused by fortuitous loss of any specific property of the
debtor.37
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is relevant
here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established

its claim. Exhibits "C" to "C-22"38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor
of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked
as exhibits in court. The subrogation receipt, by itself, is sufficient
to establish not only the relationship of respondent as insurer
and IMC as the insured, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated
the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to
prove its cause of action. No evidentiary weight can be given to
Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is
not an admission of petitioner's unpaid account with LSPI. It only
confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's building on
February 25, 1991.
Moreover, there is no proof of full settlement of the insurance
claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been subrogated
to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case
for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed
Decision dated October 11, 2000 and Resolution dated April 11,
2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATIONthat the order to pay the
amount of P535,613.00 to respondent is DELETED for lack of
factual basis.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159617
August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM,

INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto
C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc.
(petitioner corporation) seeking to annul the Decision1 of the
Court of Appeals dated March 31, 2003, and its
Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October
1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of
jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre
Ave., BF Homes Paraaque, Metro Manila, to secure a loan in
the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop
and took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of
the Southern Police District, Paraaque Police Station as
follows:
Investigation shows that at above TDPO, while victims were
inside the office, two (2) male unidentified persons entered into
the said office with guns drawn. Suspects(sic) (1) went straight
inside and poked his gun toward Romeo Sicam and thereby tied
him with an electric wire while suspects (sic) (2) poked his gun
toward Divina Mata and Isabelita Rodriguez and ordered them to
lay (sic) face flat on the floor. Suspects asked forcibly the case
and assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a
Marson Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. On November 2, 1987, respondent
Lulu then wrote a letter4 to petitioner Sicam expressing disbelief
stating that when the robbery happened, all jewelry pawned were
deposited with Far East Bank near the pawnshop since it had
been the practice that before they could withdraw, advance
notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested
petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the
jewelry.
On September 28, 1988, respondent Lulu joined by her husband,
Cesar Jorge, filed a complaint against petitioner Sicam with the
Regional Trial Court of Makati seeking indemnification for the
loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was
docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the
real party-in-interest as the pawnshop was incorporated on April

20, 1987 and known as Agencia de R.C. Sicam, Inc; that

petitioner corporation had exercised due care and diligence in
the safekeeping of the articles pledged with it and could not be
made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to
include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as
he is concerned considering that he is not the real party-ininterest. Respondents opposed the same. The RTC denied the
motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its Decision6 dated
January 12, 1993, dismissing respondents complaint as well as
petitioners counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of
respondents, they asserted that "plaintiff pawned assorted
jewelries in defendants' pawnshop"; and that as a consequence
of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be
held liable for the loss of the pawned jewelry since it had not
been rebutted by respondents that the loss of the pledged pieces
of jewelry in the possession of the corporation was occasioned
by armed robbery; that robbery is a fortuitous event which
exempts the victim from liability for the loss, citing the case
of Austria v. Court of Appeals;7 and that the parties transaction
was that of a pledgor and pledgee and under Art. 1174 of the
Civil Code, the pawnshop as a pledgee is not responsible for
those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a
Decision dated March 31, 2003, the CA reversed the RTC, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of the
Regional Trial Court of Makati, Branch 62, is hereby REVERSED
and SET ASIDE, ordering the appellees to pay appellants the
actual value of the lost jewelry amounting to P272,000.00, and
attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner
corporation, the CA applied the doctrine of piercing the veil of
corporate entity reasoning that respondents were misled into
thinking that they were dealing with the pawnshop owned by
petitioner Sicam as all the pawnshop tickets issued to them bear
the words "Agencia de R.C. Sicam"; and that there was no
indication on the pawnshop tickets that it was the petitioner
corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of
a pawnshop is that it should take steps to secure and protect the
pledged items and should take steps to insure itself against the

loss of articles which are entrusted to its custody as it derives

earnings from the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the robbery
incident happened in 1961 when the criminality had not as yet
reached the levels attained in the present day; that they are at
least guilty of contributory negligence and should be held liable
for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.
The CA concluded that both petitioners should be jointly and
severally held liable to respondents for the loss of the pawned
jewelry.
Petitioners motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the following
assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT
THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH
ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE
RESPONDENTS IN THEIR BRIEF WITHOUT ADDING
ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CAs
finding that petitioner Sicam is personally liable for the loss of the
pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants brief."10
Petitioners argue that the reproduced arguments of respondents
in their Appellants Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the
present owner of Agencia de R.C. Sicam Pawnshop, and
therefore, the CA cannot rule against said conclusive assertion of
respondents;
(2) The issue resolved against petitioner Sicam was not among
those raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the CA to
have pierced the corporate veil since a corporation has a
personality distinct and separate from its individual stockholders
or members.
Anent the second error, petitioners point out that the CA finding
on their negligence is likewise an unedited reproduction of
respondents brief which had the following defects:

