Contracts 1e

G.R. No. 116665. March 20, 1996.
*
MELQUIADES D. AZCUNA, JR., petitioner, vs. COURT OF APPEALS,
ET AL., respondents.
Actions; Ejectment; Contracts; The rule that the only damages
that can be recovered in an ejectment suit are the fair rental
value or the reasonable compensation for the use and
occupation of the real property does not apply where the
additional award consists of stipulated liquidated damages.It is
petitioners claim that such
_______________
* THIRD DIVISION.
216
216
SUPREME COURT REPORTS ANNOTATED
Azcuna, Jr. vs. Court of Appeals
award, in addition to the fair rental value or reasonable
compensation for the use and occupation of the premises (subparagraph 1), is improper in the light of the doctrine enunciated
in the cases of Felesilda v. Villanueva, Shoemart, Inc. v. CA
and Hualam Construction and Development Corp. v. CA cited
by petitioner, that the only damages that can be recovered in
an ejectment suit are the fair rental value or the reasonable
compensation for the use and occupation of the real property.
Other damages must be claimed in an ordinary action.
Petitioners reliance on such doctrine is misplaced, inasmuch as
the Felesilda, Shoemart and Hualam cases dealt with
additional damages and charges other than liquidated damages,
defined as x x x those agreed upon by the parties to a contract,
to be paid in case of breach thereof. Here, the municipal trial

court, in making the P3,000.00 per day award, was merely
enforcing what was stipulated upon in black and white by
private respondent-lessor and petitioner-lessee appearing in
paragraph 10 of the lease contract.
Same; Same; Same; The freedom of the contracting parties to
make stipulations in their contract provided they are not
contrary to law, morals, good customs, public order or public
policy is settled. This is clearly an agreement for liquidated
damagesentitling private respondent to claim a stipulated
amount by way of damages (correctly totalling P3,000.00 per
day as there were three (3) units being leased by petitioner)
over and above other damages still legally due him, i.e., the fair
rental value for the use and occupation of the property as
provided for in Section 8, Rule 70 of the Rules of Court. The
freedom of the contracting parties to make stipulations in their
contract provided they are not contrary to law, morals, good
customs, public order or public policy is so settled, and the Court
finds nothing immoral or illegal with the indemnity/penalty
clause of the lease contract (paragraph 10) which does not
appear to have been forced upon or fraudulently foisted on
petitioner. Petitioner cannot now evade further liability for
liquidated damages, for after entering into such an agreement,
petitioner cannot thereafter turn his back on his word with a plea
that on him was inflicted a penalty shocking to the conscience
and impressed with inequity as to call for the relief sought on
the part of a judicial tribunal.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.

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VOL. 255, MARCH 20, 1996

217
Famador, Campos & Boquia for petitioner.
Adrian H. Villasis for private respondent.
FRANCISCO, J.:
Under a one (1) year lease contract commencing on July 1, 1992

and ending on June 30, 1993 but renewable upon agreement,
herein petitioner Azcuna, Jr., as lessee, occupied three (3) units
(C, E and F) of the building owned by private respondent
Barcelonas family. Came expiration date of the lease without an
agreed renewal thereof and coupled by petitioners failure to
surrender the leased units despite private respondents
demands, private respondent filed before the Municipal Trial
Court an ejectment case against petitioner. Judgment of that
inferior court, affirmed in its entirety by the Regional Trial Court
and herein public respondent Court of Appeals on subsequent
appeals taken by petitioner, favored private respondent, the
decretal portion of which reads:
PREMISES CONSIDERED, judgment is hereby rendered in favor
of the plaintiff, Ernesto E. Barcelona, ordering the defendant
Melquiades D. Azcuna, Jr., and all persons claiming rights under
him to vacate the premises known as Units C, E and F, in the
building owned by plaintiffs family located along Congressional
Avenue, Quezon City. Defendant is likewise ordered to pay the
following:
1. The sum of P25,000.00 monthly as rental for continued use
by defendant of the three (3) units of leased premises in
question starting July 1, 1993 less the amount that have been
deposited or given by the defendant to the plaintiff up to such
time the defendant and all persons claiming rights under him
finally vacate the aforesaid premises;
2. The further sum of P3,000.00 per day, by way of damages
for his failure to turn over peacefully the three (3) commercial
spaces to the plaintiff from July 1, 1993 until such time the
defendant and all persons claiming rights under him vacate the
premises;
3. The further sum of P5,000.00 by way of attorneys fees; and,
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4. The cost of this suit.
The counter-claim of the defendant is hereby Dismissed, for
lack of merit.
SO ORDERED.
Petitioner now comes to the Court via the instant petition not to
contest his ouster from the leased premises nor the amount of
monthly rental he was adjudged to pay until he vacates the
same, but only to take particular exception to respondent CAs
decision insofar as it affirmed the municipal trial courts award of
P3,000.00 per day as damages (subparagraph 2 of the
dispositive portion just quoted). It is petitioners claim that such
award, in addition to the fair rental value or reasonable
compensation for the use and occupation of the premises (subparagraph 1), is improper in the light of the doctrine enunciated
in the cases of Felesilda v. Villanueva,1 Shoemart, Inc. v. CA2
and Hualam Construction and Development Corp. v. CA3 cited
by petitioner, that the only damages that can be recovered in
an ejectment suit are the fair rental value or the reasonable

compensation for the use and occupation of the real property.
Other damages must be claimed in an ordinary action.
Petitioners reliance on such doctrine is misplaced, inasmuch as
the Felesilda, Shoemart and Hualam cases dealt with
additional damages and charges other than liquidated damages,
defined as x x x those agreed upon by the parties to a contract,
to be paid in case of breach thereof.4 Here, the municipal trial
court, in making the P3,000.00 per day award, was merely
enforcing what was stipulated upon in black and white by
private respondent-lessor and petitioner-lessee appearing in
paragraph 10 of the lease contract which reads:
________________
1 139 SCRA 431.

2 190 SCRA 189.
3 214 SCRA 612.
4 Article 2226, New Civil Code.
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VOL. 255, MARCH 20, 1996

219
That after the termination of the lease, the LESSEE shall
peaceably deliver to the LESSOR the leased premises vacant
and unencumbered and in good tenantable conditions minus the
ordinary wear and tear. In case the LESSEEs failure or inability
to do so, LESSOR has the right to charge the LESSEE P1,000.00
per day as damages without prejudice to other remedies which
LESSOR is entitled in the premise. (Italics supplied)
This is clearly an agreement for liquidated damagesentitling

private respondent to claim a stipulated amount by way of
damages (correctly totalling P3,000.00 per day as there were
three (3) units being leased by petitioner) over and above other
damages still legally due him, i.e., the fair rental value for the
use and occupation of the property as provided for in Section 8,
Rule 70 of the Rules of Court. The freedom of the contracting
parties to make stipulations in their contract provided they are
not contrary to law, morals, good customs, public order or public
policy is so settled, and the Court finds nothing immoral or
illegal with the indemnity/penalty clause of the lease contract
(paragraph 10) which does not appear to have been forced upon
or fraudulently foisted on petitioner. Petitioner cannot now
evade further liability for liquidated damages, for after entering
into such an agreement, petitioner cannot thereafter turn his
back on his word with a plea that on him was inflicted a penalty
shocking to the conscience and impressed with inequity as to
call for the relief sought on the part of a judicial tribunal.5
The controlling case here is, as correctly invoked by private
respondent, Gozon v. Vda. de Barrameda6 which involved
similar facts and the same issue raised by herein petitioner.
There, the then Court of First Instance of Rizal affirmed the
judgment of the then justice of the peace court of Caloocan in a
detainer case ordering defendant-appellant Barrameda to pay
complainant Gozon the sum of P1,622.43 as rentals due up to
July 3, 1958 plus P5,000.00 as liquidated damages, and costs.
Appellant Barrameda likewise assailed the propriety of the
P5,000.00 award in addition to the rentals. The Court
_______________
5 Limjoco v. CA and Robert Tan, 37 SCRA 663, 671.

6 11 SCRA 376.
220
220
upheld the then CFIs affirmatory decision by disposing of
appellant Barramedas protestation in this wise:
This Court has often stated that inferior courts have exclusive
jurisdiction over cases of forcible entry and detainer regardless
of the value of damages demanded. It has also ruled that the
damages that may be recovered in actions for ejectment are
those equivalent to a reasonable compensation for the use and
occupation of the premises by defendant. Nonetheless, this
latter legal proposition is not pertinent to the issue raised in the
instant case because here, the damage sought to be recovered
had previously been agreed to by lessee (in the contract of
lease) and imposed by lessor by way of damages. Besides,
nobody can affirm that the liquidated amount of damages
stipulated in the lease contract was not due to occupation or
loss of possession of the premises and non-compliance with the
contract. (Italics supplied)
WHEREFORE, the instant petition for review by way of certiorari
is hereby DENIED.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Panganiban,
JJ., concur.
Petition denied.
Notes.The price not greater than TWO HUNDRED PESOS in
the Contract of Lease with Option to Buy is, under the
circumstances of the case, certain and definite. (Serra vs. Court
of Appeals, 229 SCRA 60 [1994])
Where the lease contract entered into by an agent is for more

than one year, the agent must be armed with a special power of
attorney. (Vda. de Chua vs. Intermediate Appellate Court, 229
SCRA 99 [1994])
Courts authorized to fix the term of lease depending on how the
rentals are paid and on the length of the lessees occupancy of
the leased premises. (Chan vs. Court of Appeals, 230 SCRA 685
[1994]) [Azcuna, Jr. vs. Court of Appeals, 255 SCRA 215(1996)]
G.R. No. 61594. September 28, 1990.*

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
vs. HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON.
VICENTE LEOGARDO, JR., in his capacity as Deputy Minister;
ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG,
respondents.
Labor Relations; Due Process; Petitioner's right to procedural due
process was not violated even if no formal or oral hearing was
conducted, considering that it had ample opportunity to explain
its side.The second contention of petitioner PIA is that, even if
the Regional Director had jurisdiction, still his order was null and
void because it had been issued in violation of petitioner's right
to procedural due process. This claim, however, cannot be given
serious consideration. Petitioner was ordered by the Regional
Director to submit not only its position paper but also such
evidence in its favor as it might have. Petitioner opted to rely
solely upon its position paper; we must assume it had no
evidence to sustain its assertions. Thus, even if no formal or oral
hearing was conducted, petitioner had ample oppor_______________
* THIRD DIVISION.
91
VOL. 190, SEPTEMBER 28, 1990

91
Pakistan International Airlines Corporation vs. Ople
tunity to explain its side. Moreover, petitioner PIA was able to
appeal his case to the Ministry of Labor and Employment.
Contracts; Parties may not contract away applicable provisions

of law especially peremptory provisions dealing with matters
heavily impressed with public interest. The principle of party
autonomy in contracts is not absolute.A contract freely
entered into should, of course, be respected, as PIA argues,
since a contract is the law between the parties. The principle of
party autonomy in contracts is not, however, an absolute
principle. The rule in Article 1306, of our Civil Code is that the
contracting parties may establish such stipulations as they may
deem convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy." Thus,
counterbalancing the principle of autonomy of contracting
parties is the equally general rule that provisions of applicable
law, especially provisions relating to matters affected with public
policy, are deemed written into the contract. Put a little
differently, the governing principle is that parties may not
contract away applicable provisions of law especially
peremptory provisions dealing with matters heavily impressed
with public interest. The law relating to labor and employment is
clearly such an area and parties are not at liberty to insulate
themselves and their relationships from the impact of labor laws
and regulations by simply contracting with each other. It is thus
necessary to appraise the contractual provisions invoked by
petitioner PIA in terms of their consistency with applicable
Philippine law and regulations.
Labor Law; A contract providing for employment with a fixed
period was not necessarily unlawful.In Brent School, Inc., et al.
v. Ronaldo Zamora, etc., et al., the Court had occasion to
examine in detail the question of whether employment for a
fixed term has been outlawed under the above quoted
provisions of the Labor Code. After an extensive examination of
the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for
employment with a fixed period was not necessarily unlawful:
"There can of course be no quarrel with the proposition that
where from the circumstances it is apparent that periods have

been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as
contrary to public policy, morals, etc. But where no such intent
to circumvent the law is shown, or stated otherwise, where the
reason for the law does not exist, e.g., where it is indeed the
employee himself who insists upon a period or where the nature
of the engagement is such that, without being seasonal or for a
specific project, a definite date of termination is a sine qua non,
would
92
92
an agreement fixing a period be essentially evil or illicit,
therefore anathema? Would such an agreement come within the
scope of Article 280 which admittedly was enacted 'to prevent
the circumvention of the right of the employee to be secured in
x x (his) employment?' As it is evident from even only the three
examples already given that Article 280 of the Labor Code,
under a narrow and literal interpretation, not only fails to
exhaust the gamut of employment contracts to which the lack of
a fixed period would be an anomaly, but would also appear to
restrict, without reasonable distinctions, the right of an
employee to freely stipulate with his employer the duration of
his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be
given reasonable interpretation, to preclude absurdity in its
application. Outlawing the whole concept of term employment
and subverting to boot the principle of freedom of contract to
remedy the evil of employers' using it as a means to prevent
their employees from obtaining security of tenure is like cutting
off the nose to spite the face or, more relevantly, curing a
headache by lopping off the head. xxx xxx xxx Accordingly, and
since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly
appears to have been, as already observed, to prevent
circumvention of the employee's right to be secure in his tenure,
the clause in said article indiscriminately and completely ruling
out all written or oral agreements conflicting with the concept of
regular employment as defined therein should be construed to
refer to the substantive evil that the Code itself has singled out:
agreements entered into precisely to circumvent security of
tenure. It should have no application to instances where a fixed
period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent
any other circumstances vitiating his consent, or where it
satisfactorily appears that the employer and employee dealt
with each other on more or less equal terms with no moral
dominance whatever being exercised by the former over the
latter. Unless thus limited in its purview, the law would be made
to apply to purposes other than those explicitly stated by its
framers; it thus becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended
consequences." (Italics supplied)
Same; Contracts; Conflicts of Law; When the relationship
between the parties is much affected by public interest, the
otherwise applicable Philippine laws and regulations cannot be
rendered illusory by the parties agreeing upon some other law to
govern their relationship.Petitioner PIA cannot take refuge in
paragraph 10 of
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93
its employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and, secondly,
lays the venue for settlement of any dispute arising out of or in
connection with the agreement "only [in] courts of Karachi,
Pakistan". The first clause of paragraph 10 cannot be invoked to
prevent the application of Philippine labor laws and regulations
to the subject matter of this case, i.e., the employer-employee
relationship between petitioner PIA and private respondents. We
have already pointed out that that relationship is much affected
with public interest and that the otherwise applicable Philippine
laws and regulations cannot be rendered illusory by the parties
agreeing upon some other law to govern their relationship.
Neither may petitioner invoke the second clause of paragraph
10, specifying the Karachi courts as the sole venue for the
settlement of disputes between the contracting parties. Even a
cursory scrutiny of the relevant circumstances of this case will
show the multiple and substantive contacts between Philippine
law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other: the contract was not only
executed in the Philippines, it was also performed here, at least
partially; private respondents are Philippine citizens and
residents, while petitioner, although a foreign corporation, is
licensed to do business (and actually doing business) and hence
resident in the Philippines; lastly, private respondents were
based in the Philippines in between their assigned flights to the
Middle East and Europe. All the above contacts point to the
Philippine courts and administrative agencies as a proper forum
for the resolution of contractual disputes between the parties.
Under these circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine
agencies and courts of the jurisdiction vested upon them by
Philippine law. Finally, and in any event, the petitioner PIA did
not undertake to plead and prove the contents of Pakistan law
on the matter; it must therefore be presumed that the applicable

provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law.
PETITION for certiorari to review the order of the Minister of
Labor.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
petitioner.
Ledesma, Saludo & Associates for private respondents.
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94
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines

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

reserves the right to terminate this agreement at any time by
giving the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one month's salary.
xxx
xxx
xxx
10. APPLICABLE LAW:

This agreement shall be construed and governed under and by
the laws of Pakistan, and only the Courts of Karachi, Pakistan
shall have the jurisdiction to consider any matter arising out of
or under this agreement."
Respondents then commenced training in Pakistan. After their
training period, they began discharging their job functions as
flight attendants, with base station in Manila and flying
assignments to different parts of the Middle East and Europe.
On 2 August 1980, roughly one (1) year and four (4) months
prior to the expiration of the contracts of employment, PIA
through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to
private respondents Farrales and Mamasig advising both that
________________
1 Rollo, pp.12 and 17.

95

95
their services as flight stewardesses would be terminated

"effective 1 September 1980, conformably to clause 6 (b) of the
employment agreement [they had] executed with [PIA]."2
On 9 September 1980, private respondents Farrales and
Mamasig jointly instituted a complaint, docketed as NCR-STF95151-80, for illegal dismissal and non-payment of company
benefits and bonuses, against PIA with the then Ministry of Labor
and Employment ("MOLE"). After several unfruitful attempts at
conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its
position paper,3 but no evidence, and there claimed that both
private respondents were habitual absentees; that both were in
the habit of bringing in from abroad sizeable quantities of
"personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs
officials to advise private respondents to discontinue that
practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the
employment contract.
In his Order dated 22 January 1981, Regional Director Francisco
L. Estrella ordered the reinstatement of private respondents with
full backwages or, in the alternative, the payment to them of the
amounts equivalent to their salaries for the remain-der of the
fixed three-year period of their employment contracts; the
payment to private respondent Mamasig of an amount
equivalent to the value of a round trip ticket Manila-USAManila;
and payment of a bonus to each of the private respondents
equivalent to their one-month salary.4 The Order stated that
private respondents had attained the status of regular
employees after they had rendered more than a year of
continued service; that the stipulation limiting the period of the
employment contract to three (3) years was null and void as
violative of the provisions of the Labor Code and its
implementing rules and regulations on regular and casual

employment;
______________
2 Id., p. 22.
3 Id., pp. 36-41.
4 Id., p. 43.
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96
and that the dismissal, having been carried out without the
requisite clearance from the MOLE, was illegal and entitled
private respondents to reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente
Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of
fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option,
in lieu of reinstatement, 'to pay each of the complainants
[private respondents] their salaries corresponding to the
unexpired portion of the contract[s] [of employment] x x x".5
In the instant Petition for Certiorari, petitioner PIA assails the
award of the Regional Director and the Order of the Deputy
Minister as having been rendered without jurisdiction; for having
been rendered without support in the evidence .of record since,
allegedly, no hearing was conducted by the hearing officer, Atty.
Jose M. Pascual; and for having been issued in disregard and in
violation of petitioner's rights under the employment contracts
with private respondents.
1. Petitioner's first contention is that the Regional Director,

MOLE, had no jurisdiction over the subject matter of the
complaint initiated by private respondents for illegal dismissal,
jurisdiction over the same being lodged in the Arbitration Branch
of the National Labor Relations Commission ("NLRC"). It appears
to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the
Orders assailed were rendered on January 1981 (by Regional
Director Francisco L. Estrella) and August 1982 (by Deputy
Minister Vicente Leogardo, Jr.), the Regional Director had
jurisdiction over termination cases.
Article 278 of the Labor Code, as it then existed, forbade the
termination of the services of employees with at least one (1)
year of service without prior clearance from the Department of
Labor and Employment:
"Art. 278. Miscellaneous Provisionsxxx
(b) With or without a collective agreement, no employer may
shut down his establishment or dismiss or terminate the
employment of employees with at least one year of service
during the last two (2)
_________________
5 Id., p. 64.
97

97
years, whether such service is continuous or broken, without
prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate x x x" (Italics

supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing
the Labor Code, made clear that in case of a termination without
the necessary clearance, the Regional Director was authorized
to order the reinstatement of the employee concerned and the
payment of backwages; necessarily, therefore, the Regional
Director must have been given jurisdiction over such termination
cases:
"Section 2. Shutdown or dismissal without clearance.Any
shutdown or dismissal without prior clearance shall be
conclusively presumed to be termination of employment without
a just cause. The Regional Director shall, in such case order the
immediate reinstatement of the employee and the payment of
his wages from the time of the shutdown or dismissal until the
time of reinstatement." (Italics supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated
23 April 1976, was similarly very explicit about the jurisdiction of
the Regional Director over termination of employment cases:
"Under PD 850, termination caseswith or without CBAare
now placed under the original jurisdiction of the Regional
Director. Preventive suspension cases, now made cognizable for
the first time, are also placed under the Regional Director.
Before PD 850, termination cases where there was a CBA were
under the jurisdiction of the grievance machinery and voluntary
arbitration, while termination cases where there was no CBA
were under the jurisdiction of the Conciliation Section.
In more details, the major innovations introduced by PD 850 and
its implementing rules and regulations with respect to
termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every
application for clearance, whether there is opposition or not,
within ten days from receipt thereof.
xxx
xxx
xx x"
(Italics supplied)
98
98
2. The second contention of petitioner PIA is that, even if the
Regional Director had jurisdiction, still his order was null and
to procedural due process.6 This claim, however, cannot be
given serious consideration. Petitioner was ordered by the
Regional Director to submit not only its position paper but also
such evidence in its favor as it might have. Petitioner opted to
rely solely upon its position paper; we must assume it had no
hearing was conducted, petitioner had ample opportunity to
explain its side. Moreover, petitioner PIA was able to appeal his
case to the Ministry of Labor and Employment.7
There is another reason why petitioner's claim of denial of due
process must be rejected. At the time the complaint was filed by
private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, specified that a
"dismissal without prior clearance shall be conclusively
presumed to be termination of employment without a just
cause", and the Regional Director was required in such case to
"order the immediate reinstatement of the employee and the
payment of his wages from the time of the shutdown or
dismissal until xxx reinstatement." In other words, under the
then applicable rule, the Regional Director did not even have to
require submission of position papers by the parties in view of
the conclusive (juris et de jure) character of the presumption

created by such applicable law and regulation. In Cebu Institute
of Technology v. Minister of Labor and Employment,8 the Court
pointed out that "under Rule 14, Section 2, of the Implementing
Rules and Regulations, the termination of [an employee] which
was without previous clearance from the Ministry of Labor is
conclusively presumed to be without [just] cause x x x [a
presumption which] cannot be overturned by any contrary proof
however strong."
______________
6 Rollo, p. 6.
7 See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R.
No. 82895, 7 November 1989.
8 113 SCRA 257 (1982).
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99
3. In its third contention, petitioner PIA invokes paragraphs 5
and 6 of its contract of employment with private respondents
Farrales and Mamasig, arguing that its relationship with them
was governed by the provisions of its contract rather than by the
general provisions of the Labor Code.9
Paragraph 5 of that contract set a term of three (3) years for
that relationship, extendible by agreement between the parties;
while paragraph 6 provided that, notwithstanding any other
provision in the contract, PIA had the right to terminate the
employment agreement at any time by giving one-month's
notice to the employee or, in lieu of such notice, one-month's

salary.
A contract freely entered into should, of course, be respected, as
PIA argues, since a contract is the law between the parties.10
The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is
that the contracting parties may establish such stipulations as
they may deem convenient, "provided they are not contrary to
law, morals, good customs, public order or public policy." Thus,
counter-balancing the principle of autonomy of contracting
policy, are deemed written into the contract.11 Put a little
As noted earlier, both the Labor Arbiter and the Deputy Min______________
9 Rollo, p. 8.
10 Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).
11 Commissioner of Internal Revenue v. United Lines Co., 5 SCRA
175 (1962).
100
100
ister, MOLE, in effect held that paragraph 5 of that employment
contract was inconsistent with Articles 280 and 281 of the Labor
Code as they existed at the time the contract of employment
was entered into, and hence refused to give effect to said
paragraph 5. These Articles read as follows:
"Art. 280. Security of Tenure.In cases of regular employment,
the employer shall not terminate the services of an employee.
except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled
to reinstatement without loss of seniority rights and to his
backwages computed from the time his compensation was
withheld from him up to the time his reinstatement.
Article 281. Regular and Casual Employment.The provisions of
written agreement to the contrary notwithstanding and
regardless of the oral agreements of the parties, an employment
shall be deemed to be regular where the employee has been
engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been
determined at the time of the engagement of the employee or
where the work or services to be performed is seasonal in nature
and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered
by the preceding paragraph: provided, that, any employee who
has rendered at least one year of service, whether such service
is continuous or broken, shall be considered as regular employee
with respect to the activity in which be is employed and his
employment shall continue while such actually exists." (Italics

supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,12 the
Court had occasion to examine in detail the question of whether
employment for a fixed term has been outlawed under the
above quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and
281, the Court reached the conclusion that a contract providing
for employment with a fixed period was not necessarily
unlawful:
______________
12 G.R. No. L-48494, promulgated 5 February 1990.

101

101
reason for the law does not exist, e.g. where it is indeed the
would an agreement fixing a period be essentially evil or illicit,
scope of Article 280 which admittedly was enacted to prevent

x x (his) employment?'
As it is evident from even only the three examples already given
that Article 280 of the Labor Code, under a narrow and literal
interpretation, not only fails to exhaust the gamut of
employment contracts to which the lack of a fixed period would
be an anomaly, but would also appear to restrict, without
reasonable distinctions, the right of an employee to freely
stipulate with his employer the duration of his engagement, it
logically follows that such a literal interpretation should be
eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing
the whole concept of term employment and subverting to boot
the principle of freedom of contract to remedy the evil of
employers' using it as a means to prevent their employees from
obtaining security of tenure is like cutting off the nose to spite
the face or, more relevantly, curing a headache by lopping off
the head.
xxx
xxx
xxx
Accordingly, and since the entire purpose behind the

development of legislation culminating in the present Article 280
of the Labor Code clearly appears to have been, as already
observed, to prevent circumvention of the employee's right to
be secure in his tenure, the clause in said article indiscriminately
and completely ruling out all written or oral agreements
conflicting with the concept of regular employment as defined
therein should be construed to refer to the substantive evil that
the Code itself has singled out: agreements entered into
precisely to circumvent security of tenure. It should have no
application to instances where a fixed period of employment was
agreed upon knowingly and voluntarily by the parties, without
any force, duress or improper pressure being brought to bear
upon the employee and absent any other circumstances
vitiating his consent, or where it satisfactorily appears that the
employer and employee dealt with each other on more or less

equal terms with no moral dominance whatever
102
102
being exercised by the former over the latter. Unless thus limited
in its purview, the law would be made to apply to purposes other
than those explicitly stated by its framers; it thus becomes
pointless and arbitrary, unjust in its effects and apt to lead to
absurd and unintended consequences."
(Italics supplied)
It is apparent from Brent School that the critical consideration is
the presence or absence of a substantial indication that the
period specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is
provided for in Articles 280 and 281 of the Labor Code. This
indication must ordinarily rest upon some aspect of the
agreement other than the mere specification of a fixed term of
the employment agreement, or upon evidence aliunde of the
intent to evade.
Examining the provisions of paragraphs 5 and 6 of the
employment agreement between petitioner PIA and private
respondents, we consider that those provisions must be read
together and when so read, the fixed period of three (3) years
specified in paragraph 5 will be seen to have been effectively
neutralized by the provisions of paragraph 6 of that agreement.
Paragraph 6 in effect took back from the employee the fixed
three (3)-year period ostensibly granted by paragraph 5 by
rendering such period in effect a facultative one at the option of
the employer PIA. For petitioner PIA claims to be authorized to

shorten that term, at any time and for any cause satisfactory to
itself, to a one-month period, or even less by simply paying the
employee a month's salary. Because the net effect of
paragraphs 5 and 6 of the agreement here involved is to render
the employment of private respondents Farrales and Mamasig
basically employment at the pleasure of petitioner PIA, the Court
considers that paragraphs 5 and 6 were intended to prevent any
security of tenure from accruing in favor of private respondents
even during the limited period of three (3) years,13 and thus to
escape completely the thrust of Articles 280 and 281 of the
Labor Code.
________________
13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

103

103
Petitioner PIA cannot take refuge in paragraph 10 of its
employment agreement which specifies, firstly, the law of

provisions of Philippine law.14
______________
14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal

Revenue v. Fisher, 110 Phil. 686 (1961).
104
104

We conclude that private respondents Farrales and Mamasig
were illegally dismissed and that public respondent Deputy
Minister, MOLE, had not committed any grave abuse of
discretion nor any act without or in excess of jurisdiction in
ordering their reinstatement with backwages. Private
respondents are entitled to three (3) years backwages without
qualification or deduction. Should their reinstatement to their
former or other substantially equivalent positions not be feasible
in view of the length of time which has gone by since their
services were unlawfully terminated, petitioner should be
required to pay separation pay to private respondents
amounting to one (1) month's salary for every year of service
rendered by them, including the three (3) years service
putatively rendered.
ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED
for lack of merit, and the Order dated 12 August 1982 of public
respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without
deduction or qualification; and (2) should reinstatement of
private respondents to their former positions or to substantially
equivalent positions not be feasible, then petitioner shall, in lieu
thereof, pay to private respondents separation pay amounting to
one (1)-month's salary for every year of service actually
rendered by them and for the three (3) years putative service by
private respondents. The Temporary Restraining Order issued on
13 September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.
Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Corts, JJ.,
concur.
Petition dismissed. Order affirmed.
Note.No violation by Labor Arbiter of rules of administrative

due process where company was duly represented by counsel
and given sufficient opportunity to be heard and present
evidence. (Pantranco North Express, Inc. vs. National Labor
Relations Commission, 126 SCRA 526.) [Pakistan International
Airlines Corporation us. Ople, 190 SCRA 90(1990)]E
G.R. No. 61594. September 28, 1990.*

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
vs. HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON.
VICENTE LEOGARDO, JR., in his capacity as Deputy Minister;
ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG,
respondents.
Labor Relations; Due Process; Petitioner's right to procedural due
process was not violated even if no formal or oral hearing was
conducted, considering that it had ample opportunity to explain
its side.The second contention of petitioner PIA is that, even if
the Regional Director had jurisdiction, still his order was null and
to procedural due process. This claim, however, cannot be given
serious consideration. Petitioner was ordered by the Regional
Director to submit not only its position paper but also such
evidence in its favor as it might have. Petitioner opted to rely
solely upon its position paper; we must assume it had no
hearing was conducted, petitioner had ample oppor_______________
* THIRD DIVISION.
91

91
tunity to explain its side. Moreover, petitioner PIA was able to
appeal his case to the Ministry of Labor and Employment.
Contracts; Parties may not contract away applicable provisions

of law especially peremptory provisions dealing with matters
heavily impressed with public interest. The principle of party
autonomy in contracts is not absolute.A contract freely
entered into should, of course, be respected, as PIA argues,
since a contract is the law between the parties. The principle of
party autonomy in contracts is not, however, an absolute
principle. The rule in Article 1306, of our Civil Code is that the
contracting parties may establish such stipulations as they may
deem convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy." Thus,
counterbalancing the principle of autonomy of contracting
policy, are deemed written into the contract. Put a little
Labor Law; A contract providing for employment with a fixed
period was not necessarily unlawful.In Brent School, Inc., et al.
v. Ronaldo Zamora, etc., et al., the Court had occasion to
examine in detail the question of whether employment for a
fixed term has been outlawed under the above quoted
provisions of the Labor Code. After an extensive examination of
the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for
employment with a fixed period was not necessarily unlawful:

reason for the law does not exist, e.g., where it is indeed the
would
92
92
an agreement fixing a period be essentially evil or illicit,
scope of Article 280 which admittedly was enacted 'to prevent
x x (his) employment?' As it is evident from even only the three
examples already given that Article 280 of the Labor Code,
under a narrow and literal interpretation, not only fails to
exhaust the gamut of employment contracts to which the lack of
a fixed period would be an anomaly, but would also appear to
restrict, without reasonable distinctions, the right of an
employee to freely stipulate with his employer the duration of
his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be
given reasonable interpretation, to preclude absurdity in its
application. Outlawing the whole concept of term employment
and subverting to boot the principle of freedom of contract to
remedy the evil of employers' using it as a means to prevent
their employees from obtaining security of tenure is like cutting
off the nose to spite the face or, more relevantly, curing a
headache by lopping off the head. xxx xxx xxx Accordingly, and
since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly
appears to have been, as already observed, to prevent
circumvention of the employee's right to be secure in his tenure,
the clause in said article indiscriminately and completely ruling
out all written or oral agreements conflicting with the concept of
regular employment as defined therein should be construed to
refer to the substantive evil that the Code itself has singled out:
agreements entered into precisely to circumvent security of
tenure. It should have no application to instances where a fixed
period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent
any other circumstances vitiating his consent, or where it
satisfactorily appears that the employer and employee dealt
with each other on more or less equal terms with no moral
dominance whatever being exercised by the former over the
latter. Unless thus limited in its purview, the law would be made
to apply to purposes other than those explicitly stated by its
framers; it thus becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended
consequences." (Italics supplied)
Same; Contracts; Conflicts of Law; When the relationship
between the parties is much affected by public interest, the
otherwise applicable Philippine laws and regulations cannot be
rendered illusory by the parties agreeing upon some other law to
govern their relationship.Petitioner PIA cannot take refuge in
paragraph 10 of
93
93
its employment agreement which specifies, firstly, the law of

provisions of Philippine law.
PETITION for certiorari to review the order of the Minister of
Labor.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
petitioner.
Ledesma, Saludo & Associates for private respondents.
94
94
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines

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

reserves the right to terminate this agreement at any time by
giving the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one month's salary.
xxx
xxx
xxx
10. APPLICABLE LAW:

This agreement shall be construed and governed under and by
the laws of Pakistan, and only the Courts of Karachi, Pakistan
shall have the jurisdiction to consider any matter arising out of
or under this agreement."
Respondents then commenced training in Pakistan. After their
training period, they began discharging their job functions as
flight attendants, with base station in Manila and flying
assignments to different parts of the Middle East and Europe.
On 2 August 1980, roughly one (1) year and four (4) months
prior to the expiration of the contracts of employment, PIA
through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to
private respondents Farrales and Mamasig advising both that
________________
1 Rollo, pp.12 and 17.

95

95
their services as flight stewardesses would be terminated

"effective 1 September 1980, conformably to clause 6 (b) of the
employment agreement [they had] executed with [PIA]."2
On 9 September 1980, private respondents Farrales and
Mamasig jointly instituted a complaint, docketed as NCR-STF95151-80, for illegal dismissal and non-payment of company
benefits and bonuses, against PIA with the then Ministry of Labor
and Employment ("MOLE"). After several unfruitful attempts at
conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its
position paper,3 but no evidence, and there claimed that both
private respondents were habitual absentees; that both were in
the habit of bringing in from abroad sizeable quantities of
"personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs
officials to advise private respondents to discontinue that
practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the
employment contract.
In his Order dated 22 January 1981, Regional Director Francisco
L. Estrella ordered the reinstatement of private respondents with
full backwages or, in the alternative, the payment to them of the
amounts equivalent to their salaries for the remain-der of the
fixed three-year period of their employment contracts; the
payment to private respondent Mamasig of an amount
equivalent to the value of a round trip ticket Manila-USAManila;
and payment of a bonus to each of the private respondents
equivalent to their one-month salary.4 The Order stated that
private respondents had attained the status of regular
employees after they had rendered more than a year of
continued service; that the stipulation limiting the period of the
employment contract to three (3) years was null and void as
violative of the provisions of the Labor Code and its
implementing rules and regulations on regular and casual

employment;
______________
2 Id., p. 22.
3 Id., pp. 36-41.
4 Id., p. 43.
96
96
and that the dismissal, having been carried out without the
requisite clearance from the MOLE, was illegal and entitled
private respondents to reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente
Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of
fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option,
in lieu of reinstatement, 'to pay each of the complainants
[private respondents] their salaries corresponding to the
unexpired portion of the contract[s] [of employment] x x x".5
In the instant Petition for Certiorari, petitioner PIA assails the
award of the Regional Director and the Order of the Deputy
Minister as having been rendered without jurisdiction; for having
been rendered without support in the evidence .of record since,
allegedly, no hearing was conducted by the hearing officer, Atty.
Jose M. Pascual; and for having been issued in disregard and in
violation of petitioner's rights under the employment contracts
with private respondents.
1. Petitioner's first contention is that the Regional Director,

MOLE, had no jurisdiction over the subject matter of the
complaint initiated by private respondents for illegal dismissal,
jurisdiction over the same being lodged in the Arbitration Branch
of the National Labor Relations Commission ("NLRC"). It appears
to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the
Orders assailed were rendered on January 1981 (by Regional
Director Francisco L. Estrella) and August 1982 (by Deputy
Minister Vicente Leogardo, Jr.), the Regional Director had
jurisdiction over termination cases.
Article 278 of the Labor Code, as it then existed, forbade the
termination of the services of employees with at least one (1)
year of service without prior clearance from the Department of
Labor and Employment:
"Art. 278. Miscellaneous Provisionsxxx
(b) With or without a collective agreement, no employer may
shut down his establishment or dismiss or terminate the
employment of employees with at least one year of service
during the last two (2)
_________________
5 Id., p. 64.
97

97
years, whether such service is continuous or broken, without
prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate x x x" (Italics

supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing
the Labor Code, made clear that in case of a termination without
the necessary clearance, the Regional Director was authorized
to order the reinstatement of the employee concerned and the
payment of backwages; necessarily, therefore, the Regional
Director must have been given jurisdiction over such termination
cases:
"Section 2. Shutdown or dismissal without clearance.Any
shutdown or dismissal without prior clearance shall be
conclusively presumed to be termination of employment without
a just cause. The Regional Director shall, in such case order the
immediate reinstatement of the employee and the payment of
his wages from the time of the shutdown or dismissal until the
time of reinstatement." (Italics supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated
23 April 1976, was similarly very explicit about the jurisdiction of
the Regional Director over termination of employment cases:
"Under PD 850, termination caseswith or without CBAare
now placed under the original jurisdiction of the Regional
Director. Preventive suspension cases, now made cognizable for
the first time, are also placed under the Regional Director.
Before PD 850, termination cases where there was a CBA were
under the jurisdiction of the grievance machinery and voluntary
arbitration, while termination cases where there was no CBA
were under the jurisdiction of the Conciliation Section.
In more details, the major innovations introduced by PD 850 and
its implementing rules and regulations with respect to
termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every
application for clearance, whether there is opposition or not,
within ten days from receipt thereof.
xxx
xxx
xx x"
(Italics supplied)
98
98
2. The second contention of petitioner PIA is that, even if the
Regional Director had jurisdiction, still his order was null and
to procedural due process.6 This claim, however, cannot be
given serious consideration. Petitioner was ordered by the
Regional Director to submit not only its position paper but also
such evidence in its favor as it might have. Petitioner opted to
rely solely upon its position paper; we must assume it had no
hearing was conducted, petitioner had ample opportunity to
explain its side. Moreover, petitioner PIA was able to appeal his
case to the Ministry of Labor and Employment.7
There is another reason why petitioner's claim of denial of due
process must be rejected. At the time the complaint was filed by
private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, specified that a
"dismissal without prior clearance shall be conclusively
presumed to be termination of employment without a just
cause", and the Regional Director was required in such case to
"order the immediate reinstatement of the employee and the
payment of his wages from the time of the shutdown or
dismissal until xxx reinstatement." In other words, under the
then applicable rule, the Regional Director did not even have to
require submission of position papers by the parties in view of
the conclusive (juris et de jure) character of the presumption

created by such applicable law and regulation. In Cebu Institute
of Technology v. Minister of Labor and Employment,8 the Court
pointed out that "under Rule 14, Section 2, of the Implementing
Rules and Regulations, the termination of [an employee] which
was without previous clearance from the Ministry of Labor is
conclusively presumed to be without [just] cause x x x [a
presumption which] cannot be overturned by any contrary proof
however strong."
______________
6 Rollo, p. 6.
7 See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R.
No. 82895, 7 November 1989.
8 113 SCRA 257 (1982).
99

99
3. In its third contention, petitioner PIA invokes paragraphs 5
and 6 of its contract of employment with private respondents
Farrales and Mamasig, arguing that its relationship with them
was governed by the provisions of its contract rather than by the
general provisions of the Labor Code.9
Paragraph 5 of that contract set a term of three (3) years for
that relationship, extendible by agreement between the parties;
while paragraph 6 provided that, notwithstanding any other
provision in the contract, PIA had the right to terminate the
employment agreement at any time by giving one-month's
notice to the employee or, in lieu of such notice, one-month's

salary.
A contract freely entered into should, of course, be respected, as
PIA argues, since a contract is the law between the parties.10
The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is
that the contracting parties may establish such stipulations as
they may deem convenient, "provided they are not contrary to
law, morals, good customs, public order or public policy." Thus,
counter-balancing the principle of autonomy of contracting
policy, are deemed written into the contract.11 Put a little
As noted earlier, both the Labor Arbiter and the Deputy Min______________
9 Rollo, p. 8.
10 Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).
11 Commissioner of Internal Revenue v. United Lines Co., 5 SCRA
175 (1962).
100
100
ister, MOLE, in effect held that paragraph 5 of that employment
contract was inconsistent with Articles 280 and 281 of the Labor
Code as they existed at the time the contract of employment
was entered into, and hence refused to give effect to said
paragraph 5. These Articles read as follows:
"Art. 280. Security of Tenure.In cases of regular employment,
the employer shall not terminate the services of an employee.
except for a just cause or when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled
to reinstatement without loss of seniority rights and to his
backwages computed from the time his compensation was
withheld from him up to the time his reinstatement.
Article 281. Regular and Casual Employment.The provisions of
written agreement to the contrary notwithstanding and
regardless of the oral agreements of the parties, an employment
shall be deemed to be regular where the employee has been
engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer, except
where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been
determined at the time of the engagement of the employee or
where the work or services to be performed is seasonal in nature
and the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered
by the preceding paragraph: provided, that, any employee who
has rendered at least one year of service, whether such service
is continuous or broken, shall be considered as regular employee
with respect to the activity in which be is employed and his
employment shall continue while such actually exists." (Italics

supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,12 the
Court had occasion to examine in detail the question of whether
employment for a fixed term has been outlawed under the
above quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and
281, the Court reached the conclusion that a contract providing
for employment with a fixed period was not necessarily
unlawful:
______________
12 G.R. No. L-48494, promulgated 5 February 1990.