(1) There were unrebutted evidence on record that petitioners

had observed the diligence required of them, i.e, they wanted to
open a vault with a nearby bank for purposes of safekeeping the
pawned articles but was discouraged by the Central Bank (CB)
since CB rules provide that they can only store the pawned
articles in a vault inside the pawnshop premises and no other
place;
(2) Petitioners were adjudged negligent as they did not take
insurance against the loss of the pledged jelweries, but it is
judicial notice that due to high incidence of crimes, insurance
companies refused to cover pawnshops and banks because of
high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA
39, 45-46), the victim of robbery was exonerated from liability for
the sum of money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their
Reply thereto. The parties subsequently submitted their
respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were
exact reproductions of the arguments raised in respondents
(appellants) brief filed with the CA, we find the same to be not
fatally infirmed. Upon examination of the Decision, we find that it
expressed clearly and distinctly the facts and the law on which it
is based as required by Section 8, Article VIII of the Constitution.
The discretion to decide a case one way or another is broad
enough to justify the adoption of the arguments put forth by one
of the parties, as long as these are legally tenable and supported
by law and the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited to
the review of errors of law committed by the appellate court.
Generally, the findings of fact of the appellate court are deemed
conclusive and we are not duty-bound to analyze and calibrate
all over again the evidence adduced by the parties in the court a
quo.12 This rule, however, is not without exceptions, such as
where the factual findings of the Court of Appeals and the trial
court are conflicting or contradictory13 as is obtaining in the
instant case.
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and
adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may be
pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. 14 The theory of corporate entity was
not meant to promote unfair objectives or otherwise to shield
them.15
Notably, the evidence on record shows that at the time
respondent Lulu pawned her jewelry, the pawnshop was owned
by petitioner Sicam himself. As correctly observed by the CA, in
all the pawnshop receipts issued to respondent Lulu in

September 1987, all bear the words "Agencia de R. C. Sicam,"

notwithstanding that the pawnshop was allegedly incorporated in
April 1987. The receipts issued after such alleged incorporation
were still in the name of "Agencia de R. C. Sicam," thus
inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the
pawnshop was owned solely by petitioner Sicam and not by a
corporation.
Even petitioners counsel, Atty. Marcial T. Balgos, in his
letter16 dated October 15, 1987 addressed to the Central Bank,
expressly referred to petitioner Sicam as the proprietor of the
pawnshop notwithstanding the alleged incorporation in April
1987.
We also find no merit in petitioners' argument that since
respondents had alleged in their Amended Complaint that
petitioner corporation is the present owner of the pawnshop, the
CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an
admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The
admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive
upon the party making it and does not require proof, admits of
two exceptions, to wit: (1) when it is shown that such admission
was made through palpable mistake, and (2) when it is shown
that no such admission was in fact made. The latter exception
allows one to contradict an admission by denying that he
made such an admission.17
The Committee on the Revision of the Rules of Court explained
the second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but
cites the admission "out of context," then the one making the
"admission" may show that he made no "such" admission,
or that his admission was taken out of context.
x x x that the party can also show that he made no "such
admission", i.e., not in the sense in which the admission is
made to appear.
That is the reason for the modifier "such" because if the rule
simply states that the admission may be contradicted by showing
that "no admission was made," the rule would not really be
providing for a contradiction of the admission but just a
denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended
Complaint that petitioner corporation is the present owner of the
pawnshop, they did so only because petitioner Sicam alleged in
his Answer to the original complaint filed against him that he was
not the real party-in-interest as the pawnshop was incorporated
in April 1987. Moreover, a reading of the Amended Complaint in
its entirety shows that respondents referred to both petitioner
Sicam and petitioner corporation where they (respondents)

pawned their assorted pieces of jewelry and ascribed to both the

failure to observe due diligence commensurate with the business
which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners Motion
to Dismiss Amended Complaint, insofar as petitioner Sicam is
concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original
complaint because the pawnshop tickets involved in this case did
not show that the R.C. Sicam Pawnshop was a corporation. In
paragraph 1 of his Answer, he admitted the allegations in
paragraph 1 and 2 of the Complaint. He merely added "that
defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop
tickets used in the subject transactions in this case which was
the cause of the instant action. He cannot now ask for the
dismissal of the complaint against him simply on the mere
allegation that his pawnshop business is now incorporated. It is a
matter of defense, the merit of which can only be reached after
consideration of the evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken "out of context" by petitioner
Sicam to suit his own purpose. Ineluctably, the fact that petitioner
Sicam continued to issue pawnshop receipts under his name
and not under the corporation's name militates for the piercing of
the corporate veil.
We likewise find no merit in petitioners' contention that the CA
erred in piercing the veil of corporate fiction of petitioner
corporation, as it was not an issue raised and litigated before the
RTC.
Petitioner Sicam had alleged in his Answer filed with the trial
court that he was not the real party-in-interest because since
April 20, 1987, the pawnshop business initiated by him was
incorporated and known as Agencia de R.C. Sicam. In the pretrial brief filed by petitioner Sicam, he submitted that as far as he
was concerned, the basic issue was whether he is the real party
in interest against whom the complaint should be directed.20 In
fact, he subsequently moved for the dismissal of the complaint
as to him but was not favorably acted upon by the trial court.
Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as
far as he is concerned for the reason that he cannot be made
personally liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C.
Sicam, Jr. The amended complaint itself asserts that "plaintiff
pawned assorted jewelries in defendant's pawnshop." It has
been held that " as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not
the debt or credit of the stockholder, nor is the stockholder's debt
or credit that of a corporation.21