101

101
reason for the law does not exist, e.g. where it is indeed the
would an agreement fixing a period be essentially evil or illicit,
scope of Article 280 which admittedly was enacted to prevent

x x (his) employment?'
As it is evident from even only the three examples already given
that Article 280 of the Labor Code, under a narrow and literal
interpretation, not only fails to exhaust the gamut of
employment contracts to which the lack of a fixed period would
be an anomaly, but would also appear to restrict, without
reasonable distinctions, the right of an employee to freely
stipulate with his employer the duration of his engagement, it
logically follows that such a literal interpretation should be
eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing
the whole concept of term employment and subverting to boot
the principle of freedom of contract to remedy the evil of
employers' using it as a means to prevent their employees from
obtaining security of tenure is like cutting off the nose to spite
the face or, more relevantly, curing a headache by lopping off
the head.
xxx
xxx
xxx
Accordingly, and since the entire purpose behind the

development of legislation culminating in the present Article 280
of the Labor Code clearly appears to have been, as already
observed, to prevent circumvention of the employee's right to
be secure in his tenure, the clause in said article indiscriminately
and completely ruling out all written or oral agreements
conflicting with the concept of regular employment as defined
therein should be construed to refer to the substantive evil that
the Code itself has singled out: agreements entered into
precisely to circumvent security of tenure. It should have no
application to instances where a fixed period of employment was
agreed upon knowingly and voluntarily by the parties, without
any force, duress or improper pressure being brought to bear
upon the employee and absent any other circumstances
vitiating his consent, or where it satisfactorily appears that the
employer and employee dealt with each other on more or less

equal terms with no moral dominance whatever
102
102
being exercised by the former over the latter. Unless thus limited
in its purview, the law would be made to apply to purposes other
than those explicitly stated by its framers; it thus becomes
pointless and arbitrary, unjust in its effects and apt to lead to
absurd and unintended consequences."
(Italics supplied)
It is apparent from Brent School that the critical consideration is
the presence or absence of a substantial indication that the
period specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is
provided for in Articles 280 and 281 of the Labor Code. This
indication must ordinarily rest upon some aspect of the
agreement other than the mere specification of a fixed term of
the employment agreement, or upon evidence aliunde of the
intent to evade.
Examining the provisions of paragraphs 5 and 6 of the
employment agreement between petitioner PIA and private
respondents, we consider that those provisions must be read
together and when so read, the fixed period of three (3) years
specified in paragraph 5 will be seen to have been effectively
neutralized by the provisions of paragraph 6 of that agreement.
Paragraph 6 in effect took back from the employee the fixed
three (3)-year period ostensibly granted by paragraph 5 by
rendering such period in effect a facultative one at the option of
the employer PIA. For petitioner PIA claims to be authorized to

shorten that term, at any time and for any cause satisfactory to
itself, to a one-month period, or even less by simply paying the
employee a month's salary. Because the net effect of
paragraphs 5 and 6 of the agreement here involved is to render
the employment of private respondents Farrales and Mamasig
basically employment at the pleasure of petitioner PIA, the Court
considers that paragraphs 5 and 6 were intended to prevent any
security of tenure from accruing in favor of private respondents
even during the limited period of three (3) years,13 and thus to
escape completely the thrust of Articles 280 and 281 of the
Labor Code.
________________
13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

103

103
Petitioner PIA cannot take refuge in paragraph 10 of its
employment agreement which specifies, firstly, the law of

provisions of Philippine law.14
______________
14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal

Revenue v. Fisher, 110 Phil. 686 (1961).
104
104

We conclude that private respondents Farrales and Mamasig
were illegally dismissed and that public respondent Deputy
Minister, MOLE, had not committed any grave abuse of
discretion nor any act without or in excess of jurisdiction in
ordering
their
reinstatement
with
backwages.
Private
respondents are entitled to three (3) years backwages without
qualification or deduction. Should their reinstatement to their
former or other substantially equivalent positions not be feasible
in view of the length of time which has gone by since their
services were unlawfully terminated, petitioner should be
required to pay separation pay to private respondents
amounting to one (1) month's salary for every year of service
rendered by them, including the three (3) years service
putatively rendered.
ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED
for lack of merit, and the Order dated 12 August 1982 of public
respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without
deduction or qualification; and (2) should reinstatement of
private respondents to their former positions or to substantially
equivalent positions not be feasible, then petitioner shall, in lieu
thereof, pay to private respondents separation pay amounting to
one (1)-month's salary for every year of service actually
rendered by them and for the three (3) years putative service by
private respondents. The Temporary Restraining Order issued on
13 September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.
Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Corts, JJ.,
concur.
Petition dismissed. Order affirmed.
Note.No violation by Labor Arbiter of rules of administrative

due process where company was duly represented by counsel
and given sufficient opportunity to be heard and present
evidence. (Pantranco North Express, Inc. vs. National Labor
Relations Commission, 126 SCRA 526.) [Pakistan International
Airlines Corporation us. Ople, 190 SCRA 90(1990)]
G.R. No. 80965. June 6, 1990. *

SYLVIA LICHAUCO DE LEON, petitioner, vs. THE HON. COURT OF
APPEALS, MACARIA DE LEON AND JOSE VICENTE DE LEON,
respondents.
Contracts; Statutory Construction; Ambiguous contract is
construed against the party who caused the ambiguity.
Besides, the Letter-Agreement shows on its face that it was
prepared by Sylvia, and in this regard, the ambiguity in a
contract is to be taken contra proferentem, i.e., construed
against the party who caused the ambiguity and could have also
avoided it by the exercise of a little more care. Thus, Article
1377 of the Civil Code provides: The interpretation of obscure
words or stipulations in a contract shall not favor the party who
caused the obscurity.
Same; Same; Consent; Intimidation to vitiate consent, requisites.
In order that intimidation may vitiate consent and render the
contract invalid, the following requisites must concur: (1) that
the intimidation must be the determining cause of the contract,
or must have caused the consent to be given; (2) that the
threatened act be unjust or unlawful; (3) that the threat be real
and serious, there being an evident disproportion between the
evil and the resistance which all men can offer, leading to the
choice of the contract as the lesser evil; and (4) that it produces
a reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or ability
to inflict the threatened injury. Applying the foregoing to the
present case, the claim of Macaria that Sylvia threatened her to
bring Jose Vicente to court for support, to scandalize their family
by baseless suits and that Sylvia would pardon Jose Vicente for
possible crimes of adultery and/or concubinage subject to the
transfer of certain properties to her, is obviously not the
intimidation referred to by law. With respect to mistake as a vice
of consent, neither is Macarias alleged mistake in having signed
the Letter-Agreement because of her belief that Sylvia will
thereby eliminate inheritance rights from her and Jose Vicente,

the mistake referred to in Article 1331 of the Civil Code, supra. It
does not appear that the condition that Sylvia will eliminate her
inheritance rights principally moved Macaria to enter into the
contract. Rather, such condition was but an incident of the
consideration thereof which, as discussed earlier, is the
termination of
_______________
* FIRST DIVISION.
346
346
De Leon vs. Court of Appeals
marital relations.
Same; Same; Same; Pari delicto; Article 1414 of the New Civil
Code, exception to the pari delicto rule.In the ultimate
analysis, therefore, both parties acted in violation of the laws.
However, the pari delicto rule, expressed in the maxims Ex dolo
malo non oritur actio and In pari delicto potior est conditio
defendentis, which refuses remedy to either party to an illegal
agreement and leaves them where they are, does not apply in
this case. Contrary to the ruling of the respondent Court that x
x x. [C]onsequently, intervenor appellees obligation under the
said agreement having been annulled, the contracting parties
shall restore to each other that things which have been subject
matter of the contract, their fruits and the price or its interest,
except as provided by law (Art. 1398, Civil Code). Article 1414
of the Civil Code, which is an exception to the pari delicto rule, is
the proper law to be applied.
PETITION for certiorari to review the decision of the Court of

Appeals.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.
De Jesus & Associates for Macaria de Leon.
Quisumbing, Torres & Evangelista for Jose Vicente de Leon.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the

Court of Appeals in CA-G.R. CV No. 06649 dated June 30, 1987
affirming the decision of the Regional Trial Court of Pasig in SP
Proc. No. 8492 dated December 29, 1983; and its resolution
dated November 24, 1987 denying the motion for
reconsideration.
The antecedent facts are as follows:
On October 18, 1969, private respondent Jose Vicente De Leon
and petitioner Sylvia Lichauco De Leon were united in wedlock
before the Municipal Mayor of Binangonan, Rizal. On August 28,
1971, a child named Susana L. De Leon was born from this
union.
Sometime in October, 1972, a de facto separation between the
spouses occured due to irreconcilable marital differences, with
Sylvia leaving the conjugal home. Sometime in March, 1973,
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VOL. 186, JUNE 6, 1990

347

Sylvia went to the United States where she obtained American
citizenship.
On November 23, 1973, Sylvia filed with the Superior Court of
California, County of San Francisco, a petition for dissolution of
marriage against Jose Vicente. In the said divorce proceedings,
Sylvia also filed claims for support and distribution of properties.
It appears, however, that since Jose Vicente was then a
Philippine resident and did not have any assets in the United
States, Sylvia chose to hold in abeyance the divorce
proceedings, and in the meantime, concentrated her efforts to
obtain some sort of property settlements with Jose Vicente in the
Philippines.
Thus, on March 16, 1977, Sylvia succeeded in entering into a
Letter-Agreement with her mother-in-law, private respondent
Macaria De Leon, which We quote in full, as follows (pp. 40-42,
Rollo):
March 16, 1977
Mrs. Macaria Madrigal de Leon
12 Jacaranda, North Forbes Park
Makati, Metro Manila
Dear Doa Macaria:
This letter represents a contractual undertaking among (A) the
undersigned (B) your son, Mr. Jose Vicente de Leon, represented
by you, and (C) yourself in your personal capacity.
You hereby bind yourself jointly and severally to answer for the
undertakings of Joe Vincent under this contract.
In consideration for a peaceful and amicable termination of
relations between the undersigned and her lawfully wedded
husband, Jose Vicente de Leon, your son, the following are

agreed upon:
Obligations of Jose Vicente de Leon and/or yourself in a joint and
several capacity:
1. To deliver with clear title free from all liens and encumbrances
and subject to no claims in any form whatsoever the following
properties to Sylvia Lichauco-de Leon hereinafter referred to as
the wife:
348
348
A. Suite 11-C, Avalon Condominium, Ortigas Ave., corner Xavier
St., Mandaluyong, Rizal, Philippines.
B. Apartment 702, Wack Wack Condominium, Mandaluyong,
Rizal, Philippines.
C. The rights to assignment of 2 Ayala lots in Alabang, Rizal
(Corner lots, 801 sq. meters each). (Fully paid).
D. 2470 Wexford Ave., South San Francisco, California, U.S.A.
(Lot 18 Block 22 Westborough Unit No. 2). (Fully paid).
E. 1) The sum of One Hundred Thousand Pesos (P100,000)
2) $30,000
3) $5,000
2. To give monthly support payable six (6) months in advance
every year to any designated assignee of the wife for the care
and upbringing of Susana Lichauco de Leon which is hereby
pegged at the exchange rate of 7.50 to the dollar subject to

adjustments in the event of monetary exchange fluctuations.
Subsequent increase on actual need upon negotiation.
3. To respect the custody of said minor daughter as pertaining
exclusively to the wife except as herein provided.
Obligations of the wife:
1. To agree to a judicial separation of property in accordance

with Philippine law and in this connection to do all that may be
necessary to secure said separation of property including her
approval in writing of a joint petition or consent decree.
2. To amend her complaint in the United States before the
Federal Court of California, U.S.A. entitled Sylvia Lichauco de
Leon vs. Jose V. de Leon in a manner compatible with the
objectives of this herein agreement. It is the stated objective of
this agreement that said divorce proceedings will continue.
3. All the properties herein described for assignment to the wife
must be assigned to Sylvia Lichauco de Leon upon the decree of
the Court of First Instance in the Joint Petition for Separation of
Property; except for the P100,000, $30,000 and $5,000 which
will be paid immediately.
4. This contract is intended to be applicable both in the Republic
of the Philippines and in the United States of America. It is
agreed that this will constitute an actionable document in both
jurisdictions and the parties herein waive their right to object to
the use of this document in the event a legal issue should arise
relating to the validity of this document. In the event of a
dispute, this letter is subject to interpretation under the laws of
California, U.S.A.
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VOL. 186, JUNE 6, 1990

349
5. To allow her daughter to spend two to three months each year
with the father upon mutual convenience.
Very truly yours,
(Sgd.) Sylvia de Leon
t/ SYLVIA L. DE LEON
CONFORME:
s/t/MACARIA M. DE LEON
with my marital consent:
s/t/JUAN L. DE LEON
On the same date, Macaria made cash payments to Sylvia in the

amount of P100,000 and US $35,000.00 or P280,000.00, in
compliance with her obligations as stipulated in the aforestated
Letter-Agreement.
On March 30, 1977, Sylvia and Jose Vicente filed before the then
Court of First Instance of Rizal a joint petition for judicial
approval of dissolution of their conjugal partnership, the main
part of which reads as follows (pp. 37-38, Rollo):
5. For the best interest of each of them and of their minor child,
petitioners have agreed to dissolve their conjugal partnership
and to partition the assets thereof, under the following terms
and conditionsthis document, a pleading being intended by
them to embody and evidence their agreement:
xxx
(c) The following properties shall be adjudicated to petitioner

Sylvia Lichauco De Leon. These properties will be free of any and
all liens and encumbrances, with clear title and subject to no
claims by third parties. Petitioner Jose Vicente De Leon fully
assumes all responsibility and liability in the event these
properties shall not be as described in the previous sentence:
Sedan (1972 model)
Suite 11-C, Avalon Condominium,

Ortigas Ave., corner Xavier St.,
Mandaluyong, Rizal, Philippines
Apt. 702, Wack-Wack Condominium,

Mandaluyong, Rizal, Philippines
350
350
The rights to assignment of 2 Ayala lots in Alabang Rizal (corner
lots, 801 sq. meters each) (Fully paid)
2470 Wexford Ave., South San Francisco, California, U.S.A. (Lot

18, Block 22 Westborough Unit 2) (Fully paid)
The sum of One Hundred Thousand Pesos (100,000.00)
$30,000.00 at current exchange rate

$5,000.00 at current exchange rate
After ex-parte hearings, the trial court issued an Order dated

February 19, 1980 approving the petition, the dispositive portion
of which reads (p. 143, Rollo):
WHEREFORE, it is hereby declared that the conjugal
partnership of the Spouses is DISSOLVED henceforth, without
prejudice to the terms of their agreement that each spouse shall
own, dispose of, possess, administer and enjoy his or her
separate estate, without the consent of the other, and all
earnings from any profession, business or industries shall
likewise belong to each spouse.
On March 17, 1980, Sylvia moved for the execution of the
above-mentioned order. However, Jose Vicente moved for a
reconsideration of the order alleging that Sylvia made a verbal
reformation of the petition as there was no such agreement for
the payment of P4,500.00 monthly support to commence from
the alleged date of separation in April, 1973 and that there was
no notice given to him that Sylvia would attempt verbal
reformation of the agreement contained in the joint petition.
While the said motion for reconsideration was pending
resolution, on April 20, 1980, Macaria filed with the trial court a
motion for leave to intervene alleging that she is the owner of
the properties involved in the case. The motion was granted. On
October 29, 1980, Macaria, assisted by her husband Juan De
Leon, filed her complaint in intervention. She assailed the
validity and legality of the Letter-Agreement which had for its
purpose, according to her, the termination of marital relationship
between Sylvia and Jose Vicente. However, before any hearing
could be had, the judicial reorganization took place and the case
was transferred to the Regional Trial Court of Pasig.
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VOL. 186, JUNE 6, 1990

351
On December 29, 1983, the trial court rendered judgment, the
dispositive portion of which reads (pp. 35-36, Rollo):
WHEREFORE, judgment is hereby rendered on the complaint in
intervention in favor of the intervenor, declaring null and void
the letter agreement dated March 16, 1977 (Exhibits E to E-2),
and ordering petitioner Sylvia Lichauco De Leon to restore to
intervenor the amount of P380,000.00 plus legal interest from
date of complaint, and to pay intervenor the amount of
P100,000.00 as and for attorneys fees, and to pay the costs of
suit.
Judgment is likewise rendered affirming the order of the Court
dated February 19, 1980 declaring the conjugal partnership of
the spouses Jose Vicente De Leon and Sylvia Lichauco De Leon
DISSOLVED; and adjudicating to each of them his or her share of
the properties and assets of said conjugal partnership in
accordance with the agreement embodied in paragraph 5 of the
petition, except insofar as the adjudication to petitioner Sylvia L.
De Leon of the properties belonging to and owned by Intervenor
Macaria De Leon is concerned.
Henceforth, (a) each spouse shall own, dispose of, possess,
administer and enjoy his or her separate estate, present and
future without the consent of the other; (b) all earnings from any
profession, business or industry shall likewise belong to each of
them separately; (c) the minor child Susana De Leon shall stay
with petitioner Sylvia Lichauco De Leon for two to three months

every yearthe transportation both ways of the child for the trip
to the Philippines to be at the expense of the petitioner Jose
Vicente De Leon; and (d) petitioner Jose Vicente De Leon shall
give petitioner Sylvia Lichauco De Leon the sum of P4,500.00 as
monthly support for the minor child Susana to commence from
February 19, 1980.
Sylvia appealed to the respondent Court of Appeals raising the
following errors:
1) The trial court erred in finding that the cause or consideration
of the Letter-Agreement is the termination of marital relations;
2) The trial court failed to appreciate testimonial and
documentary evidence proving that Macaria de Leons claims of
threat, intimidation and mistake are baseless; and
3) The trial court erred in finding that Sylvia Lichauco de Leon
committed breach of the Letter-Agreement; and further, failed to
appreciate evidence proving Macaria de Leons mate
352
352
rial breach thereof.
The respondent court affirmed the decision in toto. The motion
for reconsideration was denied. Hence, the present petition.
The only basis by which Sylvia may lay claim to the properties
which are the subject matter of the Letter-Agreement, is the
Letter-Agreement itself. The main issue, therefore, is whether or
not the Letter-Agreement is valid.
The third paragraph of the Letter-Agreement, supra, reads:
In consideration for a peaceful and amicable termination of

relations between the undersigned and her lawfully wedded
husband, Jose Vicente De Leon, your son, the following are
agreed upon: (italics supplied)
It is readily apparent that the use of the word relations is
ambiguous, perforce, it is subject to interpretation. There being
a doubt as to the meaning of this word taken by itself, a
consideration of the general scope and purpose of the
instrument in which it occurs (see Germann and Co. v.
Donaldson, Sim and Co., 1 Phil. 63) and Article 1374 of the Civil
Code which provides that the various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly, is
necessary.
Sylvia insists that the consideration for her execution of the
Letter-Agreement was the termination of property relations with
her husband. Indeed, Sylvia and Jose Vicente subsequently filed
a joint petition for judicial approval of the dissolution of their
conjugal partnership, sanctioned by Article 191 of the Civil Code.
On the other hand, Macaria and Jose Vicente assert that the
consideration was the termination of marital relationship.
We sustain the observations and conclusion made by the trial
court, to wit (pp. 44-46, Rollo):
On page two of the letter agreement (Exhibit E), the parties
contemplated not only to agree to a judicial separation of
property of the spouses but likewise to continue with divorce
proceedings (paragraphs 1 and 2, Obligations of the Wife,
Exhibit E-1). If taken with the apparently ambiguous provisions
in Exhibit E regarding termination of relations, the parties
clearly contemplated not only the termination
353
VOL. 186, JUNE 6, 1990

353
of property relationship but likewise of marital relationship in its
entirety. Furthermore, it would be safe to assume that the
parties in Exhibit E not having specified the particular
relationship which they wanted to peacefully and amicably
terminate had intended to terminate all kinds of relations, both
marital and property. While there could be inherent benefits to a
termination of conjugal property relationship between the
spouses, the court could not clearly perceive the underlying
benefit for the intervenor insofar as termination of property
relationship between petitioners is concerned, unless the
underlying consideration for intervenor is the termination of
marital relationship by divorce proceedings between her son
Jose Vicente and his wife petitioner Sylvia. The last sentence of
paragraph 2 under Obligations of the Wife unequivocally
states: It is the stated objective of this agreement that said
divorce proceedings (in the United States) will continue.There is
merit in concluding that the consideration by which Intervenor
executed Exhibit E to E-2 was to secure freedom for her son
petitioner Jose Vicente De Leon, especially if Exhibit R
Intervenor, which is (sic) agreement signed by petitioner Sylvia
to consent to and pardon Jose Vicente De Leon for adultery and
concubinage (among others) would be considered. In the light,
therefore, of the foregoing circumstances, this Court finds
credible the testimony of intervenor as follows:
Q
Will you please go over the Exhibit E to E-2intervenor
consisting of three pages and inform us whether or not this is
the letter of March 16, 1977 which you just referred to?
A
Yes, this is the letter.

Q
Why did you affix your signature to this Exh. Eintervenor
(sic)?
A
Because at that time when I signed it I want to buy peace for
myself and for the whole family.
Q
From whom did you want to buy peace and/or what kind of
peace?
A
I wanted to buy peace from Sylvia Lichauco whom I knew was
kind of matapang; so I want peace for me and primarily for the
peaceful and amicable termination of maritalrelationship
between my son, Joe Vincent and Sylvia. (Deposition dated
September 6, 1983Macaria de Leon, p. 6-7)
This Court, therefore, finds and holds that the cause or
consideration for the intervenor Macaria De Leon in having
executed Exhibits E to E-2 was the termination of the marital
relationship between her son Jose Vicente De Leon and Sylvia
Lichauco de Leon.
Article 1306 of the New Civil Code provides:
354
354
Art. 1306. The contracting parties may establish such

stipulations, clauses, terms, and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.
If the stipulation is contrary to law, morals or public policy, the
contract is void and inexistent from the beginning.
Art. 1409. The following contracts are inexistent and void from
the beginning:
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy;
xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set
up the defense of illegality be waived.
But marriage is not a mere contract but a sacred social
institution. Thus, Art. 52 of the Civil Code provides:
Art. 52. Marriage is not a mere contract but an inviolable social
institution. Its nature, consequences and incidents are governed
by law and not subject to stipulations . . .
From the foregoing provisions of the New Civil Code, this court
is of the considered opinion and so holds that intervenors
undertaking under Exhibit E premised on the termination of
marital relationship is not only contrary to law but contrary to
Filipino morals and public policy. As such, any agreement or
obligations based on such unlawful consideration and which is
contrary to public policy should be deemed null and void.
(italics supplied)
Additionally, Article 191 of the Civil Case contemplates
properties belonging to the spouses and not those belonging to
a third party, who, in the case at bar, is Macaria. In the petition
for the dissolution of the conjugal partnership, it was made to
appear that the said properties are conjugal in nature. However,

Macaria was able to prove that the questioned properties are
owned by her. Neither Sylvia nor Jose Vicente adduced any
contrary evidence.
Granting, in gratia argumenti, that the consideration of the
Letter-Agreement was the termination of property relations, We
agree with the respondent court that (pp. 46-47, Rollo):
x x x the agreement nevertheless is void because
contravenes the following provisions of the Civil Code:
it
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VOL. 186, JUNE 6, 1990

355
Art. 221. The following shall be void and of no effect:
(1) Any contract for personal separation between husband and
wife;
(2) Every extra-judicial agreement, during marriage, for the
dissolution of the conjugal partnership of gains or of the
absolute community of property between husband and wife;
Besides, the Letter-Agreement shows on its face that it was
prepared by Sylvia, and in this regard, the ambiguity in a
contract is to be taken contra proferentem, i.e., construed
against the party who caused the ambiguity and could have also
avoided it by the exercise of a little more care. Thus, Article
1377 of the Civil Code provides: The interpretation of obscure
words of stipulations in a contract shall not favor the party who
caused the obscurity (see Equitable Banking Corp. vs. IAC, G.R.
No. 74451, May 25, 1988, 161 SCRA 518).
Sylvia alleges further that since the nullity of the LetterAgreement proceeds from the unlawful consideration solely of
Macaria, applying the pari delicto rule, it is clear that she cannot
recover what she has given by reason of the Letter-Agreement
nor ask for the fulfillment of what has been promised her. On her
part, Macaria raises the defenses of intimidation and mistake
which led her to execute the Letter-Agreement. In resolving this
issue, the trial court said (pp. 148-151, Rollo):
In her second cause of action, intervenor claims that her
signing of Exhibits E to E-2 was due to a fear of an unpeaceful
and troublesome separation of her son with petitioner Sylvia
Lichauco de Leon. In support of her claim, intervenor testified as
follows:
Q
Will you please inform us how did Sylvia Lichauco disturb or
threaten your son or yourself?
A
Despite the fact that Sylvia Lichauco voluntarily left my son Joe
Vincent and abandoned him, she unashamedly nagged Joe and
me to get money and when her demands were not met she
resorted to threats like, she threatened to bring Joe to court for
support. Sylvia threatened to scandalize our family by these
baseless suits; in fact she caused the service of summons to Joe
when he went to the United States. (Intervenors deposition
dated Sept. 6, 1983, p. 8).
356
356
On the other hand, petitioner Sylvia claims that it was

intervenor and petitioner Jose Vicente who initiated the move to
convince her to agree to a dissolution of their conjugal
partnership due to the alleged extra-marital activities of
petitioner Jose Vicente de Leon. She testified as follows:
Q
Now in her testimony, Macaria Madrigal de Leon also said that
you threatened her by demanding money and nagged her until
she agreed to the letter agreement of March 1977, what can you
say about that?
A
I think with all the people sitting around with Atty. Quisumbing,
Atty. Chuidian, my father-in-law, my sister-in-law and I, you
know, it can be shown that this was a friendly amicable
settlement that they were much really interested in settling
down as I was. I think there were certain reasons that they
wanted to get done or planned, being at that time Jose was
already remarried and had a child. That since she then found out
that since she was worried about what might be, you know,
involved in any future matters. She just wanted to do what she
could. She just want me out of the picture. So in no way, it
cannot be said that I nagged and threatened her. (TSN dated
December 8, 1983, p. 137-138)
In resolving this issue, this Court leans heavily on Exhibit R
intervenor, which was not controverted by petitioner Sylvia. A
reading of Exhibit R would show that petitioner Sylvia would
consent to and pardon petitioner Jose Vicente, son of intervenor,
for possible crimes of adultery and/or concubinage, with a string
attached; that is, the transfer of the properties subject herein to
her. There appears some truth to the apprehensions of
intervenor for in petitioner Sylvias testimony she confirms the
worry of intervenor as follows: . . . being at that time Jose (De
Leon) was already remarried and had a child. That since she
(intervenor) found out that, she was worried about what might
be, you know, involved in any future matters. She just want me
out of the picture. The aforesaid fear of intervenor was further
corroborated by her witness Concepcion Tagudin who testified as
follows:
Q
Now, you mentioned that you were present when Mrs. Macaria
De Leon signed this Exhibit E-2, will you inform us whether
there was anything unusual which you noticed when Mrs.
Macaria M. De Leon signed this Exhibit E-2?
A
Mrs. Macaria M. De Leon was in a state of tension and anger.
She was so mad that she remarked: Puetang Sylvia ito bakit ba
niya ako ginugulo. Ipakukulong daw
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VOL. 186, JUNE 6, 1990

357
niya si Joe Vincent kung hindi ko pipirmahan ito. Sana matapos

na itong problemang ito pagkapirmang ito, sabi niya.
(DepositionConcepcion Tagudin, Oct. 21, 1983, pp.10-11)
In her third cause of action, intervenor claims mistake or error
in having signed Exhibits 1 to E-2 alleging in her testimony as
follows:
Q
Before you were told such by your lawyers what if any were your
basis to believe that Sylvia would no longer have inheritance
rights from your son, Joe Vincent?
A
Well, that was what Sylvia told me. That she will eliminate any
inheritance rights from me or my son Joe Vincents properties if I
sign the document amicably. x x x (Intervenors deposition
Sept. 6, 1983, pp. 9-10).
On the other hand, petitioner Sylvia claims that intervenor
could not have been mistaken in her having signed the
document as she was under advice of counsel during the time
that Exhibits E to E-2 was negotiated. To support such claims
by Sylvia Lichauco De Leon, the deposition testimony of Atty.
Vicente Chuidian was presented before this Court:
Atty. Herbosa: Now you mentioned Atty. Norberto Quisumbing, would you be able to tell us in what capacity he was
present in that negotiation?
Atty. Chuidian: He was counsel for Doa Macaria and for Joe
Vincent, the spouse of Sylvia. (Deposition of V. Chuidian,
December 16, 1983, p. 8)
The New Civil Code provides:
Art. 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence or fraud is void-able.
Art. 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of
the contract, or to those conditions which have principally
moved one or both parties to enter into a contract. x x x
The preponderance of evidence leans in favor of intervenor who
even utilized the statement of the divorce lawyer of petitioner
Sylvia (Mr. Penrod) in support of the fact that intervenor was
mistaken in having signed Exhibits E to E-2 because when she

signed said Exhibits she believed that fact that petitioner Sylvia
would eliminate her inheritance rights and there is no showing
that said intervenor was properly advised by any American
lawyer on the fact whether petitioner Sylvia, being an American
citizen, could rightfully do the same. Transcend358
358
ing, however, the issue of whether there was mistake of fact on
the part of intervenor or not, this Court could not see a valid
cause or consideration in favor of intervenor Macaria De Leon
having signed Exhibits E to E-2. For even if petitioner Sylvia
had confirmed Mr. Penrods statement during the divorce
proceedings in the United States that she would undertake to
eliminate her hereditary rights in the event of the property
settlement, under Philippine laws, such contract would likewise
be voidable, for under Art. 1347 of the New Civil Code no
contract may be entered into upon future inheritance.
We do not subscribe to the aforestated view of the trial court.
Article 1335 of the Civil Code provides:
x x x.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon
the person or property of his spouse, descendants or
ascendants, to give his consent.
To determine the degree of the intimidation, the age, sex and
condition of the person shall be borne in mind.
A threat to enforce ones claim through competent authority, if

the claim is just or legal, does not vitiate consent.
In order that intimidation may vitiate consent and render the
contract invalid, the following requisites must concur: (1) that
the intimidation must be the determining cause of the contract,
or must have caused the consent to be given; (2) that the
threatened act be unjust or unlawful; (3) that the threat be real
and serious, there being an evident disproportion between the
evil and the resistance which all men can offer, leading to the
choice of the contract as the lesser evil; and (4) that it produces
a reasonable and well-grounded fear from the fact that the
person from whom it comes has the necessary means or ability
to inflict the threatened injury. Applying the foregoing to the
present case, the claim of Macaria that Sylvia threatened her to
bring Jose Vicente to court for support, to scandalize their family
by baseless suits and that Sylvia would pardon Jose Vicente for
possible crimes of adultery and/or concubinage subject to the
transfer of certain properties to her, is obviously not the
intimidation referred to by law. With respect to mistake as a vice
of consent, neither is Macarias alleged mistake in having signed
the Letter-Agreement because of her belief that Sylvia
359
VOL. 186, JUNE 6, 1990

359
will thereby eliminate inheritance rights from her and Jose
Vicente, the mistake referred to in Article 1331 of the Civil Code,
supra. It does not appear that the condition that Sylvia will
eliminate her inheritance rights principally moved Macaria to
enter into the contract. Rather, such condition was but an
incident of the consideration thereof which, as discussed earlier,

is the termination of marital relations.
In the ultimate analysis, therefore, both parties acted in violation
of the laws. However, the pari delicto rule, expressed in the
maxims Ex dolo malo non oritur actio and In pari delicto
potior est conditio defendentis, which refuses remedy to either
party to an illegal agreement and leaves them where they are,
does not apply in this case. Contrary to the ruling of the
respondent Court that (pp. 47-48, Rollo):
x x x. [C]onsequently, intervenor appellees obligation under
the said agreement having been annulled, the contracting
parties shall restore to each other that things which have been
subject matter of the contract, their fruits and the price or its
interest, except as provided by law (Art. 1398, Civil Code).
Article 1414 of the Civil Code, which is an exception to the pari
delicto rule, is the proper law to be applied. It provides:
When money is paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the parties
before the purpose has been accomplished, or before any
damage has been caused to a third person. In such case, the
courts may, if the public interest will thus be subserved, allow
the party repudiating the contract to recover the money or
property.
Since the Letter-Agreement was repudiated before the purpose
has been accomplished and to adhere to the pari delicto rule in
this case is to put a premium to the circumvention of the laws,
positive relief should be granted to Macaria. Justice would be
served by allowing her to be placed in the position in which she
was before the transaction was entered into.
With the conclusions thus reached, We find it unnecessary to
discuss the other issues raised.
ACCORDINGLY, the petition is hereby DENIED. The decision of

the respondent Court of Appeals dated June 30, 1987
360
360
De Ocampo, Jr. vs. National Labor Relations Commission
and its resolution dated November 24, 1987 are AFFIRMED.
SO ORDERED.
Narvasa (Chairman), Cruz and Gancayco, JJ., concur.
Grio-Aquino, J., On leave.
Petition denied. Decision and resolution affirmed.
Note.Rules of Court mandates a liberal construction of the
rules and the pleadings to effect substantial justice (Del Rosario
vs. Hamoy, 151 SCRA 719.) [De Leon vs. Court of Appeals, 186
SCRA 345(1990)]
No. L-20175. October 30, 1967.

MARIA A. GARCIA, ET AL., petitioners, vs. RITA LEGARDA, INC.,
respondent.
Civil law; Obligations and contracts; Art. 1308 New Civil Code
construed.Art. 1309 is a virtual reproduction of Art. 1256 of
the old Civil Code, so phrased as to emphasize that the contract
must bind both parties, based on the principles (1) that
obligations arising from contracts have the force of law between
the contracting parties; and (2) that there must be mutuality
between the parties based on their essential equality, to which
is repugnant to have one party bound by the contract leaving
the other free therefrom. Its ultimate purpose is to render void a
contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties.
Same; Valid contracts to sell of residential lots with resolutory
condition.Where in a contract to sell subdivided lots in monthly
installments there has been a stipulation that in case of
vendee's default in the payment of installments he should have
a month of grace and an additional period of ninety days to pay
all the amounts due, otherwise the vendor should have the right
to declare the contract cancelled and of no effect, such
stipulation is valid and not violative of Art. 1308 of the new Civil
Code, considering that the validity or compliance thereof is not
entirely left to the will of one of the contracting parties, but it
merely gives the vendor the right to declare such contract
cancelled and of no effect. Indeed, the power thus granted
cannot be said to be immoral, much less unlawful, for it could
not be arbitrarily exercised without the other party committing
the breach of contract for nonpayment of the installments
agreed upon. Obviously, all that said party had to do to prevent
the other from exercising the power to cancel was for him to
comply with his part of the contract.
Same; Payment; Acceptance of payment in arrears creates no

presumption.Where prior to the cancellation of the contract to
sell the vendor had accepted payment of installments in arrears
as an act of forbearance so as to give the vendee an additional
opportunity to keep the contract alive, such acceptance did not
give rise to the presumption that by such act of humanity the
vendor had waived his right to cancel the contract; on the
contrary, it strengthened his right to do so, considering that
even after such beneficial act of accommodation still the vendee
subsequently defaulted again and again in the payment of the
installments.
APPEAL by certiorari from a decision of the Court of Appeals.

556
556
Garcia vs. Rita Legarda, Inc.
Picazo & Agcaoili for petitioners.
Gregorio Fajarda for respondent.
DIZON, J.:
Appeal taken by the spouses Maria A. Garcia and Marcelino A.

Timbanghereinafter referred to as petitionersfrom the
decision of the Court of Appeals in CA-G.R. No. 27194-R
reversing the one rendered on January 9, 1960 by the Court of
First Instance of Manila in Civil Case No. 1962 entitled "Maria A.
Garcia, et al. vs. Rita Legarda, Inc." The latter is a corporation
organized under Philippine laws, and is engaged in the sale and
resale of residential lots in Manila and suburbs. We shall refer to

it hereinafter as the respondent.
On May 20, 1953 the petitioners instituted the civil case
mentioned above against the respondent to have certain
contracts numbered 322, 324, and 965 declared as existing and
subsisting; to compel the respondent to accept payments
tendered by them; and to recover moral and exemplary
damages and attorney's fees in the amounts of P6,000.00 and
Pl,500.00, respectively.
The three causes of action alleged in their complaint involved
the three parcels of land subject matter of the contracts
aforesaid. Each had an area of about 150 square meters, and
formed part of the Rita Legarda Estate situated in Manila, and
subdivided into lots sold on installment basis.
(1) Contract to Sell No. 322 (Exhs. A and A-1) covering Lot 40,
Block 8-CC, was executed by the respondent in favor of Emiliano
Orellana on March 1, 1947. On June 26, 1947, the latter
transferred all his rights and interest thereunder to Encarnacion
Vito who, in turn, on November 3 of the same year, made a
similar transfer of rights in favor of Delfin Bacho. Finally, on May
29, 1948, Bacho also transferred all his rights and interest to the
petitioners.
(2) On March 1, 1947, Contract to Sell No. 324 (Exh. 2) covering
Lot No, 20, Block 5-CC was executed by respondent in favor of
Jesusa Felix. Two months later, Felix, with the written consent of
the respondent, sold her rights and interest to petitioners.
557
VOL. 21, OCTOBER 30, 1967

557
(3) Contract to Sell No. 965 (Exh. 3) covering Lot No. 27, Block 5CC was executed by the respondent in favor of Angela Alvarez
Solomon on January 8, 1948. With the written consent of the
former, Solomon also sold her rights and interest to the
petitioners on May 11, 1948.
In its answer to the complaint, the respondent averred that in
relation to the Contracts to Sell Nos. 322, 965 and 324,
petitioners paid on November 7, 1951 the 53rd, 43rd and 53rd
installments, respectively, corresponding to the installments for
the month of July, 1951; that the petitioners, as of June 11,
1952, had failed to pay the stipulated monthly installments for
Contracts Nos. 322 and 324 corresponding to the period from
August, 1951 through June, 1952, and in the case of Contract
No. 965, from August, 1951 through May, 1952; that despite
several demands for payment of arrears made between
December, 1951 and June, 1952 by the respondent, the
petitioners had failed to pay the amounts due; and that upon the
expiration of the 90-day grace period on June 11, 1952
stipulated in the sixth paragraph of the contracts, the
respondent had cancelled them. The answer also prayed for an
award of damages and attorney's fees in the sum of P2.000.00.
On April 20, 1954 the petitioners filed a reply denying that they
were in arrears as to their obligations under the three contracts
and, further averred as affirmative defense that the cancellation
thereof was unlawful and arbitrary.
After trial the Court rendered judgment declaring Contracts Nos.
322, 324 and 965 as existing and subsisting; ordering the
respondent to accept the payments tendered by the petitioners
and to pay attorney's fees in the sum of Pl,500.00. but denied
the award of moral and exemplary damages. From this decision
the respondent appealed to the Court of Appeals from whose
decisionreversing that of the lower courtthe instant appeal
was taken.
Petitioners now urge Us, in turn, to reverse the decision of the

Court of Appeals, claiming that the latter had committed the
following errors:
"I. The Honorable Court of Appeals erred in declaring that the
respondent Rita Legarda, Inc. had not waived its rights
558
558
to cancel its contracts with the petitioners on the ground that it
had previously accepted late payments of the installments due
on such contracts.
"II. The Honorable Court of Appeals erred in declaring that par. 9
of the contracts in question is not in violation of Art. 130g of the
New Civil Code.
"III. The Honorable Court of Appeals erred in not declaring that
the respondent Rita Legarda, Inc., after having tolerated and
accepted previously late payments on the installments due on
the contracts, suddenly and without suitable warning and giving
of further opportunity to pay the same could not and should not
have precipitously decided to forfeit, as it actually forfeited, all
the payments which have already been made to it by
petitioners.
"IV. The Honorable Court of Appeals erred in reversing and in not
affirming the decision of the Court of First Instance of Manila in
its entirety."
The second assignment of error is based on petitioners'
contention that the questioned stipulations of the contracts are
in violation of the provisions of Article 1308 of the New Civil
Code, while the first and third are based on the claim that the
respondent having previously accepted late payments of
installments due on the contracts aforesaid, must be deemed to
have waived its right to cancel said contracts on the ground of
late payment of installments, and that, at any rate, after having
tolerated and accepted said late payments, it was arbitrary on
its part to cancel the contracts suddenly and without suitable
warning. The fifth and last assignment of error is merely a
consequence of the others.
Article 1308 of the New Civil Code reads as follows:
"The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."
The above legal provision is a virtual reproduction of Article
1256 of the old Civil Code but it was so phrased as to emphasize
the principle that the contract must bind both parties. This, of
course, is based firstly, on the principle that obligations arising
from contracts have the force of law between the contracting
parties and secondly, that there must be mutuality between the
parties based on their essential equality to which is repugnant to
have one party bound by the contract leaving the other free
559

559
therefrom (8 Manresa 556). Its ultimate purpose is to render void
a contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties.
Paragraph 6 of the contracts in questionwhich is the one

claimed to be violative of the legal provision above quoted
reads as follows:
"SIXTHIn case the party of the SECOND PART fails to satisfy
any monthly installments, or any other payments herein agreed
upon, he is granted a month of grace within which to make the
retarded payment, together with the one corresponding to the
said month of grace; it is understood, however, that should the
month of grace herein granted to the party of the SECOND PART
expire, without the payments corresponding to both months
having been satisfied, an interest of 10% per annum will be
charged on the amounts he should have paid; it is understood
further, that should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the
party of the SECOND PART has not paid all the amounts he
should have paid with the corresponding interest up to that
date, the party of the FIRST PART has the right to declare this
contract cancelled and of no effect, and as consequence thereof,
the party of the FIRST PART may dispose of the parcel or parcels
of land covered by this contract in favor of other persons, as if
this contract had never been entered into. In case of such
cancellation of this contract, all the amounts paid in accordance
with this agreement together with all the improvements made
on the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises, and as
payment for the damages suffered by failure of the party of the
SECOND PART to fulfill his part of this agreement; and the party
of the SECOND PART hereby renounces all his right to demand or
reclaim the return of the same and obliges himself to peacefully
vacate the premises and deliver the same to the party of the
FIRST PART."
The above stipulation, to our mind, merely gives the vendor "the
right to declare this contract cancelled and of no effect" upon
fulfillment of the conditions therein set forth. It does not leave
the validity or compliance of the contract entirely "to the will of
one of the contracting parties"; the stipulation or agreement

simply says that in case of default in the payment of
installments by the vendee, he shall have (1) "a month of
grace", and that (2) should said month of grace expire without
the vendee paying his arrears, he shall
560
560
have another "period of 90 days" to pay "all the amounts he
should have paid", etc., then the vendor "has the right to
declare this contract cancelled and of no effect." We have
heretofore upheld the validity of similar stipulations. In Taylor vs.
Ky Tieng Piao, etc., 43 Phil. 873, 876-878 the ruling was that a
contract expressly giving to one party the right to cancel, the
same if a resolutory condition therein agreed uponsimilar to
the one under considerationis not fulfilled, is valid, the reason
being that when the contract is thus cancelled, the agreement of
the parties is in reality being fulfilled. Indeed, the power thus
granted can not be said to be immoral, much less unlawful, for it
could be exercisednot arbitrarilybut only upon the other
contracting party committing the breach of contract of nonpayment of the installments agreed upon. Obviously, all that
said party had to do to prevent the other from exercising the
power to cancel the contract was for him to comply with his part
of the contract. And in this case, after the maturity of any
particular installment and its non-payment, the contract gave
him not only a month grace but an additional period of 90 days.
Having arrived at the above conclusions, We now come to the
question of whether or not by having previously accepted
payments of overdue installments the respondent had waived its

right to declare the contracts cancelled and of no effect.
In this connection the record shows that on June 11, 1952 when
the Contracts to Sell Nos. 234 and 965 were cancelled, the
vendees were ten months in arrears, .and that in the case of
contract to Sell No. 322 the vendees had never resumed
payment of a single installment from the date when, upon their
petition, said contract was reinstated on September 28, 1952.
The contracts under consideration are not of absolute sale but
mere contracts to sellon installment. They give the respondent
(vendor) the right to declare the contracts cancelled and of no
effectas in fact it didupon fulfillment of certain conditions. All
said conditionsso the record shows __ have been fulfilled.
Consequently, respondent's (vendor) right to cancel the
contracts can not be doubted.
561

561
Manalang vs. Artex Development Co., Inc.
That prior to the cancellation it had in fact accepted payment of
installments in arrears was but another act of forbearance on its
part to give the petitioners an additional opportunity to keep the
contracts alive. Rather than give rise to the presumption that by
such act of humanity it waived its right to cancel the contracts,
it strengthens its right to do so, considering that even after such
act of accommodation beneficial to the petitioners, the latter
subsequently defaulted again and again in the fulfillment of their
obligation.
It is, of course, painful for the petitioners to lose not only the
right they had acquired under the contracts but also whatever
amounts they had already paid thereunder, but such
consequences had been foreseen by the contracting parties. To

avoid them, all that petitioners had to doas already said
heretoforewas to comply with their part of the bargain. Having
failed to do so, they really have no valid reason to complain.
That one contracting party appears to have made a poor bargain
is no reason for setting aside the agreement (Fernandez vs.
Manila Railroad, 14 Phil. 274, 287).
WHEREFORE, the appealed judgment being in accordance with
law and the facts of the case, the same is hereby affirmed.
Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P.,
Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Judgment affirmed [Garcia vs. Rita Legarda, Inc., 21 SCRA
555(1967)]
G.R. No. 124290. January 16, 1998.*