Clearly, in view of the alleged incorporation of the pawnshop, the

issue of whether petitioner Sicam is personally liable is
inextricably connected with the determination of the question
whether the doctrine of piercing the corporate veil should or
should not apply to the case.
The next question is whether petitioners are liable for the loss of
the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a
fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature
of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen or
which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible
for the debtor to fulfill obligations in a normal manner; and, (d)
the obligor must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it.24 And, in order for a fortuitous event
to exempt one from liability, it is necessary that one has
committed no negligence or misconduct that may have
occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect
a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may
have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is found to
be partly the result of a person's participation -- whether by
active intervention, neglect or failure to act -- the whole
occurrence is humanized and removed from the rules applicable
to acts of God. 26
Petitioner Sicam had testified that there was a security guard in
their pawnshop at the time of the robbery. He likewise testified
that when he started the pawnshop business in 1983, he thought

of opening a vault with the nearby bank for the purpose of

safekeeping the valuables but was discouraged by the Central
Bank since pawned articles should only be stored in a vault
inside the pawnshop. The very measures which petitioners had
allegedly adopted show that to them the possibility of robbery
was not only foreseeable, but actually foreseen and anticipated.
Petitioner Sicams testimony, in effect, contradicts petitioners
defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have
been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It
does not foreclose the possibility of negligence on the part of
herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully
placed in its possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The fact that a
thing was unlawfully and forcefully taken from another's
rightful possession, as in cases of carnapping, does not
automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere
forceful taking of another's property. It must be proved and
established that the event was an act of God or was done
solely by third parties and that neither the claimant nor the
person alleged to be negligent has any participation. In
accordance with the Rules of Evidence, the burden of
proving that the loss was due to a fortuitous event rests on
him who invokes it which in this case is the private
respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault.
A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of private
respondent notwithstanding the parties' agreement at the pretrial that the car was carnapped. Carnapping does not foreclose
the possibility of fault or negligence on the part of private
respondent.28
Just like in Co, petitioners merely presented the police report of
the Paraaque Police Station on the robbery committed based
on the report of petitioners' employees which is not sufficient to
establish robbery. Such report also does not prove that
petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did
not err in finding that petitioners are guilty of concurrent or
contributory negligence as provided in Article 1170 of the Civil
Code, to wit:
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.29

Article 2123 of the Civil Code provides that with regard to

pawnshops and other establishments which are engaged in
making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and subsidiarily,
the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil
Code, provides that the creditor shall take care of the thing
pledged with the diligence of a good father of a family. This
means that petitioners must take care of the pawns the way a
prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the
persons, of time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the
omission to do something which a reasonable man, guided by
those considerations which ordinarily regulate the conduct of
human affairs, would do; or the doing of something which a
prudent and reasonable man would not do.31 It is want of care
required by the circumstances.
A review of the records clearly shows that petitioners failed to
exercise reasonable care and caution that an ordinarily prudent
person would have used in the same situation. Petitioners were
guilty of negligence in the operation of their pawnshop business.
Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the
premises when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a
pawnshop.
Q. I am asking you how were the robbers able to enter despite
the fact that there was a security guard?
A. At the time of the incident which happened about 1:00 and
2:00 o'clock in the afternoon and it happened on a Saturday and
everything was quiet in the area BF Homes Paraaque they
pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was
announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the
pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was
open the reason why the robbers were able to get all the items
pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by
petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by petitioners to
protect the pawnshop from unlawful intrusion. There was no
clear showing that there was any security guard at all. Or if there
was one, that he had sufficient training in securing a pawnshop.
Further, there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were allowed
to enter the premises. In fact, it is even doubtful that there was a
security guard, since it is quite impossible that he would not have
noticed that the robbers were armed with caliber .45 pistols
each, which were allegedly poked at the
employees.33 Significantly, the alleged security guard was not
presented at all to corroborate petitioner Sicam's claim; not one
of petitioners' employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was
open at the time of robbery is clearly a proof of petitioners' failure
to observe the care, precaution and vigilance that the
circumstances justly demanded. Petitioner Sicam testified that
once the pawnshop was open, the combination was already off.
Considering petitioner Sicam's testimony that the robbery took
place on a Saturday afternoon and the area in BF Homes
Paraaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence
in protecting the pawned jewelries. Instead of taking the
precaution to protect them, they let open the vault, providing no
difficulty for the robbers to cart away the pawned articles.
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss
of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13, 1973,
and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged
must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of
business of a pawnshop and the pawns pledged to it must be
insured against fire and against burglary as well as for the
latter(sic), by an insurance company accredited by the Insurance
Commissioner.
However, this Section was subsequently amended by CB
Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns The office
building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was

deleted. Obviously, the Central Bank considered it not feasible to
require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no statutory
duty imposed on petitioners to insure the pawned jewelry in
which case it was error for the CA to consider it as a factor in
concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that
petitioners failed to exercise the diligence required of them under
the Civil Code.
The diligence with which the law requires the individual at all
times to govern his conduct varies with the nature of the situation
in which he is placed and the importance of the act which he is to
perform.34 Thus, the cases of Austria v. Court of
Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated from
liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant
with diamonds to be sold on commission basis, but which Abad
failed to subsequently return because of a robbery committed
upon her in 1961. The incident became the subject of a criminal
case filed against several persons. Austria filed an action against
Abad and her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of Austria,
as the Abads failed to prove robbery; or, if committed, that Maria
Abad was guilty of negligence. The CA, however, reversed the
RTC decision holding that the fact of robbery was duly
established and declared the Abads not responsible for the loss
of the jewelry on account of a fortuitous event. We held that for
the Abads to be relieved from the civil liability of returning the
pendant under Art. 1174 of the Civil Code, it would only be
sufficient that the unforeseen event, the robbery, took place
without any concurrent fault on the debtors part, and this can be
done by preponderance of evidence; that to be free from liability
for reason of fortuitous event, the debtor must, in addition to the
casus itself, be free of any concurrent or contributory fault or
negligence.38
We found in Austria that under the circumstances prevailing at
the time the Decision was promulgated in 1971, the City of
Manila and its suburbs had a high incidence of crimes against
persons and property that rendered travel after nightfall a matter
to be sedulously avoided without suitable precaution and
protection; that the conduct of Maria Abad in returning alone to
her house in the evening carrying jewelry of considerable value
would have been negligence per se and would not exempt her
from responsibility in the case of robbery. However we did not
hold Abad liable for negligence since, the robbery happened ten