ALLIED BANKING CORPORATION, petitioner, vs. COURT OF
APPEALS, HON. JOSE C. DE GUZMAN, OSCAR D. TANQUECO,
LUCIA D. TANQUECO-MATIAS, RUBEN D. TANQUECO and NESTOR
D. TANQUECO, respondents.
Contracts; Leases; Principle of Mutuality; 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 free therefrom.Article 1308 of the Civil Code
expresses what is known in law as the principle of mutuality of
contracts. It provides that the contract must bind both the
contracting parties; its validity or compliance cannot be left to
the will of one of them. This binding effect of a contract on both
parties is based on the principle that the obligations arising from
contracts have the force of law between the contracting parties,
and there must be mutuality between them based essentially on
their equality under which it is repugnant to have one
___________________
* FIRST DIVISION.
358
358
Allied Banking Corporation vs. Court of Appeals
party bound by the contract while leaving the other free
therefrom. The ultimate purpose is to render void a contract
containing a condition which makes its fulfillment dependent

solely upon the uncontrolled will of one of the contracting
parties.
Same; Same; Same; An express agreement which gives the lessee the sole option to renew the lease is frequent and subject to
statutory restrictions, valid and binding on the partiesthe right
of re-newal constitutes a part of the lessees interest in the land
and forms a substantial and integral part of the agreement.An
express agreement which gives the lessee the sole option to
renew the lease is frequent and subject to statutory restrictions,
valid and binding on the parties. This option, which is provided in
the same lease agreement, is fundamentally part of the
consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the
lessor to act conditioned on the performance by the lessee. It is
a purely executory contract and at most confers a right to obtain
a renewal if there is compliance with the conditions on which the
right is made to depend. The right of renewal constitutes a part
of the lessees interest in the land and forms a substantial and
integral part of the agreement.
Same; Same; Same; The fact that an option to renew is binding
only on the lessor and can only be exercised by the lessee does
not render it void for lack of mutuality.The fact that such
option is binding only on the lessor and can be exercised only by
the lessee does not render it void for lack of mutuality. After all,
the lessor is free to give or not to give the option to the lessee.
And while the lessee has a right to elect whether to continue
with the lease or not, once he exercises his option to continue
and the lessor accepts, both parties are thereafter bound by the
new lease agreement. Their rights and obligations become
mutually fixed, and the lessee is entitled to retain possession of
the property for the duration of the new lease, and the lessor
may hold him liable for the rent therefor. The lessee cannot
thereafter escape liability even if he should subsequently decide
to abandon the premises. Mutuality obtains in such a contract
and equality exists between the lessor and the lessee since they
remain with the same faculties in respect to fulfillment.
Same; Same; Words and Phrases; The clause may be renewed
for a like term at the option of the lessee, when exercised by
the lessee, results in the automatic extension of the contract of
lease under
359
VOL. 284, JANUARY 16, 1998

359
the same terms and conditions, the phrase for a like term
referring to the period.With respect to the meaning of the
clause may be renewed for a like term at the option of the
lessee, we sustain petitioners contention that its exercise of
the option resulted in the automatic extension of the contract of
lease under the same terms and conditions. The subject contract
simply provides that the term of this lease shall be fourteen
(14) years and may be renewed for a like term at the option of
the lessee. As we see it, the only term on which there has been
a clear agreement is the period of the new contract, i.e.,
fourteen (14) years, which is evident from the clause may be
renewed for a like term at the option of the lessee, the phrase
for a like term referring to the period. It is silent as to what the
specific terms and conditions of the renewed lease shall be.
Shall it be the same terms and conditions as in the original
contract, or shall it be under the terms and conditions as may be
mutually agreed upon by the parties after the expiration of the
existing lease?
Same; Same; Statutory Construction; As in a statute no word,
clause, sentence, provision or part of a contract shall be
considered surplusage or superfluous, meaningless, void,
insignificant or nugatory, if that can be reasonably avoided, and

to this end, a construction which will render every word
operative is to be preferred over that which would make some
words idle and nugatory.Besides, if we were to adopt the
contrary theory that the terms and conditions to be embodied in
the renewed contract were still subject to mutual agreement by
and between the parties, then the optionwhich is an integral
part of the consideration for the contractwould be rendered
worthless. For then, the lessor could easily defeat the lessees
right of renewal by simply imposing unreasonable and onerous
conditions to prevent the parties from reaching an agreement,
as in the case at bar. As in a statute no word, clause, sentence,
provision or part of a contract shall be considered surplusage or
superfluous, meaningless, void, insignificant or nugatory, if that
can be reasonably avoided. To this end, a construction which will
render every word operative is to be preferred over that which
would make some words idle and nugatory.
Same; Same; Where the old lease contract was deemed
renewed under the same terms and conditions upon the exercise
by the lessee of its option, the basis of the computation of
rentals should be the rental rate provided for in the existing
contract.Fortunately for respondent lessors, ALLIED vacated
the premises on 20 February 1993
360
360
indicating its abandonment of whatever rights it had under the
renewal clause. Consequently, what remains to be done is for
ALLIED to pay rentals for the continued use of the premises until
it vacated the same, computed from the expiration of the
original term of the contract on 31 March 1992 to the time it

actually left the premises on 20 February 1993, deducting
therefrom the amount of P68,400.00 consigned in court by
ALLIED and any other amount which it may have deposited or
advanced in connection with the lease. Since the old lease
contract was deemed renewed under the same terms and
conditions upon the exercise by ALLIED of its option, the basis of
the computation of rentals should be the rental rate provided for
in the existing contract.
Same; Same; Donations; Words and Phrases; Interest,
Explained; A person who is not principally or subsidiarily bound
has no legal capacity to challenge the validity of a contract of
donationhe must first have an interest in it, meaning a
material interest, an interest to be affected by the deed, as
distinguished from a mere incidental interest.ALLIED cannot
assail the validity of the deed of donation, not being a party
thereto. A person who is not principally or subsidiarily bound has
no legal capacity to challenge the validity of the contract. He
must first have an interest in it. Interest within the meaning of
the term means material interest, an interest to be affected by
the deed, as distinguished from a mere incidental interest.
Hence, a person who is not a party to a contract and for whose
benefit it was not expressly made cannot maintain an action on
it, even if the contract, if performed by the parties thereto would
incidentally affect him, except when he is prejudiced in his rights
with respect to one of the contracting parties and can show the
detriment which could positively result to him from the contract
in which he had no intervention. We find none in the instant
case.
PETITION for review on certiorari of a decision of the Court of
Appeals.
Ocampo, Quiroz, Pesayco & Associates for petitioner.

H.D. Tumaneng & Associates for private respondents.
361
VOL. 284, JANUARY 16, 1998

361
BELLOSILLO, J.:
There are two (2) main issues in this petition for review: namely,
(a) whether a stipulation in a contract of lease to the effect that
the contract may be renewed for a like term at the option of the
lessee is void for being potestative or violative of the principle
of mutuality of contracts under Art. 1308 of the Civil Code and,
corollarily, what is the meaning of the clause may be renewed
for a like term at the option of the lessee; and, (b) whether a
lessee has the legal personality to assail the validity of a deed of
donation executed by the lessor over the leased premises.
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned
a 512-square meter lot located at No. 2 Sarmiento Street corner
Quirino Highway, Novaliches, Quezon City, covered by TCT No.
136779 in their name. On 30 June 1978 they leased the property
to petitioner Allied Banking Corporation (ALLIED) for a monthly
rental of P1,000.00 for the first three (3) years, adjustable by
25% every three (3) years thereafter.1 The lease contract
specifically states in its Provision No. 1 that the term of this
lease shall be fourteen (14) years commencing from April 1,
1978 and may be renewed for a like term at the option of the
lessee.
Pursuant to their lease agreement, ALLIED introduced an

improvement on the property consisting of a concrete building
with a floor area of 340-square meters which it used as a branch
office. As stipulated, the ownership of the building would be
transferred to the lessors upon the expiration of the original
term of the lease.
Sometime in February 1988 the Tanqueco spouses executed a
deed of donation over the subject property in favor of their four
(4) children, namely, private respondents herein Oscar D.
Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and
Nestor D. Tanqueco, who accepted the donation in the same
public instrument.
_____________________
1 Records, p. 45.
362
362
On 13 February 1991, a year before the expiration of the
contract of lease, the Tanquecos notified petitioner ALLIED that
they were no longer interested in renewing the lease.2 ALLIED
replied that it was exercising its option to renew their lease
under the same terms with additional proposals.3 Respondent
Ruben D. Tanqueco, acting in behalf of all the donee-lessors,
made a counter-proposal.4 ALLIED however rejected the
counter-proposal and insisted on Provision No. 1 of their lease
contract.
When the lease contract expired in 1992 private respondents

demanded that ALLIED vacate the premises. But the latter
asserted its sole option to renew the lease and enclosed in its
reply letter a cashiers check in the amount of P68,400.00
representing the advance rental payments for six (6) months
taking into account the escalation clause. Private respondents
however returned the check to ALLIED, prompting the latter to
consign the amount in court.
An action for ejectment was commenced before the Metropolitan
Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared
Provision No. 1 of the lease contract void for being violative of
Art. 1308 of the Civil Code thus
____________________
2 Records, p. 11; Exh. C.

3 ALLIED proposed the following terms for the extension of the
lease: (1) Term of Lease: ten (10) years; (2) Escalation Rate: 10%
per annum starting on the second year; (3) Monthly Rental:
P8,000/month on the first year; and, (4) Advance Rental: Six (6)
months to be applied to the first six (6) months of the lease.
4 The counter-proposal: (1) Term: Two (2) years subject to
renewal at the sole option of the lessor; (2) Rent: a) at P80,000 a
month payable within the first five (5) days of each month
commencing from the date the lease contract is executed; b)
Twelve (12) months rental payable in advance upon signing of
the lease contract; (3) Deposit: P80,000 to answer for any
unpaid obligations of the lessee, payable upon signing of the
lease contract and refundable upon the termination of the lease
(net of any amount applied to the payment of any such unpaid
obligations).
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363
x x x but such provision [in the lease contract], to the mind of
the Court, does not add luster to defendants cause nor
constitutes as an unbridled or unlimited license or sanctuary of
the defendant to perpetuate its occupancy on the subject
property. The basic intention of the law in any contract is
mutuality and equality. In other words, the validity of a contract
cannot be left at (sic) the will of one of the contracting parties.
Otherwise, it infringes (upon) Article 1308 of the New Civil Code,
which provides: The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them x x x x Using the principle laid down in the case of Garcia
v. Legarda as cornerstone, it is evident that the renewal of the
lease in this case cannot be left at the sole option or will of the
defendant notwithstanding provision no. 1 of their expired
contract. For that would amount to a situation where the
continuance and effectivity of a contract will depend only upon
the sole will or power of the lessee, which is repugnant to the
very spirit envisioned under Article 1308 of the New Civil Code x
x x x the theory adopted by this Court in the case at bar finds
ample affirmation from the principle echoed by the Supreme
Court in the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.
On appeal to the Regional Trial Court, and later to the Court of
Appeals, the assailed decision was affirmed.5
On 20 February 1993, while the case was pending in the Court of
Appeals, ALLIED vacated the leased premises by reason of the
controversy.6
ALLIED insists before us that Provision No. 1 of the lease
contract was mutually agreed upon hence valid and binding on
both parties, and the exercise by petitioner of its option to renew
the contract was part of their agreement and in pursuance

thereof.
We agree with petitioner. Article 1308 of the Civil Code
expresses what is known in law as the principle of mutuality of
contracts. It provides that the contract must bind both the
____________________
5 Decision penned by Judge Jose C. de Guzman, RTC-Br. 93,

Quezon City; Decision of the Court of Appeals penned by Justice
Jesus M. Elbinias, concurred in by Justices Ramon U. Mabutas, Jr.,
and Salvador J. Valdez, Jr., CA-G.R. SP. Case No. 30162.
6 Rollo, p. 12.
364
364
contracting parties; its validity or compliance cannot be left to
the will of one of them. This binding effect of a contract on both
parties is based on the principle that the obligations arising from
contracts have the force of law between the contracting parties,
and there must be mutuality between them based essentially on
their equality under which it is repugnant to have one party
bound by the contract while leaving the other free therefrom.
The ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent solely upon the
uncontrolled will of one of the contracting parties.
An express agreement which gives the lessee the sole option to
renew the lease is frequent and subject to statutory restric-tions,
valid and binding on the parties. This option, which is provided in
the same lease agreement, is fundamentally part of the

consideration in the contract and is no different from any other
provision of the lease carrying an undertaking on the part of the
lessor to act conditioned on the performance by the lessee. It is
a purely executory contract and at most confers a right to obtain
a renewal if there is compliance with the conditions on which the
right is made to depend. The right of renewal constitutes a part
of the lessees interest in the land and forms a substantial and
integral part of the agreement.
The fact that such option is binding only on the lessor and can
be exercised only by the lessee does not render it void for lack
of mutuality. After all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a right to elect
whether to continue with the lease or not, once he exercises his
option to continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their rights and
obligations become mutually fixed, and the lessee is entitled to
retain possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent therefor.
The lessee cannot thereafter escape liability even if he should
subsequently decide to abandon the premises. Mutuality obtains
in such a contract and equality
365
VOL. 284, JANUARY 16, 1998

365
exists between the lessor and the lessee since they remain with
the same faculties in respect to fulfillment.7
The case of Lao Lim v. Court of Appeals8 relied upon by the trial
court is not applicable here. In that case, the stipulation in the
disputed compromise agreement was to the effect that the
lessee would be allowed to stay in the premises as long as he

needs it and can pay the rents. In the present case, the
questioned provision states that the lease may be renewed for
a like term at the option of the lessee. The lessor is bound by
the option he has conceded to the lessee. The lessee likewise
becomes bound only when he exercises his option and the lessor
cannot thereafter be excused from performing his part of the
agreement.
Likewise, reliance by the trial court on the 1967 case of Garcia v.
Rita Legarda, Inc.,9 is misplaced. In that case, what was involved
was a contract to sell involving residential lots, which gave the
vendor the right to declare the contract cancelled and of no
effect upon the failure of the vendee to fulfill any of the
conditions therein set forth. In the instant case, we are dealing
with a contract of lease which gives the lessee the right to
renew the same.
With respect to the meaning of the clause may be renewed for
a like term at the option of the lessee, we sustain petitioners
contention that its exercise of the option resulted in the
automatic extension of the contract of lease under the same
terms and conditions. The subject contract simply provides that
the term of this lease shall be fourteen (14) years and may be
renewed for a like term at the option of the lessee. As we see it,
the only term on which there has been a clear agreement is the
period of the new contract, i.e., fourteen (14) years, which is
evident from the clause may be renewed for a like term at the
option of the lessee, the phrase for a like term referring to the
period. It is silent as to what
______________________
7 8 Manresa 627.
8 G.R. No. 87047, 31 October 1990, 191 SCRA 156.
9 No. L-20175, 30 October 1976, 21 SCRA 555.

366
366
the specific terms and conditions of the renewed lease shall be.
Shall it be the same terms and conditions as in the original
contract, or shall it be under the terms and conditions as may be
mutually agreed upon by the parties after the expiration of the
existing lease?
In Ledesma v. Javellana10 this Court was confronted with a
similar problem. In that case the lessee was given the sole
option to renew the lease, but the contract failed to specify the
terms and conditions that would govern the new contract. When
the lease expired, the lessee demanded an extension under the
same terms and conditions. The lessor expressed conformity to
the renewal of the contract but refused to accede to the claim of
the lessee that the renewal should be under the same terms and
conditions as the original contract. In sustaining the lessee, this
Court made the following pronouncement:
x x x in the case of Hicks v. Manila Hotel Company, a similar
issue was resolved by this Court. It was held that such a clause
relates to the very contract in which it is placed, and does not
permit the defendant upon the renewal of the contract in which
the clause is found, to insist upon different terms than those
embraced in the contract to be renewed; and that a stipulation
to renew always relates to the contract in which it is found and
the rights granted thereunder, unless it expressly provides for
variations in the terms of the contract to be renewed.
The same principle is upheld in American Law regarding the

renewal of lease contracts. In 50 Am. Jur. 2d, Sec. 1159, at p. 45,
we find the following citations: The rule is well-established that
a general covenant to renew or extend a lease which makes no
provision as to the terms of a renewal or extension implies a
renewal or extension upon the same terms as provided in the
original lease.
In the lease contract under consideration, there is no provision
to indicate that the renewal will be subject to new terms and
conditions that the parties may yet agree upon. It is to renewal
provisions of lease contracts of the kind presently considered
that the principles stated above squarely apply. We do not agree
with the contention of
___________________
10 G.R. No. 55187, 28 April 1983, 121 SCRA 794.

367
VOL. 284, JANUARY 16, 1998

367
the appellants that if it was intended by the parties to renew the
contract under the same terms and conditions stipulated in the
contract of lease, such should have expressly so stated in the
contract itself. The same argument could easily be interposed by
the appellee who could likewise contend that if the intention was
to renew the contract of lease under such new terms and
conditions that the parties may agree upon, the contract should
have so specified. Between the two assertions, there is more
logic in the latter.
The settled rule is that in case of uncertainty as to the meaning

of a provision granting extension to a contract of lease, the
tenant is the one favored and not the landlord. As a general
rule, in construing provisions relating to renewals or extensions,
where there is any uncertainty, the tenant is favored, and not
the landlord, because the latter, having the power of stipulating
in his own favor, has neglected to do so; and also upon the
principle that every mans grant is to be taken most strongly
against himself (50 Am. Jur. 2d, Sec. 1162, p. 48; see also 51
C.J.S. 599).
Besides, if we were to adopt the contrary theory that the terms
and conditions to be embodied in the renewed contract were still
subject to mutual agreement by and between the parties, then
the optionwhich is an integral part of the consideration for the
contractwould be rendered worthless. For then, the lessor
could easily defeat the lessees right of renewal by simply
imposing unreasonable and onerous conditions to prevent the
parties from reaching an agreement, as in the case at bar. As in
a statute no word, clause, sentence, provision or part of a
contract shall be considered surplusage or superfluous,
meaningless, void, insignificant or nugatory, if that can be
reasonably avoided. To this end, a construction which will render
every word operative is to be preferred over that which would
make some words idle and nugatory.11
Fortunately for respondent lessors, ALLIED vacated the premises
on 20 February 1993 indicating its abandonment of whatever
rights it had under the renewal clause. Consequently, what
remains to be done is for ALLIED to pay rentals for the continued
use of the premises until it vacated the
_________________
11 Shimonek v. Tillanan, 1 P. 2d., 154.

368
368
same, computed from the expiration of the original term of the
contract on 31 March 1992 to the time it actually left the
premises on 20 February 1993, deducting therefrom the amount
of P68,400.00 consigned in court by ALLIED and any other
amount which it may have deposited or advanced in connection
with the lease. Since the old lease contract was deemed
renewed under the same terms and conditions upon the exercise
by ALLIED of its option, the basis of the computation of rentals
should be the rental rate provided for in the existing contract.
Finally, ALLIED cannot assail the validity of the deed of donation,
not being a party thereto. A person who is not principally or
subsidiarily bound has no legal capacity to challenge the validity
of the contract.12 He must first have an interest in it. Interest
within the meaning of the term means material interest, an
interest to be affected by the deed, as distinguished from a
mere incidental interest. Hence, a person who is not a party to a
contract and for whose benefit it was not expressly made cannot
maintain an action on it, even if the contract, if performed by
the parties thereto would incidentally affect him,13 except when
he is prejudiced in his rights with respect to one of the
contracting parties and can show the detriment which could
positively result to him from the contract in which he had no
intervention.14 We find none in the instant case.
WHEREFORE, the Decision of the Court of Appeals is REVERSED
and SET ASIDE. Considering that petitioner ALLIED BANKING
CORPORATION already vacated the leased premises as of 20
February 1993, the renewed lease contract is deemed
terminated as of that date. However, petitioner is
__________________
12 Astudillo v. The Board of Directors of PHHC, No. L-28066, 22

September 1976, 73 SCRA 15. See also Article 1397, Civil Code.
13 House International Building Tenants Association, Inc. v.
Intermediate Appellate Court, G.R. No. 75287, 30 June 1987, 151
SCRA 703.
14 Teves v. The Peoples Homesite and Housing Corporation, et
al., No. L-21498, 27 June 1968, 23 SCRA 1141.
369
VOL. 284, JANUARY 16, 1998

369
People vs. Aquino
required to pay rentals to respondent lessors at the rate
provided in their existing contract, subject to computation in
view of the consignment in court of P68,400.00 by petitioner,
and of such other amounts it may have deposited or advanced
in connection with the lease.
SO ORDERED.
Davide, Jr. (Chairman), Vitug and Kapunan, JJ., concur.
Reviewed decision reversed and set aside.
Notes.In case of ambiguity in contract language, that
interpretation which establishes a less onerous transmission of
rights or imposition of lesser burdens which permits greater
reciprocity between the parties is to be adopted. (Castelo vs.
Court of Appeals, 244 SCRA 180 [1995])
Principles governing the binding effect of any agreement
between parties to a contract; Any contract which appears to be
heavily weighed in favor of one of the parties so as to lead to an

unconscionable result is void. (Almeda vs. Court of Appeals, 256
SCRA 292 [1996]) [Allied Banking Corporation vs. Court of
Appeals, 284 SCRA 357(1998)]
G.R. No. 118248. April 5, 2000.*

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF
APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR
METRO MANILA, DISTRICT III, respondents.
Succession; Contracts; The general rule, therefore, is that heirs
are bound by contracts entered into by their predeccesors-ininterest except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.The general rule, therefore, is that heirs are
bound by contracts entered into by their predecessors-ininterest except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law. In the case at bar, there is neither contractual
stipulation nor legal provision making the rights and obligations
under the contract intransmissible. More importantly, the nature
of the rights and obligations therein are, by their nature,
transmissible.
Same; Same; Intransmissible Rights; Nature.The nature of
intransmissible rights as explained by Arturo Tolentino, an
eminent civilist, is as follows: Among contracts which are
intransmissible are those which are purely personal, either by
provision of law, such as in cases of partnerships and agency, or
by the very nature of the obligations arising therefrom, such as
those requiring special personal qualifications of the obligor. It
may also be stated that con______________
* FIRST DIVISION.
667
VOL. 329, APRIL 5, 2000
667
DKC Holdings Corporation vs. Court of Appeals
tracts for the payment of money debts are not transmitted to
the heirs of a party, but constitute a charge against his estate.
Thus, where the client in a contract for professional services of a
lawyer died, leaving minor heirs, and the lawyer, instead of
presenting his claim for professional services under the contract
to the probate court, substituted the minors as parties for his
client, it was held that the contract could not be enforced
against the minors; the lawyer was limited to a recovery on the
basis of quantum meruit.In American jurisprudence, (W)here
acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment,
discretion, integrity, or other personal qualification of one or
both parties, the agreement is of a personal nature, and
terminates on the death of the party who is required to render
such service.
Same; Same; There is privity of interest between an heir and his
deceased predecessorhe only succeeds to what rights his
predecessor had and what is valid and binding against the latter
is also valid and binding as against the former.It is futile for
Victor to insist that he is not a party to the contract because of
the clear provision of Article 1311 of the Civil Code. Indeed,
being an heir of Encarnacion, there is privity of interest between
him and his deceased mother. He only succeeds to what rights
his mother had and what is valid and binding against her is also
valid and binding as against him.
Same; Same; Lease; The death of a party does not excuse
nonperformance of a contract which involves a property right,
and the rights and obligations thereunder pass to the personal
representatives of the deceased.In the case at bar, the subject
matter of the contract is likewise a lease, which is a property
right. The death of a party does not excuse nonperformance of a
contract which involves a property right, and the rights and
obligations thereunder pass to the personal representatives of

the deceased. Similarly, nonperformance is not excused by the
death of the party when the other party has a property interest
in the subject matter of the contract.
Appeals.

668
668
De Borja, Medialdea, Bello, Guevarra, Serapio & Gerodias for
petitioner.
Jesus E.
respondent.
Mendoza
and
Oscar
T.
Mercado
for
private
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari seeking the reversal of

the December 5, 1994 Decision of the Court of Appeals in CAG.R. CV No. 40849 entitled DKC Holdings Corporation vs. Victor
U. Bartolome, et al.,1 affirming in toto the January 4, 1993
Decision of the Regional Trial Court of Valenzuela, Branch 172,2
which dismissed Civil Case No. 3337-V-90 and ordered petitioner
to pay P30,000.00 as attorneys fees.
The subject of the controversy is a 14,021 square meter parcel
of land located in Malinta, Valenzuela, Metro Manila which was
originally owned by private respondent Victor U. Bartolomes
deceased mother, Encarnacion Bartolome, under Transfer

Certificate of Title No. B-37615 of the Register of Deeds of Metro
Manila, District III. This lot was in front of one of the textile
plants of petitioner and, as such, was seen by the latter as a
potential warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease
with Option to Buy with Encarnacion Bartolome, whereby
petitioner was given the option to lease or lease with purchase
the subject land, which option must be exercised within a period
of two years counted from the signing of the Contract. In turn,
petitioner undertook to pay P3,000.00 a month as consideration
for the reservation of its option. Within the two-year period,
petitioner shall serve formal written notice upon the lessor
Encarnacion Bartolome of its desire to exercise its option. The
contract also provided that in case petitioner chose to lease the
property, it may take actual
______________
1 Penned by Associate Justice Corona Ibay-Somera, concurred in

by Justices Asaali S. Isnani and Celia Lipana-Reyes.
2 Penned by Judge Teresita Dizon-Capulong.
669
VOL. 329, APRIL 5, 2000

669
possession of the premises. In such an event, the lease shall be
for a period of six years, renewable for another six years, and
the monthly rental fee shall be P15,000.00 for the first six years
and P18,000.00 for the next six years, in case of renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by

the Contract to Encarnacion until her death in January 1990.
Thereafter, petitioner coursed its payment to private respondent
Victor Bartolome, being the sole heir of Encarnacion. Victor,
however, refused to accept these payments.
Meanwhile, on January 10, 1990, Victor executed an Affidavit of
Self-Adjudication over all the properties of Encarnacion,
including the subject lot. Accordingly, respondent Register of
Deeds cancelled Transfer Certificate of Title No. B-37615 and
issued Transfer Certificate of Title No. V-14249 in the name of
Victor Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered
mail, notice that it was exercising its option to lease the
property, tendering the amount of P15,000.00 as rent for the
month of March. Again, Victor refused to accept the tendered
rental fee and to surrender possession of the property to
petitioner.
Petitioner thus opened Savings Account No. 1-04-02558-I-1 with
the China Banking Corporation, Cubao Branch, in the name of
Victor Bartolome and deposited therein the P15,000.00 rental
fee for March as well as P6,000.00 reservation fees for the
months of February and March.
Petitioner also tried to register and annotate the Contract on the
title of Victor to the property. Although respondent Register of
Deeds accepted the required fees, he nevertheless refused to
register or annotate the same or even enter it in the day book or
primary register.
Thus, on April 23, 1990, petitioner filed a complaint for specific
performance and damages against Victor and the Register of
Deeds,3 docketed as Civil Case No. 3337-V-90
_____________
3 Records, Civil Case No. 3337-V-90, pp. 1-28.

670
670
which was raffled off to Branch 171 of the Regional Trial Court of
Valenzuela. Petitioner prayed for the surrender and delivery of
possession of the subject land in accordance with the Contract
terms; the surrender of title for registration and annotation
thereon of the Contract; and the payment of P500,000.00 as
actual damages, P500,000.00 as moral damages, P500,000.00
as exemplary damages and P300,000.00 as attorneys fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with
Motion to Dismiss4 was filed by one Andres Lanozo, who claimed
that he was and has been a tenant-tiller of the subject property,
which was agricultural riceland, for forty-five years. He
questioned the jurisdiction of the lower court over the property
and invoked the Comprehensive Agrarian Reform Law to protect
his rights that would be affected by the dispute between the
original parties to the case.
On May 18, 1990, the lower court issued an Order5 referring the
case to the Department of Agrarian Reform for preliminary
determination and certification as to whether it was proper for
trial by said court.
On July 4, 1990, the lower court issued another Order6 referring
the case to Branch 172 of the RTC of Valenzuela which was
designated to hear cases involving agrarian land, after the
Department of Agrarian Reform issued a letter-certification
stating that referral to it for preliminary determination is no
longer required.
On July 16, 1990, the lower court issued an Order denying the
Motion to Intervene,7 holding that Lanozos rights may well be
ventilated in another proceeding in due time.
After trial on the merits, the RTC of Valenzuela, Branch 172
rendered its Decision on January 4, 1993, dismissing the
Complaint and ordering petitioner to pay Victor P30,000.00 as
______________
4 Id., pp. 35-43.

5 Id., p. 60.
6 Id., p. 129.
7 Id., p. 130.
671
VOL. 329, APRIL 5, 2000

671
attorneys fees. On appeal to the CA, the Decision was affirmed
in toto.
Hence, the instant Petition assigning the following errors:
(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT

THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT
TRANSMISSIBLE.
(B)
SECOND ASSIGNMENT OF ERROR

THE NOTICE Of OPTION MUST BE SERVED BY DKC UPON
ENCARNACION BARTOLOME PERSONALLY.
(C)
THIRD ASSIGNMENT OF ERROR

THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF
DKC.
(D)
FOURTH ASSIGNMENT OF ERROR

THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE
VALIDITY OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR

PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANTAPPELLEE FOR
ATTORNEYS FEES.8
_____________
8 Petition for Review, pp. 9-10; Rollo, pp. 10-11.

672
672
The issue to be resolved in this case is whether or not the
Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with petitioner was terminated upon her
death or whether it binds her sole heir, Victor, even after her
demise.
Both the lower court and the Court of Appeals held that the said
contract was terminated upon the death of Encarnacion
Bartolome and did not bind Victor because he was not a party
thereto.
Article 1311 of the Civil Code provides, as follows
ART. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by
their nature, or by stipulation or by provision of law. The heir is
not liable beyond the value of the property he received from the
decedent.
xxx
xxx
x x x.
The general rule, therefore, is that heirs are bound by contracts

entered into by their predecessors-in-interest except when the
rights and obligations arising therefrom are not transmissible by
(1) their nature, (2) stipulation or (3) provision of law.
In the case at bar, there is neither contractual stipulation nor
legal provision making the rights and obligations under the
contract intransmissible. More importantly, the nature of the
rights and obligations therein are, by their nature, transmissible.
The nature of intransmissible rights as explained by Arturo
Tolentino, an eminent civilist, is as follows:
Among contracts which are intransmissible are those which are
purely personal, either by provision of law, such as in cases of
partnerships and agency, or by the very nature of the
obligations arising therefrom, such as those requiring special
personal qualifications of the obligor. It may also be stated that
contracts for the payment of money debts are not transmitted to
the heirs of a party, but constitute a charge against his estate.
Thus, where the client in a contract for professional services of a
lawyer died, leaving minor
673
VOL. 329, APRIL 5, 2000

673
heirs, and the lawyer, instead of presenting his claim, for
professional services under the contract to the probate court,
substituted the minors as parties for his client, it was held that
the contract could not be enforced against the minors; the
lawyer was limited to a recovery on the basis of quantum
meruit.9
In American jurisprudence, (W)here acts stipulated in a contract

require the exercise of special knowledge, genius, skill, taste,
ability, experience, judgment, discretion, integrity, or other
personal qualification of one or both parties, the agreement is of
a personal nature, and terminates on the death of the party who
is required to render such service.10
It has also been held that a good measure for determining
whether a contract terminates upon the death of one of the
parties is whether it is of such a character that it may be
performed by the promissors personal representative. Contracts
to perform personal acts which cannot be as well performed by
others are discharged by the death of the promissor. Conversely,
where the service or act is of such a character that it may as
well be performed by another, or where the contract, by its
terms, shows that performance by others was contemplated,
death
does
not
terminate
the
contract
or
excuse
nonperformance.11
In the case at bar, there is no personal act required from the late
Encarnacion Bartolome. Rather, the obligation of Encarnacion in
the contract to deliver possession of the subject property to
petitioner upon the exercise by the latter of its option to lease
the same may very well be performed by her heir Victor.
______________
9 IV Tolentino, CIVIL CODE OF THE PHILIPPINES, 430 (1986).

10 Kanawha Banking & Trust Co. v. Gilbert, 46 S.E. 2d 225, 131
W. Va. 88; Rowe v. Compensation Research Bureau, Inc., 62 N.W.
2d 581, 265 Wis. 589; Fressil v. Nichols, 114 So. 431, 94 Fla.
403; Cutler v. United Shoe Manufacturing Corporation, 174 N.E.
507, 274 Mass. 341, cited in 17A C.J.S. Sec. 465.
11 17 Am. Jur. 2d, Sec. 413, p. 866.
674
674
As early as 1903, it was held that (H)e who contracts does so
for himself and his heirs.12 In 1952, it was ruled that if the
predecessor was duty-bound to reconvey land to another, and at
his death the reconveyance had not been made, the heirs can
be compelled to execute the proper deed for reconveyance. This
was grounded upon the principle that heirs cannot escape the
legal consequence of a transaction entered into by their
predecessor-in-interest because they have inherited the
property subject to the liability affecting their common
ancestor.13
It is futile for Victor to insist that he is not a party to the contract
because of the clear provision of Article 1311 of the Civil Code.
Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to
what rights his mother had and what is valid and binding against
her is also valid and binding as against him.14 This is clear from
Paraaque Kings Enterprises vs. Court of Appeals,15 where this
Court rejected a similar defense
With respect to the contention of respondent Raymundo that he
is not privy to the lease contract, not being the lessor nor the
lessee referred to therein, he could thus not have violated its
provisions, but he is nevertheless a proper party. Clearly, he
stepped into the shoes of the owner-lessor of the land as, by
virtue of his purchase, he assumed all the obligations of the
lessor under the lease contract. Moreover, he received benefits
in the form of rental payments. Furthermore, the complaint, as
well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between
him and respondent Santos which defeated the exercise by

petitioner of its right of first refusal.
_______________
12 Eleizegui v. Lawn Tennis Club, G.R. No. 967, 2 Phil. 309, 313
(1903), citing Article 1257 of the old Civil Code.
13 Carillo v. Salak de Paz, G.R. No. L-4133, 91 Phil. 265 (1952).
14 See Galsinao v. Austria, G.R. No. L-7918, 97 Phil. 82 87
(1955).
15 G.R. No. 111538, 268 SCRA 727, 745 (1997).
675
VOL. 329, APRIL 5, 2000

675
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the
case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the
property over which petitioner would like to assert its right of
first option to buy.
In the case at bar, the subject matter of the contract is likewise
a lease, which is a property right. The death of a party does not
excuse nonperformance of a contract which involves a property
right, and the rights and obligations thereunder pass to the
personal
representatives
of
the
deceased.
Similarly,
nonperformance is not excused by the death of the party when
the other party has a property interest in the subject matter of
the contract.16
Under both Article 1311 of the Civil Code and jurisprudence,

therefore, Victor is bound by the subject Contract of Lease with
Option to Buy.
That being resolved, we now rule on the issue of whether
petitioner had complied with its obligations under the contract
and with the requisites to exercise its option. The payment by
petitioner of the reservation fees during the two-year period
within which it had the option to lease or purchase the property
is not disputed. In fact, the payment of such reservation fees,
except those for February and March, 1990 were admitted by
Victor.17 This is clear from the transcripts, to wit
ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly
made in January 1990 just indicate in that stipulation that it was
issued November of 1989 and postdated Janaury 1990 and then
we will admit all.
COURT:
All reservation fee?

ATTY. MOJADO:
Yes, Your Honor.

_______________
16 17A C.J.S. Section 465, p. 627.

17 See T.S.N., 19 October 1991, pp. 11-12, 14, 16, 19 and 20-21.
676
676
COURT:
All as part of the lease?

ATTY. MOJADO:
Reservation fee, Your Honor. There was no payment with respect

to payment of rentals.18
Petitioner also paid the P15,000.00 monthly rental fee on the
subject property by depositing the same in China Bank Savings
Account No. 1-04-02558-I-1, in the name of Victor as the sole
heir of Encarnacion Bartolome,19 for the months of March to July
30, 1990, or a total of five (5) months, despite the refusal of
Victor to turn over the subject property.20
Likewise, petitioner complied with its duty to inform the other
party of its intention to exercise its option to lease through its
letter dated March 12, 1990,21 well within the twoyear period
for it to exercise its option. Considering that at that time
Encarnacion Bartolome had already passed away, it was
legitimate for petitioner to have addressed its letter to her heir.
It appears, therefore, that the exercise by petitioner of its option
to lease the subject property was made in accordance with the
contractual provisions. Concomitantly, private respondent Victor
Bartolome has the obligation to surrender possession of and
lease the premises to petitioner for a period of six (6) years,
pursuant to the Contract of Lease with Option to Buy.
Coming now to the issue of tenancy, we find that this is not for
this Court to pass upon in the present petition. We note that the
Motion to Intervene and to Dismiss of the alleged tenant, Andres
Lanozo, was denied by the lower court and that such denial was
never made the subject of an appeal. As the lower court stated
in its Order, the alleged right of the
_____________
18 T.S.N., 29 October 1991, pp. 20-21.

19 See Exhibit K; Records, Civil Case No. 3337-V-90, pp. 274276.
20 See T.S.N., 9 January 1992, pp. 16-17.
21 Exh. J, Records, Civil Case No. 3337-V-90, pp. 272-273.
677
VOL. 329, APRIL 5, 2000

677
tenant may well be ventilated in another proceeding in due
time.
WHEREFORE, in view of the foregoing, the instant Petition for
Review is GRANTED. The Decision of the Court of Appeals in CAG.R. CV No. 40849 and that of the Regional Trial Court of
Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a
new one rendered ordering private respondent Victor Bartolome
to:
(a) surrender and deliver possession of that parcel of land
covered by Transfer Certificate of Title No. V-14249 by way of
lease to petitioner and to perform all obligations of his
predecessor-in-interest, Encarnacion Bartolome,

subject Contract of Lease with Option to Buy;
under
the
(b) surrender and deliver his copy of Transfer Certificate of Title

No. V-14249 to respondent Register of Deeds for registration and
annotation thereon of the subject Contract of Lease with Option
to Buy;
(c) pay costs of suit.
Respondent Register of Deeds is, accordingly, ordered to register
and annotate the subject Contract of Lease with Option to Buy at
the back of Transfer Certificate of Title No. V-14249 upon
submission by petitioner of a copy thereof to his office.
SO ORDERED.
Davide, Jr. (C.J.), Puno, Kapunan and Pardo, JJ., concur.
Petition granted, judgment of Court of Appeals and trial court set
aside.
Notes.Article 992 of the Civil Code enunciates what is so
commonly referred to in the rules on succession as the principle
of absolute separation between the legitimate fam
678
678
People vs. Delos Santos
ily and the illegitimate family. (Manuel vs. Ferrer, 247 SCRA 476
[1995])
No contract may be entered into upon a future inheritance
except in cases expressly authorized by lawsuch a contract is
not valid and cannot be the source of any right nor the creator of
any obligation between the parties. (Taedo vs. Court of

Appeals, 252 SCRA 80 [1996])
Grandchildren are not entitled to provisional support from the
funds of the decedents estate. (Estate of Hilario M. Ruiz vs.
Court of Appeals, 252 SCRA 541 [1996]) [DKC Holdings
Corporation vs. Court of Appeals, 329 SCRA 666(2000)]
No. L-79734. December 8, 1988.*

MARMONT RESORT HOTEL ENTERPRISES, petitioner, vs.
FEDERICO GUIANG, AURORA GUIANG, and COURT OF APPEALS,
respondents.
Contracts; Estoppel; Pre-trial Conference; Judicial Admissions;
Stipulations of Facts constitute judicial admissions which may be
controverted only upon a clear showing that such stipulation had
been entered into through palpable mistake; Respondent
spouses are estopped from raising as an issue the existence or
admissibility of the Memoranda of Agreements marked as
exhibits during pre-trial.Both the trial and appellate courts
held that the first and second Memoranda of Agreement are not
properly considered as forming part of the record of this case,
because neither had been formally presented and offered in
evidence at the trial of Civil Case No. 2896-C. The record shows,
however, as noted earlier, that at the pre-trial conference held
on 2 October 1980, both petitioner Marmont and respondent
spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements.
Such stipulation of facts constitutes a judicial admission, the
veracity of which requires no further proof and which may be
controverted only upon a clear showing that such stipulation had
been entered into through palpable mistake. On this point,
Section 2, Rule 129 of the Revised Rules of Court provides:
Section 2. Judicial Admis-sions.Admission made by the parties
in the pleadings, or in the course of the trial or other
proceedings do not require proof and cannot be contradicted
unless previously shown to have been made through palpable
mistake. There has been no showing and respondent spouses
do not claim that palpable mistake had intervened here, in
respect of the formulation of the facts stipulated by the parties
at the pre-trial conference. Absent any such showing, that
stipulation of facts is incontrovertible, and may be relied upon
by the courts. Respondent spouses are estopped from raising as
an issue in this case the existence and admissibility in evidence
of both the first and second Memoranda of Agreement which,

having been marked as exhibits during pre-trial, properly form
part of the record of this case, even though not formally offered
in evidence after trial.
Same; Same; Same; Same; Conjugal Partnership; The husband,
being a witness, to the Memorandum of Agreement, is deemed
to have
_______________
* THIRD DIVISION.
374
374
Marmont Resort Hotel Enterprises vs. Guiang
given his consent to the execution thereof by his wife.Article
165 and 172 state the general principle under our civil law, that
the wife may not validly bind the conjugal partnership without
the consent of the husband, who is legally the administrator of
the conjugal partnership. In this particular case, however, as
noted earlier, the second Memorandum of Agreement, although
ostensibly contracted solely by Aurora Guiang with Maris
Trading, was also signed by her husband Federico, as one of the
witnesses thereto. This circumstance indicates not only that
Federico was present during the execution of the agreement but
also that he had, in fact, given his consent to the execution
thereof by his wife Aurora. Otherwise, he should not have
appended his signature to the document as witness. Respondent
spouses cannot now disown the second Memorandum of
Agreement as their effective consent thereto is sufficiently
manifested in the document itself.
Same; Same; Same; Same; Public Land; Only the government

may raise the issue of invalidity of the agreement since the
respondents spouses and Maris Trading are in pari delicto.That
the land in dispute was, at the time of execution of the second
Memorandum of Agreement, public land, is of no consequence
here. Pending approval of Federicos Miscellaneous Sales
Application over said land, respondent spouses enjoyed
possessory and other rights over the same which could validly
be assigned or transferred in favor of third persons. In this case,
respondent spouses chose to transfer such rights (over the
portion upon which the water pump was installed) to Maris
Trading, as evidenced by the fourth paragraph of the second
Memorandum of Agreement, quoted earlier. Furthermore,
assuming (though only for the sake of argument) that the
alienation to Maris Trading was legally objectionable, respondent
spouses are not the proper parties to raise the issue of
invalidity, they and Maris Trading being in pari delicto. Only the
government may raise that issue.
Same; Same; Same; Same; Stipulation pour autrui, defined;
Damages; Respondent spouses are liable for damages since
they acted contrary to the principles of Arts. 19 & 21 of the Civil
Code; Case at bar.A stipulation pour autrui is a stipulation in
favor of a third person conferring a clear and deliberate favor
upon him, which stipulation is found in a contract entered into
by parties neither of whom acted as agent of the beneficiary. We
believe and so hold that the purpose and intent of the
stipulating parties (Maris Trading and respondent spouses) to
benefit the third person (petitioner Marmont) is sufficiently clear
in the second Memorandum of Agreement. Marmont was not of
course a party to that second Agreement but, as cor375
VOL. 168, DECEMBER 8, 1988
375
rectly pointed out by the trial court and the appellate court, the
respondent spouses could not have prevented Maris Trading
from entering the property possessory rights over which had
thus been acquired by Maris Trading. That respondent spouses
remained in physical possession of that particular bit of land, is
of no moment; they did so simply upon the sufferance of Maris
Trading. Had Maris Trading, and not the respondent spouses,
been in physical possession, we believe that Marmont would
have been similarly entitled to compel Maris Trading to give it
(Marmont) access to the site involved. The two (2) courts below
failed to take adequate account of the fact that the sole purpose
of Maris Trading in acquiring possessory rights over that specific
portion of the land where well and pump and piping had been
installed, was to supply the water requirements of petitioners
hotel. That said purpose was known by respondent spouses, is
made explicit by the second Memorandum of Agreement. Maris
Trading itself had no need for a water supply facility; neither did
the respondent spouses. The water facility was intended solely
for Marmont Resort Hotel. The interest of Marmont cannot
therefore be regarded as merely incidental. Finally, even if it
be assumed (for purposes of argument merely) that the second
Memorandum of Agreement did not constitute a stipulation pour
autrui, still respondent spouses, in the circumstances of this
case, must be regarded as having acted contrary to the
principles of honesty, good faith and fair dealing embodied in
Articles 19 and 21 of the Civil Code when they refused petitioner
Marmont access to the water facility to inspect and repair the
same and to increase its capacity and thereby to benefit from it.
In so doing, respondent spouses forced petitioner Marmont to
locate an alternative source of water for its hotel which of course
involved expenditure of money and perhaps loss of hotel
revenues. We believe they should respond in damages.
Same; Same; Same; Same; Same; Same; Court is compelled to

remand the case to the trial court for determination of damages.
The evidence on record, however, appears insufficient for
determination of the amount of damages for which respondent
spouses should be liable. For this reason, the Court is compelled
to remand this case to the trial court for determination of such
damages in appropriate further proceedings.
Appeals.