years previously; i.e., 1961, when criminality had not reached the
level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when
robbery was already prevalent and petitioners in fact had already
foreseen it as they wanted to deposit the pawn with a nearby
bank for safekeeping. Moreover, unlike inAustria, where no
negligence was committed, we found petitioners negligent in
securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special
disbursing officer of the Ternate Beach Project of the Philippine
Tourism in Cavite. In the morning of July 1, 1983, a Friday, he
went to Manila to encash two checks covering the wages of the
employees and the operating expenses of the project. However
for some reason, the processing of the check was delayed and
was completed at about 3 p.m. Nevertheless, he decided to
encash the check because the project employees would be
waiting for their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when the main
office would open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early evening; or
(2) take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following day. He
chose the second option, thinking it was the safer one. Thus, a
little past 3 p.m., he took a passenger jeep bound for Bulacan.
While the jeep was on Epifanio de los Santos Avenue, the jeep
was held up and the money kept by Hernandez was taken, and
the robbers jumped out of the jeep and ran. Hernandez chased
the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other
robber who held the stolen money escaped. The Commission on
Audit found Hernandez negligent because he had not brought
the cash proceeds of the checks to his office in Ternate, Cavite
for safekeeping, which is the normal procedure in the handling of
funds. We held that Hernandez was not negligent in deciding to
encash the check and bringing it home to Marilao, Bulacan
instead of Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive for his
co-employees to collect their wages and salaries the following
day, a Saturday, a non-working, because to encash the check on
July 5, the next working day after July 1, would have caused
discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination,
being nearer, and in view of the comparative hazards in the trips
to the two places, said decision seemed logical at that time. We
further held that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and in the
presence of other passengers could not be said to be a result of
his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a public
utility, the robbery in this case took place in the pawnshop which
is under the control of petitioners. Petitioners had the means to

screen the persons who were allowed entrance to the premises

and to protect itself from unlawful intrusion. Petitioners had failed
to exercise precautionary measures in ensuring that the robbers
were prevented from entering the pawnshop and for keeping the
vault open for the day, which paved the way for the robbers to
easily cart away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of
Technological Education and Skills Development Authority
(TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat
Avenue to Monumento when her handbag was slashed and the
contents were stolen by an unidentified person. Among those
stolen were her wallet and the government-issued cellular
phone. She then reported the incident to the police authorities;
however, the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability
for the cellphone. The Resident Auditor denied her request on
the ground that she lacked the diligence required in the custody
of government property and was ordered to pay the purchase
value in the total amount of P4,238.00. The COA found no
sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that riding the
LRT cannot per se be denounced as a negligent act more so
because Cruzs mode of transit was influenced by time and
money considerations; that she boarded the LRT to be able to
arrive in Caloocan in time for her 3 pm meeting; that any prudent
and rational person under similar circumstance can reasonably
be expected to do the same; that possession of a cellphone
should not hinder one from boarding the LRT coach as Cruz did
considering that whether she rode a jeep or bus, the risk of theft
would have also been present; that because of her relatively low
position and pay, she was not expected to have her own vehicle
or to ride a taxicab; she did not have a government assigned
vehicle; that placing the cellphone in a bag away from covetous
eyes and holding on to that bag as she did is ordinarily sufficient
care of a cellphone while traveling on board the LRT; that the
records did not show any specific act of negligence on her part
and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in
petitioners' pawnshop and they were negligent in not exercising
the precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of
the Court of Appeals dated March 31, 2003 and its Resolution
dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 177921
December 4, 2013
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE
S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND
MERCEDES DYCHIAO, AND SPOUSES VICENTE AND
FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated February 12, 2007 and the Resolution3dated
May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
86896 which reversed and set aside the Decision4 dated January
17, 2006 of the Regional Trial Court of Makati, Branch 57 (RTC)
in Civil Case No. 00-1563, thereby ordering petitioners Metro
Concast Steel Corporation (Metro Concast), Spouses Jose S.
Dychiao and Tiu Oh Yan, Spouses Guillermo and Mercedes
Dychiao, and Spouses Vicente and Filomena Duchiao (individual
petitioners) to solidarily pay respondent Allied Bank Corporation
(Allied Bank) the aggregate amount ofP51,064,094.28, with
applicable interests and penalty charges.
The Facts
On various dates and for different amounts, Metro Concast, a
corporation duly organized and existing under and by virtue of
Philippine laws and engaged in the business of manufacturing
steel,5 through its officers, herein individual petitioners, obtained
several loans from Allied Bank. These loan transactions were
covered by a promissory note and separate letters of credit/trust
receipts, the details of which are as follows:
<<Reference: http://www.scribd.com/doc/196404620/177921>>
Date Document Amount
December 13, 1996 Promissory Note No. 96-213016
P2,000,000.00 November 7, 1995 Trust Receipt No. 96-2023657
P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228
P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249
P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410
P7,289,757.79 June 7, 1996 Trust Receipt No. 96-20328011
P17,340,360.73 July 26, 1995 Trust Receipt No. 95-20194312
P670,709.24 August 31, 1995 Trust Receipt No. 95-20205313
P313,797.41 November 16, 1995 Trust Receipt No. 96-20243914
P13,015,109.87 July 3, 1996 Trust Receipt No. 96-20355215
P401,608.89 June 20, 1995 Trust Receipt No. 95-20171016
P750,089.25 December 13, 1995 Trust Receipt No. 96-37908917
P92,919.00 December 13, 1995 Trust Receipt No. 96/20258118
P224,713.58
The interest rate under Promissory Note No. 96-21301 was
pegged at 15.25% per annum (p.a.), with penalty charge of 3%
per month in case of default; while the twelve (12) trust receipts
uniformly provided for an interest rate of 14% p.a. and 1%
penalty charge. By way of security, the individual petitioners