Isagani M. Jungco for petitioner.
376
376
Regalado C. Salvador for respondents.
FELICIANO, J.:
The present Petition for Review seeks to set aside the Decision
dated 9 December 1986 of the Court of Appeals in C.A.G.R. CV
03299. The appellate court affirmed a Decision dated 31 May
1983 of Branch 83 of the Regional Trial Court of Olongapo City
dismissing the complaint in Civil Case No. 2896-C filed by
petitioner company against private respondent spouses.
On 2 May 1975, a Memorandum of Agreement was executed
between Maris Trading and petitioner Marmont Resort Hotel
Enterprises, Inc. (Marmont), a corporation engaged in the
hotel and resort business with office and establishment at

Olongapo City. Under the agreement, Maris Trading undertook to
drill for water and to provide all equipment necessary to install
and complete a water supply facility to service the Marmont
Resort Hotel in Olongapo, for a stipulated fee of P40,000.00. In
fulfillment of its contract, Maris Trading drilled a well and
installed a water pump on a portion of a parcel of land situated
in Olongapo City, then occupied by respondent spouses Federico
and Aurora Guiang.
Five (5) months later, a second Memorandum of Agreement was
executed between Maris Trading and Aurora Guiang, with
Federico Guiang signing as witness. This second agreement in
essential part read:1
That the First Party [Maris Trading] has dug, drilled and tapped
water source for Marmont Resort, located at Bo. Barretto,
Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary
Public and entered as Doc. No. 166; Page No. 135; Book No. XV;
Series of 1975.
That the First Party has erected, built and drilled for the water
source of Marmont Resort on the land owned by the Second
Party [Aurora Guiang] at the corner of J. Montelibano Street and
Maquinaya Drive (Provincial Road) with the latters permission.
That for and in consideration of the sum of P1,500.00 the
Second Party hereby Sell, Transfer and Cede all possessory
rights, interest
_______________
1 Record on Appeal, pp. 3-4.

377

377
and claims over that portion of the lot wherein the water source
of Marmont Resort is located unto and in favor of Maris Trading.
After some time, the water supply of the Marmont Resort Hotel
became inadequate to meet the hotels water requirements.
Petitioner Marmont secured the services of another contractor
(the name of which was not disclosed), which suggested that in
addition to the existing water pump, a submersible pump be
installed to increase the pressure and improve the flow of water
to the hotel. Accordingly, Juan Montelibano, Jr., manager of the
Marmont Resort Hotel, sought permission from the Guiang
spouses to inspect the water pump which had been installed on
the portion of the land previously occupied by the spouses and
to make the necessary additional installations thereon. No such
permission, however, was granted.
On 13 May 1980, petitioner Marmont filed a Complaint2 against
the Guiang spouses for damages resulting from their refusal to
allow representatives of petitioner and the second contractor
firm entry into the water facility site. The claimed damages were
broken down as follows: (a) P10,000.00 representing the amount
advanced in payment to the second contractor; (b) P40,000.00
representing the total project cost of the installation made by
Maris Trading: (c) P50,000.00 representing additional expenses
incurred and incidental losses resulting from failure of the
original pump to cope with the water requirements of the
Marmont Resort Hotel; and (d) P10,000.00 for Attorneys fees.
In their Answer,3 the Guiang spouses (defendants below) denied
having had any previous knowledge of the first Memorandum of
Agreement and asserted that the second Memorandum of
Agreement was invalid for not having been executed in
accordance with law. The spouses added a counterclaim for

damages in the amount of P200,000.00.
On 2 October 1980, at the pre-trial conference, the parties
agreed on the following stipulation of facts and issues embodied
in a Pre-Trial Order:4
________________
2 Id., pp. 1-4.

3 Id., p. 10.
4 Id., pp. 31-33, Order.
378
378
III
In addition to the admission made elsewhere in their respective

pleadings, the parties entered into the following stipulation of
facts:
1. Plaintiff is a corporation duly organized and existing under the
laws of the Philippines with office at Montelibano Street, Barrio
Barretto, Olongapo City;
2. The contract referred to in paragraph 2 of the complaint
between the plaintiff and Maris Trading is contained in a
document captioned Memorandum Agreement executed on May
2, 1975, a xerox copy of which is Annex A of plaintiffs
complaint;
3. On October 7, 1975, the Maris Trading represented by

Ceferino Cabral and defendant Aurora Guiang entered into a
memorandum agreement;
4. The portion sold under Annex A is still a part of the public
domain.
IV
The plaintiff marked the following exhibits in evidence:

Exhibit AMemorandum Agreement dated May 2, 1975
Exhibit BMemorandum Agreement dated October 7, 1975
V
The issues left to be ventilated during the trial are the following:
1. Whether defendants has actually prohibited the plaintiff
[from] making repairs, [on] the pump constructed by Maris
Trading for the plaintiff under the agreement Exhibit A, if so;
2. Whether defendants [have] the right to prohibit the Maris
Trading from performing the repairs; and if not
3. Whether defendants are liable for damages under the human
relations provision of the Civil Code.
On 1 January 1980, the Guiang spouses moved to dismiss the
Complaint.5 The spouses there assailed the validity of the
second Memorandum of Agreement, alleging that the subject
matter thereof involved conjugal property alienated by Aurora
Guiang without the marital consent of her husband, Federico
Guiang. Further, it was alleged that the land upon which the
_______________
5 Id., p. 4.
379

379
hotels water supply facility was installedand which the Guiang
spouses occupiedformed part of the public domain and was
then still the subject of a Miscellaneous Sales Application
submitted by Federico Guiang. The Motion to Dismiss, however,
was denied by the trial court.
No evidence having been adduced by the Guiang spouses on
their behalf, the case was submitted for decision. On 31 May
1983, the trial court rendered a decision,6 dismissing the
complaint. The trial court found that Aurora Guiang had validly
alienated her rights over the disputed portion of land to Maris
Trading, but held that the evidence failed to show that Maris
Trading, in turn, had transferred such rights to petitioner
Marmont.
Petitioner Marmont appealed to the Court of Appeals which
affirmed the decision of the trial court and dismissed the appeal
for lack of merit.7 The appellate court, citing Section 55, Rule
132 of the Revised Rules of Court, held that the first and second
Memoranda of Agreement could not legally be considered by the
court as included in the body of evidence of the case, as neither
document had been formally offered in evidence by either party.
It also held that, in any event, neither document showed that
Marmont had in fact acquired from Maris Trading whatever rights
the latter had over the land in dispute.
In the instant Petition for Review, petitioner assigns the following
errors:8
1. The Court of Appeals erred in not considering the

Memorandum of Agreement of May 2, 1975 and 7 October 1975
as the same were already admitted in the pre-trial order; and
2. The Court of Appeals erred in deciding that ownership belongs
to Maris Trading hence, private respondent Guiang can prohibit
Marmont Resort from entering the land.
We find for the petitioner.
Both the trial and appellate courts held that the first and
_______________
6 Rollo, pp. 15-18.

7 Rollo, pp. 19-24.
8 Rollo, pp. 9-14.
380
380
second Memoranda of Agreement are not properly considered as
forming part of the record of this case, because neither had
been formally presented and offered in evidence at the trial of
Civil Case No. 2896-C. The record shows, however, as noted
earlier, that at the pre-trial conference held on 2 October 1980,
both petitioner Marmont and respondent spouses had agreed
upon a stipulation of facts and issues recognizing the existence
of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires
no further proof and which may be controverted only upon a
clear showing that such stipulation had been entered into
through palpable mistake. On this point, Section 2, Rule 129 of

the Revised Rules of Court provides:
Section 2. Judicial Admissions.Admission made by the parties
in the pleadings, or in the course of the trial or other
proceedings do not require proof and cannot be contradicted
unless previously shown to have been made through palpable
mistake. (Italics supplied)
There has been no showing and respondent spouses do not
claim that palpable mistake had intervened here, in respect of
the formulation of the facts stipulated by the parties at the pretrial conference. Absent any such showing, that stipulation of
facts is incontrovertible,9 and may be relied upon by the
courts.10 Respondent spouses are estopped from raising as an
issue in this case the existence and admissibility in evidence of
both the first and second Memoranda of Agreement which,
having been marked as exhibits during pre-trial, properly form
part of the record of this case, even though not formally offered
in evidence after trial.11
We consider briefly respondent spouses argument that the
second Memorandum of Agreement was invalid for having been
executed by Aurora Guiang without the marital consent of
Federico, contrary to Articles 165 and 172 of the Civil Code.
________________
9 Sta. Ana v. Maliwat, et al., 133 Phil. 1006 (1968).

10 Filipinas Investment and Finance Corporation v. Ridad, 30
SCRA 564 (1969).
11 Lim Tanhu v. Ramolete, 66 SCRA 425 (1975).
381

381
Article 165 and 172 state the general principle under our civil
law, that the wife may not validly bind the conjugal partnership
without the consent of the husband, who is legally the
administrator of the conjugal partnership. In this particular case,
however, as noted earlier, the second Memorandum of
Agreement, although ostensibly contracted solely by Aurora
Guiang with Maris Trading, was also signed by her husband
Federico, as one of the witnesses thereto. This circumstance
indicates not only that Federico was present during the
execution of the agreement but also that he had, in fact, given
his consent to the execution thereof by his wife Aurora.
Otherwise, he should not have appended his signature to the
document as witness. Respondent spouses cannot now disown
the second Memorandum of Agreement as their effective
consent thereto is sufficiently manifested in the document itself.
That the land in dispute was, at the time of execution of the
second Memorandum of Agreement, public land, is of no
consequence here. Pending approval of Federicos Miscellaneous
Sales Application over said land, respondent spouses enjoyed
possessory and other rights over the same which could validly
be assigned or transferred in favor of third persons. In this case,
respondent spouses chose to transfer such rights (over the
portion upon which the water pump was installed) to Maris
Trading, as evidenced by the fourth paragraph of the second
Memorandum of Agreement, quoted earlier. Furthermore,
assuming (though only for the sake of argument) that the
alienation to Maris Trading was legally objectionable, respondent
spouses are not the proper parties to raise the issue of
invalidity, they and Maris Trading being in pari delicto. Only the
government may raise that issue.
Finally, respondent spouses allege that dismissal of the

complaint by the trial court was not improper as petitioner
Marmont was not privy to the second Memorandum of
Agreement, and that accordingly, petitioner had no valid cause
of action against respondents.
A closer scrutiny of the second and third paragraphs of the
second Memorandum of Agreement discloses that the first
Memorandum of Agreement, including the obligations imposed
thereunder upon Maris Trading, had been acknowledged therein:
382
382
That the First Party (i.e., Maris Trading) has dug, drilled and
tapped water source for Marmont Resort, located at Bo. Barretto,
Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary
Public and entered as Doc. No. 166; Page No. 135; Book No. XV;
Series of 1975.
That the First Party has erected, built and drilled for the water
source of Marmont Resort on the land owned by the Second
Party [respondent spouses] at the corner of J. Montelibano Street
and Maquinaya Drive (Provincial Road) with the latters
permission; x x x (Italics supplied)
The above paragraphs establish, among other things, that
construction work had been performed by Maris Trading on the
land occupied by respondent spouses; that such construction
work had been performed in accordance with terms and
conditions stipulated in the first Memorandum of Agreement and
that the purpose of the work was to build a water supply facility
for petitioner Marmont. The same excerpts also show that the
work so performed was with the knowledge and consent of the
Guiang spouses, who were then occupying the land.
It is clear from the foregoing stipulations that petitioner Marmont
was to benefit from the second Memorandum of Agreement. In
fact, said stipulations appear to have been designed precisely to
benefit petitioner and, thus, partake of the nature of stipulations
pour autrui, contemplated in Article 1311 of the Civil Code.
A stipulation pour autrui is a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, which
stipulation is found in a contract entered into by parties neither
of whom acted as agent of the beneficiary.12 We believe and so
hold that the purpose and intent of the stipulating parties (Maris
Trading and respondent spouses) to benefit the third person
(petitioner Marmont) is sufficiently clear in the second
Memorandum of Agreement. Marmont was not of course a party
to that second Agreement but, as correctly pointed out by the
trial court and the appellate court, the respondent spouses could
not have prevented Maris Trading from enter_______________
12 Florentino v. Encarnacion, Sr., 79 SCRA 195 (1977).

383

383
ing the property possessory rights over which had thus been
acquired by Maris Trading. That respondent spouses remained in
physical possession of that particular bit of land, is of no
moment; they did so simply upon the sufferance of Maris

Trading. Had Maris Trading, and not the respondent spouses,
been in physical possession, we believe that Marmont would
have been similarly entitled to compel Maris Trading to give it
(Marmont) access to the site involved. The two (2) courts below
failed to take adequate account of the fact that the sole purpose
of Maris Trading in acquiring possessory rights over that specific
portion of the land where well and pump and piping had been
installed, was to supply the water requirements of petitioners
hotel. That said purpose was known by respondent spouses, is
made explicit by the second Memorandum of Agreement. Maris
Trading itself had no need for a water supply facility; neither did
the respondent spouses. The water facility was intended solely
for Marmont Resort Hotel. The interest of Marmont cannot
therefore be regarded as merely incidental.13 Finally, even if it
be assumed (for purposes of argument merely) that the second
Memorandum of Agreement did not constitute a stipulation pour
autrui, still respondent spouses, in the circumstances of this
case, must be regarded as having acted contrary to the
principles of honesty, good faith and fair dealing embodied in
Articles 19 and 21 of the Civil Code when they refused petitioner
Marmont access to the water facility to inspect and repair the
same and to increase its capacity and thereby to benefit from it.
In so doing, respondent spouses forced petitioner Marmont to
locate an alternative source of water for its hotel which of course
involved expenditure of money and perhaps loss of hotel
revenues. We believe they should respond in damages.
The evidence on record, however, appears insufficient for
determination of the amount of damages for which respondent
spouses should be liable. For this reason, the Court is compelled
to remand this case to the trial court for determination of such
damages in appropriate further proceedings.
WHEREFORE, the Petition for Review on Certiorari is hereby
________________
13 Cf. Uy Tam and Uy Yet v. Leonard, 30 Phil. 471 (1915).

384
384
GRANTED. The Decision dated 9 December 1986 of the Court of
Appeals in C.A.G.R. CV No. 03299, as well as the Decision
dated 31 May 1983 of the Regional Trial Court of Olongapo City
in Civil Case No. 2896-C, are REVERSED. This case is REMANDED
to the trial court for determination, in further proceedings
consistent with this decision, of the amount of damages
petitioner is entitled to receive from respondent spouses. No
pronouncement as to costs.
SO ORDERED.
Fernan (C.J.), Gutierrez, Jr., Bidin and Corts, JJ., concur.
Petition granted. Decision reversed.
Notes.Petitioners are estopped to raise the question of
jurisdiction, having submitted their cause voluntarily to the
jurisdiction of the trial court. (Lee vs. Municipal Trial Court of
Legaspi City, Br. 1, 145 SCRA 408.)
Petitioners are not in estoppel to question the subsequent letter
agreement as they never acknowledged full payment by
respondent MWSS. (Integrated Construction Services, Inc. vs.
Relova, 146 SCRA 360.) [Marmont Resort Hotel Enterprises vs.
Guiang, 168 SCRA 373(1988)]
G.R. No. 119850. June 20, 1996.*

MANDARIN VILLA, INC., petitioner, vs. COURT OF APPEALS, and
CLODUALDO DE JESUS, respondents.
Contracts; Credit Cards; Stipulations Pour Autri; A card holders
offer to pay by means of his credit card constitutes not only an
acceptance of the provisions of a stipulation pour autri but also
an explicit communication of his acceptance to the obligor.
While private respondent may not be a party to the said
agreement, the above-quoted stipulation conferred a favor upon
the private respondent, a holder of credit card validly issued by
BANKARD. This stipulation is a stipulation pour autri and under
Article 1311 of the Civil Code private respondent may demand
its fulfillment provided he communicated his acceptance to the
petitioner before its revocation. In this case, private
respondents offer to pay by means of his BANKARD credit card
constitutes not only an acceptance of the said stipulation but
also an explicit communication of his acceptance to the obligor.
Same; Same; Estoppel; Where a party posts a logo inside his
establishment stating that a particular credit card is accepted
therein, it cannot disclaim its obligation to accept such card
without violating the equitable principle of estoppel.In
addition, the record
_______________
* THIRD DIVISION.
539
VOL. 257, JUNE 20, 1996

539
Mandarin Villa, Inc. vs. Court of Appeals
shows that petitioner posted a logo inside Mandarin Villa

Seafood Village stating that Bankard is accepted here. This
representation is conclusive upon the petitioner which it cannot
deny or disprove as against the private respondent, the party
relying thereon. Petitioner, therefore, cannot disclaim its
obligation to accept private respondents BANKARD credit card
without violating the equitable principle of estoppel.
Same; Same; Negligence; Test for determining existence of
negligence.The test for determining the existence of
negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use the reasonable
care and caution which an ordinary prudent person would have
used in the same situation? If not, then he is guilty of
negligence.
Same; Same; Same; Judicial Notice; The Supreme Court takes
judicial notice of the current practice among major
establishments to accept payment by means of credit cards in
lieu of cash.We find this contention also devoid of merit. While
it is true that private respondent did not have sufficient cash on
hand when he hosted a dinner at petitioners restaurant, this
fact alone does not constitute negligence on his part. Neither
can it be claimed that the same was the proximate cause of
private respondents damage. We take judicial notice of the
current practice among major establishments, petitioner
included, to accept payment by means of credit cards in lieu of
cash. Thus, petitioner accepted private respondents BPI Express
Credit Card after verifying its validity, a fact which all the more
refutes petitioners imputation of negligence on the private
respondent.
Appeals.
The facts are stated in the resolution of the Court.
Armando M. Marcelo and Jesus M. Bigornia, Jr. for petitioner.

Bienvenido N. Quiones for private respondent.
540
540
RESOLUTION
FRANCISCO, J.:
With ample evidentiary support are the following antecedent

facts:
In the evening of October 19, 1989, private respondent,
Clodualdo de Jesus, a practicing lawyer and businessman,
hosted a dinner for his friends at the petitioners restaurant, the
Mandarin Villa Seafoods Village, Greenhills, Mandaluyong City.
After dinner the waiter handed to him the bill in the amount of
P2,658.50. Private respondent offered to pay the bill through his
credit card issued by Philippine Commercial Credit Card, Inc.
(BANKARD). This card was accepted by the waiter who
immediately proceeded to the restaurants cashier for card
verification. Ten minutes later, however, the waiter returned and
audibly informed private respondent that his credit card had
expired.1 Private respondent remonstrated that said credit card
had yet to expire on September 1990, as embossed on its face.2
The waiter was unmoved, thus, private respondent and two of
his guests approached the restaurants cashier who again
passed the credit card over the verification computer. The same
information was produced, i.e., CARD EXPIRED. Private
respondent and his guests returned to their table and at this
juncture, Professor Lirag, another guest, uttered the following

remarks: Clody [referring to Clodualdo de Jesus], may problema
ba? Baka kailangang maghugas na kami ng pinggan?3
Thereupon, private respondent left the restaurant and got his
BPI Express Credit Card from his car and offered it to pay their
bill. This was accepted and honored by the cashier after
verification.4 Petitioner and his companions left afterwards.
_______________
1 TSN, Clodualdo de Jesus, October 7, 1990, p. 5.

2 Id., p. 6.
3 Id., p. 8.
4 Exhibit E; Records, p. 119.
541
VOL. 257, JUNE 20, 1996

541
The incident triggered the filing of a suit for damages by private
respondent. Following a full-dress trial, judgment was rendered
directing the petitioner and BANKARD to pay jointly and
severally the private respondent: (a) moral damages in the
amount of P250,000.00; (b) exemplary damages in the amount
of P100,000.00; and (c) attorneys fees and litigation expenses
in the amount of P50,000.00.
Both the petitioner and BANKARD appealed to the respondent
Court of Appeals which rendered a decision, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED
by:
1. Finding appellant MANDARIN solely responsible for damages

in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for
damages;
3. Reducing moral damages awarded to appellee to TWENTY
FIVE THOUSAND and 00/100 (P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN
THOUSAND and 00/100 (P10,000.00) PESOS;
5. Reversing and setting aside the award of P50,000.00 for
attorneys fees as well as interest awarded; and
6. AFFIRMING the dismissal of all counterclaims and crossclaims.
Costs against appellant Mandarin.
SO ORDERED.5
Mandarin Villa, thus, interposed this present petition, faulting
the respondent court with six (6) assigned errors which may be
reduced to the following issues, to wit: (1) whether or not
petitioner is bound to accept payment by means of credit card;
(2) whether or not petitioner is negligent under the
circumstances obtaining in this case; and (3) if negligent,
whether or not such negligence is the proximate
_______________
5 Court of Appeals Decision, promulgated on March 21, 1995, p.

8; Rollo, p. 49. Ninth Division, penned by Justice Caizares-Nye
with Justices Imperial and Callejo concurring.
542
542

cause of the private respondents damage.
Petitioner contends that it cannot be faulted for its cashiers
refusal to accept private respondents BANKARD credit card, the
same not being a legal tender. It argues that private
respondents offer to pay by means of credit card partook of the
nature of a proposal to novate an existing obligation for which
petitioner, as creditor, must first give its consent otherwise there
will be no binding contract between them. Petitioner cannot seek
refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with
BANKARD. In fact, an Agreement6 entered into by petitioner
and BANKARD dated June 23, 1989, provides inter alia:
The MERCHANT shall honor validly issued PCCCI credit cards
presented by their corresponding holders in the purchase of
goods and/or services supplied by it provided that the card
expiration date has not elapsed and the card number does not
appear on the latest cancellation bulletin of lost, suspended and
canceled PCCCI credit cards and, no signs of tampering,
alterations or irregularities appear on the face of the credit
card.7
While private respondent may not be a party to the said
agreement, the above-quoted stipulation conferred a favor upon
the private respondent, a holder of credit card validly issued by
BANKARD. This stipulation is a stipulation pour autri and under
Article 1311 of the Civil Code private respondent may demand
its fulfillment provided he communicated his acceptance to the
petitioner before its revocation.8 In this case, private
respondents offer to pay by means of his BANKARD credit card
constitutes not only an acceptance of the said stipulation but
also an explicit communication of his acceptance to the obligor.
_______________
6 Exhibit 13; Records, p. 189.