executed several Continuing Guaranty/Comprehensive Surety

Agreements19 in favor of Allied Bank. Petitioners failed to settle
their obligations under the aforementioned promissory note and
trust receipts, hence, Allied Bank, through counsel, sent them
demand letters,20 all dated December 10, 1998, seeking payment
of the total amount of P51,064,093.62, but to no avail. Thus,
Allied Bank was prompted to file a complaint for collection of sum
of money21 (subject complaint) against petitioners before the
RTC, docketed as Civil Case No. 00-1563. In their
second22 Amended Answer,23petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests
and penalties charged, claiming to have paid the total sum
of P65,073,055.73 by way of interest charges for the period
covering 1992 to 1997.24
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the
peso against the US dollar contributed greatly to the downfall of
the steel industry, directly affecting the business of Metro
Concast and eventually leading to its cessation. Hence, in order
to settle their debts with Allied Bank, petitioners offered the sale
of Metro Concasts remaining assets, consisting of machineries
and equipment, to Allied Bank, which the latter, however,
refused. Instead, Allied Bank advised them to sell the equipment
and apply the proceeds of the sale to their outstanding
obligations. Accordingly, petitioners offered the equipment for
sale, but since there were no takers, the equipment was reduced
into ferro scrap or scrap metal over the years. In 2002, Peakstar
Oil Corporation (Peakstar), represented by one Crisanta
Camiling (Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar, petitioners claimed
that Atty. Peter Saw (Atty. Saw), a member of Allied Banks legal
department, acted as the latters agent. Eventually, with the
alleged conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement25 dated November 8, 2002 (MoA)
was drawn between Metro Concast, represented by petitioner
Jose Dychiao, and Peakstar, through Camiling, under which
Peakstar obligated itself to purchase the scrap metal for a total
consideration of P34,000,000.00, payable as follows:
(a) P4,000,000.00 by way of earnest money P2,000,000.00 to
be paid in cash and the other P2,000,000.00 to be paid in two (2)
post-dated checks of P1,000,000.00 each;26 and
(b) the balance of P30,000,000.00 to be paid in ten (10) monthly
installments of P3,000,000.00, secured by bank guarantees from
Bankwise, Inc. (Bankwise) in the form of separate post-dated
checks.27
Unfortunately, Peakstar reneged on all its obligations under the
MoA. In this regard, petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to Allied
Bank must be considered as force majeure ; and
(b) since Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners must

therefore be deemed to have settled their obligations to Allied

Bank. To bolster their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was Atty. Saw himself who
drafted the MoA and subsequently received29 the P2,000,000.00
cash and the two (2) Bankwise post-dated checks
worth P1,000,000.00 each from Camiling. However, Atty. Saw
turned over only the two (2) checks and P1,500,000.00 in cash
to the wife of Jose Dychiao.30
Claiming that the subject complaint was falsely and maliciously
filed, petitioners prayed for the award of moral damages in the
amount of P20,000,000.00 in favor of Metro Concast and at
least P25,000,000.00 for each individual
petitioner, P25,000,000.00 as exemplary
damages, P1,000,000.00 as attorneys fees, P500,000.00 for
other litigation expenses, including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated January
17, 2006, dismissed the subject complaint, holding that the
"causes of action sued upon had been paid or otherwise
extinguished." It ruled that since Allied Bank was duly
represented by its agent, Atty. Saw, in all the negotiations and
transactions with Peakstar considering that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and
disposition of the scrap metal then it stands to reason that the
MoA between Metro Concast and Peakstar was binding upon
said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision32 dated
February 12, 2007, reversed and set aside the ruling of the RTC,
ratiocinating that there was "no legal basis in fact and in law to
declare that when Bankwise reneged its guarantee under the
[MoA], herein [petitioners] should be deemed to be discharged
from their obligations lawfully incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as
seller of the ferro scrap, and Peakstar, as the buyer thereof, and
found that the same did not indicate that Allied Bank intervened
or was a party thereto. It also pointed out the fact that the postdated checks pursuant to the MoA were issued in favor of Jose
Dychiao. Likewise, the CA found no sufficient evidence on record
showing that Atty. Saw was duly and legally authorized to act for
and on behalf of Allied Bank, opining that the RTC was "indulging
in hypothesis and speculation"34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money
from Peakstar, the receipt was signed by him on behalf of Jose
Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks
and receipts were signed by [Atty.] Saw either as representative
of [petitioners] or as partner of the latters legal counsel, and not
in anyway as representative of [Allied Bank]."36

Consequently, the CA granted the appeal and directed

petitioners to solidarily pay Allied Bank their corresponding
obligations under the aforementioned promissory note and trust
receipts, plus interests, penalty charges and attorneys fees.
Petitioners sought reconsideration37 which was, however, denied
in a Resolution38 dated May 10, 2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of
whether or not the loan obligations incurred by the petitioners
under the subject promissory note and various trust receipts
have already been extinguished.
The Courts Ruling
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the
thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor,
compensation or novation.
In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due to
Peakstars failure to perform its own obligations to Metro
Concast pursuant to the MoA. Petitioners classify Peakstars
default as a form of force majeure in the sense that they have,
beyond their control, lost the funds they expected to have
received from the Peakstar (due to the MoA) which they would,
in turn, use to pay their own loan obligations to Allied Bank. They
further state that Allied Bank was equally bound by Metro
Concasts MoA with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution of the said
agreement. Petitioners arguments are untenable. At the outset,
the Court must dispel the notion that the MoA would have any
relevance to the performance of petitioners obligations to Allied
Bank. The MoA is a sale of assets contract, while petitioners
obligations to Allied Bank arose from various loan transactions.
Absent any showing that the terms and conditions of the latter
transactions have been, in any way, modified or novated by the
terms and conditions in the MoA, said contracts should be
treated separately and distinctly from each other, such that the
existence, performance or breach of one would not depend on
the existence, performance or breach of the other. In the
foregoing respect, the issue on whether or not Allied Bank
expressed its conformity to the assets sale transaction between
Metro Concast and Peakstar (as evidenced by the MoA) is
actually irrelevant to the issues related to petitioners loan
obligations to the bank. Besides, as the CA pointed out, the fact
of Allied Banks representation has not been proven in this case
and hence, cannot be deemed as a sustainable defense to
exculpate petitioners from their loan obligations to Allied Bank.
Now, anent petitioners reliance on force majeure, suffice it to
state that Peakstars breach of its obligations to Metro Concast
arising from the MoA cannot be classified as a fortuitous event

under jurisprudential formulation. As discussed in Sicam v.

Jorge:39
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a fortuitous
event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the
debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a
normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss.40(Emphases
supplied)
While it may be argued that Peakstars breach of the MoA was
unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will."
Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied
Bank and thus, negates the formers force majeure theory
altogether. In any case, as earlier stated, the performance or
breach of the MoA bears no relation to the performance or
breach of the subject loan transactions, they being separate and
distinct sources of obligations. The fact of the matter is that
petitioners loan obligations to Allied Bank remain subsisting for
the basic reason that the former has not been able to prove that
the same had already been paid41 or, in any way, extinguished. In
this regard, petitioners liability, as adjudged by the CA, must
perforce stand. Considering, however, that Allied Banks extrajudicial demand on petitioners appears to have been made only
on December 10, 1998, the computation of the applicable
interests and penalty charges should be reckoned only from
such date.
WHEREFORE, the petition is DENIED. The Decision dated
February 12, 2007 and Resolution dated May 10, 2007 of the
Court of Appeals in CA-G.R. CV No. 86896 are hereby
AFFIRMED with MODIFICATION reckoning the applicable
interests and penalty charges from the date of the extrajudicial
demand or on December 10, 1998. The rest of the appellate
courts dispositions stand.
SO ORDERED.
1181 ACQUISITION / EXTINGUISHMENT OF RIGHTS

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-109937 March 21, 1994
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN
B. DANS, represented by CANDIDA G. DANS, and the DBP
MORTGAGE REDEMPTION INSURANCE POOL, respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage
Redemption Insurance Pool.
QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court to reverse and set aside the decision of
the Court of Appeals in CA-G.R CV No. 26434 and its resolution
denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his
son and daughter-in-law, applied for a loan of P500,000.00 with
the Development Bank of the Philippines (DBP), Basilan Branch.
As the principal mortgagor, Dans, then 76 years of age, was
advised by DBP to obtain a mortgage redemption insurance
(MRI) with the DBP Mortgage Redemption Insurance Pool (DBP
MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by
DBP on August 4, 1987 and released on August 11, 1987. From
the proceeds of the loan, DBP deducted the amount of
P1,476.00 as payment for the MRI premium. On August 15,
1987, Dans accomplished and submitted the "MRI Application for
Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP
service fee of 10 percent, was credited by DBP to the savings
account of the DBP MRI Pool. Accordingly, the DBP MRI Pool
was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP,
upon notice, relayed this information to the DBP MRI Pool. On
September 23, 1987, the DBP MRI Pool notified DBP that Dans
was not eligible for MRI coverage, being over the acceptance
age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the
disapproval of her late husband's MRI application. The DBP
offered to refund the premium of P1,476.00 which the deceased
had paid, but Candida Dans refused to accept the same,
demanding payment of the face value of the MRI or an amount
equivalent to the loan. She, likewise, refused to accept an ex
gratia settlement of P30,000.00, which the DBP later offered.

On February 10, 1989, respondent Estate, through Candida

Dans as administratrix, filed a complaint with the Regional Trial
Court, Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate
alleged that Dans became insured by the DBP MRI Pool when
DBP, with full knowledge of Dans' age at the time of application,
required him to apply for MRI, and later collected the insurance
premium thereon. Respondent Estate therefore prayed: (1) that
the sum of P139,500.00, which it paid under protest for the loan,
be reimbursed; (2) that the mortgage debt of the deceased be
declared fully paid; and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers,
with the former asserting a cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the
documents and exhibits submitted by respondent Estate. As a
result of these admissions, the trial court narrowed down the
issues and, without opposition from the parties, found the case
ripe for summary judgment. Consequently, the trial court ordered
the parties to submit their respective position papers and
documentary evidence, which may serve as basis for the
judgment.
On March 10, 1990, the trial court rendered a decision in favor of
respondent Estate and against DBP. The DBP MRI Pool,
however, was absolved from liability, after the trial court found no
privity of contract between it and the deceased. The trial court
declared DBP in estoppel for having led Dans into applying for
MRI and actually collecting the premium and the service fee,
despite knowledge of his age ineligibility. The dispositive portion
of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the
furtherance of justice and equity, the Court finds judgment for the
plaintiff and against Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00
plus legal rate of interest as amortization payment paid under
protest;
2. To consider the mortgage loan of P300,000.00 including all
interest accumulated or otherwise to have been settled, satisfied
or set-off by virtue of the insurance coverage of the late Juan B.
Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of
litigation and other expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are
hereby dismissed. The Cross-claim of Defendant DBP is likewise
dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated
September 7, 1992, the appellate court affirmed in toto the
decision of the trial court. The DBP's motion for reconsideration
was denied in a resolution dated April 20, 1993.
Hence, this recourse.
II

When Dans applied for MRI, he filled up and personally signed a

"Health Statement for DBP MRI Pool" (Exh. "5-Bank") with the
following declaration:
I hereby declare and agree that all the statements and answers
contained herein are true, complete and correct to the best of my
knowledge and belief and form part of my application for
insurance. It is understood and agreed that no insurance
coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good
health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall
take effect: (1) when the application shall be approved by the
insurance pool; and (2) when the full premium is paid during the
continued good health of the applicant. These two conditions,
being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged
with the DBP MRI Pool. The pool, however, did not approve the
application of Dans. There is also no showing that it accepted
the sum of P1,476.00, which DBP credited to its account with full
knowledge that it was payment for Dan's premium. There was,
as a result, no perfected contract of insurance; hence, the DBP
MRI Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required
Dans, the borrower, to secure MRI coverage. Instead of allowing
Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI
Pool for MRI coverage. When Dan's loan was released on
August 11, 1987, DBP already deducted from the proceeds
thereof the MRI premium. Four days latter, DBP made Dans fill
up and sign his application for MRI, as well as his health
statement. The DBP later submitted both the application form
and health statement to the DBP MRI Pool at the DBP Main
Building, Makati Metro Manila. As service fee, DBP deducted 10
percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first
as a lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion
of applying for said insurance, thereby leading him and his family
to believe that they had already fulfilled all the requirements for
the MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was
never going to be approved. The maximum age for MRI
acceptance is 60 years as clearly and specifically provided in
Article 1 of the Group Mortgage Redemption Insurance Policy
signed in 1984 by all the insurance companies concerned (Exh.
"1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the
agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or

exceeds the limits of his authority without giving such party

sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when
its clients are more than 60 years of age (Exh. "1-Pool").
Knowing all the while that Dans was ineligible for MRI coverage
because of his advanced age, DBP exceeded the scope of its
authority when it accepted Dan's application for MRI by collecting
the insurance premium, and deducting its agent's commission
and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of
the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits
of the authority conferred by the principal on the agent and he
(third person) has been deceived by the non-disclosure thereof
by the agent, then the latter is liable for damages to him (V
Tolentino, Commentaries and Jurisprudence on the Civil Code of
the Philippines, p. 422 [1992], citing Sentencia [Cuba] of
September 25, 1907). The rule that the agent is liable when he
acts without authority is founded upon the supposition that there
has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority
under which he assumes to act (Francisco, V., Agency 307
[1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as
the non-disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the unsuspecting
client, the provisions of Articles 19, 20 and 21 of the Civil Code of
the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due
and observe honesty and good faith.
Article 20 provides:
Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the
insurance policy. To assume that were it not for DBP's
concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore
would have been fully insured by the time he died, is highly
speculative. Considering his advanced age, there is no absolute
certainty that Dans could obtain an insurance coverage from
another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the
MRI, and on the twenty-third day from the date of release of his
loan.

One is entitled to an adequate compensation only for such

pecuniary loss suffered by him as he has duly proved (Civil Code
of the Philippines, Art. 2199). Damages, to be recoverable, must
not only be capable of proof, but must be actually proved with a
reasonable degree of certainty (Refractories Corporation v.
Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek
Hee v. Philippine Publishing Co., 34 Phil. 447 [1916]).
Speculative damages are too remote to be included in an
accurate estimate of damages (Sun Life Assurance v. Rueda
Hermanos, 37 Phil. 844 [1918]).
While Dans is not entitled to compensatory damages, he is
entitled to moral damages. No proof of pecuniary loss is required
in the assessment of said kind of damages (Civil Code of
Philippines, Art. 2216). The same may be recovered in acts
referred to in Article 2219 of the Civil Code.
The assessment of moral damages is left to the discretion of the
court according to the circumstances of each case (Civil Code of
the Philippines, Art. 2216). Considering that DBP had offered to
pay P30,000.00 to respondent Estate in ex gratia settlement of
its claim and that DBP's non-disclosure of the limits of its
authority amounted to a deception to its client, an award of moral
damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the
circumstances (Civil Code of the Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to
REIMBURSE respondent Estate of Juan B. Dans the amount of
P1,476.00 with legal interest from the date of the filing of the
complaint until fully paid; and (2) to PAY said Estate the amount
of Fifty Thousand Pesos (P50,000.00) as moral damages and
the amount of Ten Thousand Pesos (P10,000.00) as attorney's
fees. With costs against petitioner.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N.
LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND
REMARENE LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing

petitioner to reconvey to private respondents the property

donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central Philippine
College (now Central Philippine University [CPU]), executed a
deed of donation in favor of the latter of a parcel of land identified
as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a
portion of Lot No. 3174-B, for which Transfer Certificate of Title
No. T-3910-A was issued in the name of the donee CPU with the
following annotations copied from the deed of donation
1. The land described shall be utilized by the CPU exclusively for
the establishment and use of a medical college with all its
buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third
party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and
the said college shall be under obligation to erect a cornerstone
bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ
CAMPUS FUND" to be used for improvements of said campus
and erection of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don
Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that since
1939 up to the time the action was filed the latter had not
complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact negotiated
with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because it
never used the donated property for any other purpose than that
for which it was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it null
and void. The court a quo further directed petitioner to execute a
deed of the reconveyance of the property in favor of the heirs of
the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a period
within which the condition must be fulfilled, hence, until a period
was fixed for the fulfillment of the condition, petitioner could not
be considered as having failed to comply with its part of the

bargain. Thus, the appellate court rendered its decision reversing

the appealed decision and remanding the case to the court of
origin for the determination of the time within which petitioner
should comply with the first condition annotated in the certificate
of title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title of
petitioner are onerous obligations and resolutory conditions of
the donation which must be fulfilled non-compliance of which
would render the donation revocable; (b) in holding that the issue
of prescription does not deserve "disquisition;" and, (c) in
remanding the case to the trial court for the fixing of the period
within which petitioner would establish a medical college. 2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don
Ramon Lopez, Sr., gives us no alternative but to conclude that
his donation was onerous, one executed for a valuable
consideration which is considered the equivalent of the donation
itself, e.g., when a donation imposes a burden equivalent to the
value of the donation. A gift of land to the City of Manila requiring
the latter to erect schools, construct a children's playground and
open streets on the land was considered an onerous
donation. 3 Similarly, where Don Ramon Lopez donated the
subject parcel of land to petitioner but imposed an obligation
upon the latter to establish a medical college thereon, the
donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the
event which constitutes the condition. Thus, when a person
donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a resolutory
one. 4 It is not correct to say that the schoolhouse had to be
constructed before the donation became effective, that is, before
the donee could become the owner of the land, otherwise, it
would be invading the property rights of the donor. The donation
had to be valid before the fulfillment of the condition. 5 If there
was no fulfillment or compliance with the condition, such as what
obtains in the instant case, the donation may now be revoked
and all rights which the donee may have acquired under it shall
be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of
private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a
medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to
comply with the condition thereof. Since the time within which the
condition should be fulfilled depended upon the exclusive will of
the petitioner, it has been held that its absolute acceptance and

the acknowledgment of its obligation provided in the deed of

donation were sufficient to prevent the statute of limitations from
barring the action of private respondents upon the original
contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued for
the revocation of the donation and recovery of the property
donated cannot be specifically determined in the instant case. A
cause of action arises when that which should have been done is
not done, or that which should not have been done is done. 7 In
cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which
determines the starting point for the computation of the period. In
this case, the starting point begins with the expiration of a
reasonable period and opportunity for petitioner to fulfill what has
been charged upon it by the donor.
The period of time for the establishment of a medical college and
the necessary buildings and improvements on the property
cannot be quantified in a specific number of years because of
the presence of several factors and circumstances involved in
the erection of an educational institution, such as government
laws and regulations pertaining to education, building
requirements and property restrictions which are beyond the
control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period was
intended, the general rule provided in Art. 1197 of the Civil Code
applies, which provides that the courts may fix the duration
thereof because the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for
compliance therewith and such period has arrived. 8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case. More
than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its
favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the
obligation when such procedure would be a mere technicality
and formality and would serve no purpose than to delay or lead
to an unnecessary and expensive multiplication of
suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of
the obligors cannot comply with what is incumbent upon him, the
obligee may seek rescission and the court shall decree the same
unless there is just cause authorizing the fixing of a period. In the
absence of any just cause for the court to determine the period
of the compliance, there is no more obstacle for the court to
decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically
a gratuitous one, doubts referring to incidental circumstances of

a gratuitous contract should be resolved in favor of the least

transmission of rights and interests.10 Records are clear and
facts are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action, petitioner
has failed to comply with its obligation as donee. Petitioner has
slept on its obligation for an unreasonable length of time. Hence,
it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property to
the heirs of the donor, private respondents herein, by means of
reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo,
Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan
Psd-1144 covered by Transfer Certificate of Title No. T-3910-A
within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.