7 Exhibit 13-D; Records, p. 189.
8 See Kauffman v. Philippine National Bank, 42 Phil. 182 (1921).
543
VOL. 257, JUNE 20, 1996

543
In addition, the record shows that petitioner posted a logo inside
Mandarin Villa Seafood Village stating that Bankard is accepted
here.9 This representation is conclusive upon the petitioner
which it cannot deny or disprove as against the private
respondent, the party relying thereon. Petitioner, therefore,
cannot disclaim its obligation to accept private respondents
BANKARD credit card without violating the equitable principle of
estoppel.10
Anent the second issue, petitioner insists that it is not negligent.
In support thereof, petitioner cites its good faith in checking, not
just once but twice, the validity of the aforementioned credit
card prior to its dishonor. It argues that since the verification
machine flashed an information that the credit card has expired,
petitioner could not be expected to honor the same much less
be adjudged negligent for dishonoring it. Further, petitioner
asseverates that it only followed the guidelines and instructions
issued by BANKARD in dishonoring the aforementioned credit
card. The argument is untenable.
The test for determining the existence of negligence in a
particular case may be stated as follows: Did the defendant in
doing the alleged negligent act use the reasonable care and
caution which an ordinary prudent person would have used in
the same situation? If not, then he is guilty of negligence.11 The
Point of Sale (POS) Guidelines which outlined the steps that
petitioner must follow under the circumstances provides:
x x x
xxx
xxx
CARD EXPIRED
a. Check expiry date on card.
b. If unexpired, refer to CB.
_______________
9 TSN, Clodualdo de Jesus, October 7, 1990, p. 25.

10 Article 1431. Through estoppel an admission or
representation is rendered conclusive upon the person making it
and cannot be denied or disapproved as against the person
relying thereon (Civil Code).
11 See Picart v. Smith, 37 Phil. 809; Cangco v. Manila Railroad
Co., 38 Phil. 768.
544
544
b.1. If valid, honor up to maximum of SPL only.
b.2. If in CB as Lost, do procedures 2a to 2e.
b.3. If in CB as Suspended/Cancelled, do not honor card.
c. If expired, do not honor card.12
A cursory reading of said rule reveals that whenever the words

CARD EXPIRED flashes on the screen of the verification machine,
petitioner should check the credit cards expiry date embossed
on the card itself. If unexpired, petitioner should honor the card
provided it is not invalid, cancelled or otherwise suspended. But
if expired, petitioner should not honor the card. In this case,
private respondents BANKARD credit card has an embossed
expiry date of September 1990.13 Clearly, it has not yet expired
in October 19, 1989, when the same was wrongfully dishonored
by the petitioner. Hence, petitioner did not use the reasonable
care and caution which an ordinary prudent person would have
used in the same situation and as such petitioner is guilty of
negligence. In this connection, we quote with approval the
following observations of the respondent Court.
Mandarin argues that based on the POS Guidelines (supra), it
has three options in case the verification machine flashes CARD
EXPIRED. It chose to exercise option (c) by not honoring
appellees credit card. However, appellant apparently
intentionally glossed over option (a) Check expiry date on card
(id.) which would have shown without any shadow of doubt that
the expiry date embossed on the BANKARD was SEP 90.
(Exhibit D.) A cursory look at the appellees BANKARD would
also reveal that appellee had been as of that date a cardholder
since 1982, a fact which would have entitled the customer the
courtesy of better treatment.14
_______________
12 Rollo, pp. 17-18.

13 Exhibit D; Record, p. 118.
14 Rollo, p. 18.
545
VOL. 257, JUNE 20, 1996

545
Petitioner, however, argues that private respondents own
negligence in not bringing with him sufficient cash was the
proximate cause of his damage. It likewise sought exculpation
by contending that the remark of Professor Lirag15 is a
supervening event and at the same time the proximate cause of
private respondents injury.
We find this contention also devoid of merit. While it is true that
private respondent did not have sufficient cash on hand when he
hosted a dinner at petitioners restaurant, this fact alone does
not constitute negligence on his part. Neither can it be claimed
that the same was the proximate cause of private respondents
damage. We take judicial notice16 of the current practice among
major establishments, petitioner included, to accept payment by
means of credit cards in lieu of cash. Thus, petitioner accepted
private respondents BPI Express Credit Card after verifying its
validity,17 a fact which all the more refutes petitioners
imputation of negligence on the private respondent.
Neither can we conclude that the remark of Professor Lirag was
a supervening event and the proximate cause of private
respondents injury. The humiliation and embarrassment of the
private respondent was brought about not by such a remark of
Professor Lirag but by the fact of dishonor by the petitioner of
private respondents valid BANKARD credit card. If at all, the
remark of Professor Lirag served only to aggravate the
embarrassment then felt by private respondent, albeit silently
within himself.
_______________
15 Clody, may problema ba? Baka kailangang maghugas na

kami ng pinggan?
16 Sec. 2. Judicial notice, when discretionary.A court may take
judicial notice of matters which are of public knowledge, or are
capable of unquestionable demonstration, or ought to be known
to judges because of their judicial functions. Rule 129, Revised
Rules of Court.
17 TSN, Clodualdo de Jesus, October 7, 1990, p. 8; Exhibit E,
Records, p. 119.
546
546
Ram vs. National Labor Relations Commission
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
Davide, Jr., Melo and Panganiban, JJ., concur.
Narvasa (C.J., Chairman), No part: no participation in
deliberations.
Petition dismissed.
Notes.A bank employee is grossly negligent where she
delivered several credit cards to a person who was merely
identified and described over the telephone. (Citibank, N.A. vs.
Gatchalian, 240 SCRA 212 [1995])
In order that a fortuitous event may exempt a person from
liability, it is necessary that he be free from negligencean act
of God cannot be urged for the protection of a person who has
been guilty of gross negligence in not trying to avert its results.
(Metal Forming Corporation vs. Office of the President, 247 SCRA
731 [1995]) [Mandarin Villa, Inc. vs. Court of Appeals, 257 SCRA
538(1996)]
G.R. No. 79518. January 13, 1989.*

REBECCA C. YOUNG, assisted by her husband ANTONIO GO,
petitioner, vs. COURT OF APPEALS, PH CREDIT CORP., PHIL.
HOLDING, INC. FRANCISCO VILLAROMAN, FONG YOOK LU, ELLEN
YEE FONG and THE REGISTER OF DEEDS OF MANILA,
respondents.
Civil Law; Contracts; Compromise Agreement; A party is not
entitled to enforce a compromise agreement to which he was
not a party, and that as to its effect and scope, its effectivity is
limited to the parties thereto.This issue has already been
squarely settled by this Court in the negative in J.M. Tuason &
Co., Inc. v. Cadampog (7 SCRA 808 [1963]) where it was ruled
that appellant is not entitled to enforce a compromise
agreement to which he was not a party and that as to its effect
and scope, it has been determined in the sense that its
effectivity if at all, is limited to the parties thereto and those
mentioned in the exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7
SCRA 112 [1963]). It was reiterated later that a compromise
agreement cannot bind persons who are not parties thereto
(Guerrero v. C.A., 29 SCRA 791 [1969]).
Same; Same; Same; Petitioner was not impleaded as a
necessary party in the case and that her written conformity did
not appear in the agreement.For unknown reasons, the above
conditions were not complied with. The parties did not make any
move to implead Rebecca as necessary party in the case.
Neither did her written
_______________
* SECOND DIVISION.
214
214
Young vs. Court of Appeals
conformity appear in said agreement. While there is the printed
name of Rebecca C. Young appearing at the end of the joint
motion for approval of the Compromise Agreement, she did not
her signature above her printed name, nor on the left margin of
each and every page thereof. In fact, on cross-examination, she
admitted that she was not a party to the case and that she did
not sign the aforesaid joint motion because it was not presented
to her (Rollo, p. 18) More than that, by the aforesaid actuations
of the parties and petitioners apparent lack of interest, the
intention is evident, not to include the latter either in the
onerous, or in the beneficient provisions of said agreement.
Same; Same; Stipulation pour autrui or a stipulation in favor of a
third person; Requisites.The requisites of a stipulation pour
autrui or a stipulation in favor of a third person are the following:
(1) there must be a stipulation in favor. of a third person, (2) the
stipulation must be a part, not the whole of the contract, (3) the
contracting parties must have clearly and deliberately conferred
a favor upon a third person, not a mere incidental benefit or
interest, (4) the third person must have communicated his
acceptance to the obligor before its revocation, (5) neither of the
contracting parties bears the legal representation or
authorization of the third party. (Florentino v. Encarnacion, Sr.,
79 SCRA 193 [1977]).
Same; Same; Same; Stipulation pour autrui is not present as
petitioner did not communicate her acceptance of the
stipulation whether expressly or impliedly; Sale of the property
to some other person or entity constitutes a revocation of the
grant of the right of first refusal of the petitioner.Assuming
that petitioner is correct in claiming that this is a stipulation pour
autrui, it is unrebutted that she did not communicate her
acceptance whether expressly or impliedly. She insists, however,

that the stipulation has not yet been revoked, so that her
present claim or demand is still timely. As correctly observed by
the Court of Appeals, the above argument is pointless,
considering that the sale of subject property to some other
person or entity constitutes in effect a revocation of the grant of
the right of first refusal to Rebecca C. Young.
Appeals. Lombos-De la Fuente, J.
Diego O. Untalan for petitioner.
Esteban B. Bautista for respondents Fong Yook Lu and
215
VOL. 169, JANUARY 13, 1989

215
Ellen Yee Fong.
Jonette Borres for respondents.
PARAS, J.:
This is a petition for review on certiorari seeking to set aside the

decision of the Court of Appeals1 in CA-G.R. No. 1002, entitled
Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH
Credit Corporation et al., which affirmed the decision of the
Regional Trial Court of Manila, Branch XXXII, earlier dismissing
the complaint of petitioners for Annulment of Sale, Specific
Performance and Damages, against respondents.
The facts of the case are as follows:
Defendant Philippine Holding, Inc. is the former owner of a piece

of land located at Soler St., Sta. Cruz, Manila, and a two storey
building erected thereon, consisting of six units; Unit 1350 which
is vacant, Unit 1352 occupied by Antonio Young, Unit 1354 by
Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, Unit
1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the
Guan Heng Hardware (Rollo, pp. 1415).
The owner Philippine Holding, Inc. secured an order from the
City Engineer of Manila to demolish the building. Antonio Young,
then a tenant of said Unit 1352, filed an action to annul the City
Engineers demolition Order (Civil Case No. 123883) entitled
Antonio S. Young vs. Philippine Holding, Inc. before the then
Court of First Instance of Manila, Branch XXX, As an incident in
said case, the parties submitted a Compromise Agreement to
the Court on September 24,1981. Paragraph 3 of said
agreement provides that plaintiff (Antonio S. Young) and
Rebecca Young and all persons claiming rights under them bind
themselves to voluntarily and peacefully vacate the premises
which they were occupying as lessees (Units 1352 and 1354,
respectively) which are the subject of the condemnation and
demolition order and to surrender possession thereof to the
defendant Philippine Holding, Inc. within sixty (60) days from
written notice, subject to the proviso that should defen_________________
1 Penned by CA Justices Lorna S. Lombos-De la Fuente

(ponente), Ricardo J. Francisco and Alfredo L. Benipayo.
216
216

dant decided to sell the subject property or portion thereof,
plaintiff and Rebecca C. Young have the right of first refusal
thereof. (Rollo, p. 49).
On September 17, 1981, Philippine Holding, Inc. had previously
sold the above said property described in the compromise ,
agreement by way of dacion in payment to PH Credit
Corporation (Rollo, p. 49).
On November 9,1982, the property was subdivided into two
parcels, one 244.09 sq.m. in area covering Units 1350, 1352 and
1354 (TCT No. 152439) and the other 241.71 sq.m. in area
covering Units 1356, 1358 and 1360 (TCT No. 152440) and both
titles were placed in the name of PH Credit Corporation.
On December 8, 1982, PH Credit Corporation sold the property
covered by TCT 152439 to the Blessed Land Development
Corporation represented by its President Antonio T.S. Young; and
on September 16, 1983, PH Credit Corporation sold the property
covered by TCT 152440 embracing Units 1356, 1358 and 1360
to spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15).
Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the
spouses Chui Wan and Felisa Tan Yu filed in the Regional Trial
Court of Manila, Civil Case No. 8422676 for the annulment of
the sale in favor of herein respondent spouses, Fong Yook Lu and
Ellen Yee Fong and for specific performance and damages
against the PH Credit Corporation and Philippine Holding,
Incorporated.
Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that
defendant corporation and Francisco Villaroman, sold the
property without affording them (the plaintiffs-spouses) the right
of first refusal to purchase that portion of the property which
they are renting.
Plaintiff Rebecca C. Young, now petitioner, also claimed the right

of first refusal purportedly granted to her under the aforestated
proviso of the abovesaid compromise agreement and prayed
that the sale be annulled and that they be allowed to exercise
her right of first refusal to purchase subject property (Rollo, p.
50).
The lower court decided in favor of the defendants and against
the plaintiffs, thus dismissing the complaint together with
defendants counterclaims (Rollo, p. 15)
217
VOL. 169, JANUARY 13, 1989

217
On the other hand, the claim of Rebecca C. Young was similarly
rejected by the trial court on the following grounds: (1) that she
was not a party in the Civil Case No. 123883, wherein subject
compromise agreement was submitted and approved by the trial
court apart from the fact that she did not even affix her
signature to the said compromise agreement; (2) that Rebecca
Young had failed to present any evidence to show that she had
demanded from the defendants-owners, observance of her right
of first refusal before the said owners sold units 1356, 1358 and
1360; (3) that even assuming that her supposed right of first
refusal is a stipulation for the benefit of a third person, she did
not inform the obligor of her acceptance as required by the
second paragraph of Article 1311 of the Civil Code.
Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by
her husband, appealed to the Court of Appeals which dismissed
the same on August 7, 1987, for lack of merit.
Hence this petition, which was brought to this Court only by

Rebecca Young, assisted by her husband Antonio Go.
On October 2, 1987, respondents Fong Yook Lu, moved to strike
out or dismiss outright the instant petition (Rollo, p. 35). In the
resolution of November 4, 1987, the Second Division of this
Court required the petitioner to comment on said motion (Rollo,
p. 37), which comment was filed on December 17, 1987 (Rollo,
p. 38). Thereafter, in the resolution of January 20,1988,
respondents were required to file a reply thereto (Rollo, p. 42)
which was filed on January 11, 1988 (Rollo, p. 43). On March 24,
1988, petitioner filed a rejoinder to reply (Rollo, p. 46) in
compliance with the resolution of February 29, 1988 (Rollo, p.
45).
In the resolution of May 11,1988, the petition was given due
course and the parties were required to submit simultaneously
their respective memoranda (Rollo, p. 47). Respondents filed
their memorandum on June 29,1988 (Rollo, p. 48), while
petitioners memorandum was filed on July 14, 1988 (Rollo, p.
64).
Petitioner raised the following assignments of error:
1. The lower court erred in holding that Rebecca C. Young cannot
enforce the stipulation in her favor in the compromise
agreement as she is not party therein.
2. The lower court erred in holding that even if par. 3 of the
218
218
compromise agreement is construed as a stipulation pour autrui

Rebecca Young cannot enforce it because she did not
communicate her acceptance thereof to the obligor. (Rollo, p. 7)
The petition is devoid of merit.
The main issue in this case is whether or not petitioner can
enforce a compromise agreement to which she was not a party.
This issue has already been squarely settled by this Court in the
negative in J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808
[1963] where it was ruled that appellant is not entitled to
enforce a compromise agreement to which he was not a party
and that as to its effect and scope, it has been determined in the
sense that its effectivity if at all, is limited to the parties thereto
and those mentioned in the exhibits (J.M. Tuason & Co., Inc. v.
Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a
compromise agreement cannot bind persons who are not parties
thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).
The pertinent portion of the Compromise Agreement reads:
Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby
agree to implead in this action as necessary party-plaintiff,
plaintiffs daughter Rebecca C. Young who is the recognized
lawful lessee of the premises known and identified as 1354
Soller St., Sta. Cruz, Manila and whose written conformity
appears hereunder. (Rollo, p. 18)
From the terms of this agreement, the conditions are very clear,
such as: (1) that Rebecca C. Young shall be impleaded in the
action and (2) that she shall signify her written conformity
thereto.
For unknown reasons, the above conditions were not complied
with. The parties did not make any move to implead Rebecca as
necessary party in the case. Neither did her written conformity
appear in said agreement. While there is the printed name of
Rebecca C. Young appearing at the end of the joint motion for
approval of the Compromise Agreement, she did not affix her

signature above her printed name, nor on the left margin of
each and every page thereof.
In fact, on cross-examination, she admitted that she was not a
party to the case and that she did-not sign the aforesaid joint
motion because it was not presented to her (Rollo, p. 18).
219
VOL. 169, JANUARY 13, 1989

219
Young vs, Court of Appeals
More than that, by the aforesaid actuations of the parties and
petitioners apparent lack of interest, the intention is evident,
not to Include the latter either in the onerous, or in the
beneficient provisions of said agreement.
Petitioner further argued that the stipulation giving her the right
of first refusal is a stipulation pour autrui or a stipulation in favor
of a third person under Article 1311 of the Civil Code.
The requisites of a stipulation pour autrui or a stipulation in
favor of a third person are the following:
(1) there must be a stipulation in favor of a third person.
(2) the stipulation must be a part, not the whole of the contract.
(3) the contracting parties must have clearly and deliberately
conferred a favor upon a third person, not a mere incidental
benefit or interest.
(4) the third person must have communicated his acceptance to
the obligor before its revocation.
(5) neither of the contracting parties bears the legal

representation or authorization of the third party. (Florentino v.
Encarnacion, Sr., 79 SCRA 193 [1977]).
Assuming that petitioner is correct in claiming that this is a
stipulation pour autrui, it is unrebutted that she did not
communicate her acceptance whether expressly or impliedly.
She insists however, that the stipulation has not yet been
revoked, so that her present claim or demand is still timely.
As correctly observed by the Court of Appeals, the above
argument is pointless, considering that the sale of subject
property to some other person or entity constitutes in effect a
revocation of the grant of the right of first refusal to Rebecca C.
Young.
PREMISES CONSIDERED, the petition is DENIED for lack of merit,
and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairperson),
Regalado, JJ., concur.
Padilla,
Sarmiento
and
Petition denied. Decision affirmed. [Young vs, Court of Appeals,

169 SCRA 213(1989)]
No. L-40424.June 30, 1980.*

R. MARINO CORPUS, petitioner, vs. COURT OF APPEALS and JUAN
T. DAVID, respondents.
Attorneys; Contracts; An attorney-client relationship can be
created by implied agreement, as when the attorney actually
rendered
_______________
* FIRST DIVISION
425
VOL.98,JUNE30,1980
425
Corpus vs. Court of Appeals
legal services for a person who is a close friend. The obligation
of such a person to pay attorneys fees is based on the law of
contracts concept of facio ut des (I do and you give).WE find
respondent Davids position meritorious. While there was no
express agreement between petitioner Corpus and respondent
David as regards attorneys fees, the facts of the case support
the position of respondent David that there was at least an
implied agreement for the payment of attorneys fees. Petitioner
s act of giving the check for P2,000.00 through his aforestated
April 18, 1962 letter to respondent David indicates petitioners
commitment to pay the former attorneys fees, which is stressed
by expressing that I wish I could give more but as you know we
were banking on a SC decision reinstating me and reimbursing
my back salaries. This last sentiment constitutes a promise to
pay more upon his reinstatement and payment of his back
salaries. Petitioner ended his letter that he was looking forward
to a continuation of the case in the lower court, x x x, to which

the certiorari-mandamus-quo warranto case was remanded by
the Supreme Court for further proceedings.
Same; Same; Same.It may be advanced that respondent David
may be faulted for not reducing the agreement for attorneys
fees with petitioner Corpus in writing. However, this should be
viewed from their special relationship. It appears that both have
been friends for several years and were co-members of the Civil
Liberties Union. In addition, respondent David and petitioners
father, the late Rafael Corpus, were also close friends. Thus, the
absence of an express contract for attorneys fees between
respondent David and petitioner Corpus is no argument against
the payment of attorneys fees, considering their close
relationship which signifies mutual trust and confidence between
them.
Same; Same; Same.Moreover, the payment of attorneys fees
to respondent David may also be justified by virtue of the
innominate contract of facio ut des (I do and you give) which is
based on the principle that no one shall unjustly enrich himself
at the expense of another. Innominate contracts have been
elevated to a codal provision in the New Civil Code by providing
under Article 1307 that such contracts shall be regulated by the
stipulations of the parties, by the general provisions or principles
of obligations and contracts, by the rules governing the most
analogous nominate contracts, and by the customs of the
people.
Same; Same; An attorney cannot charge his client a percentage
of the amount recovered as his fees in the absence of an
express
426
426

agreement.There was no contract for contingent fee between
Corpus and respondent David. Contingent fees depend on an
express contract therefor. Thus, an attorney is not entitled to a
percentage of the amount recovered by his client in the absence
of an express contract to that effect (7 C.J.S. 1063 citing
Thurston v. Travelers Ins. Co., 258 N.W. 66, 128 Neb. 141).
Same; Same; Attorneys fees on a quantum meruit basis will be
resolved by taking all relevant factors into consideration.In
determining a reasonable fee to be paid to respondent David as
compensation for his services, on a quantum meruit basis, it is
proper to consider all the facts and circumstances obtaining in
this case particularly the following: x x x.
Same; Judges; Contempt; Constitutional Law; An attorney who
files in the trial court a motion for issuance of a writ of execution
for his fees, while the resolution of the Supreme Court thereon is
still pending, on the ground that the Supreme Court failed to
resolve the claim within 18 months as provided for in the
Constitution a provision not yet interpreted by the Supreme
Court, and a trial judge who grants such a motion are both guilty
of contempt of court. They are both reprimanded.Respondent
David filed on or about September 13, 1978 a motion with the
court a quo for the issuance of a writ of execution to enforce its
decision in Civil Case No. 61802, subject of the present petition,
knowing fully well that it was then still pending appeal before
this Court. In addition, no certification that the aforesaid decision
is already deemed affirmed had as yet been issued by the Chief
Justice pursuant to Section 11, paragraph 2, Article X of the New
Constitution; because respondent Davids petitions filed with the
Supreme Court on January 31, 1978 and on July 7, 1978 to
remand the case to the trial court for execution and for the
issuance of such certification had not yet been acted upon as
the same were still pending consideration by this Court. In fact,
this Court has not as of this time made any pronouncement on

the aforesaid provision of the New Constitution.
Same; Same; Same; Same; Same.This act of respondent David
constitute disrespect to, as well as disregard of the authority of
this Court as the final arbiter of all cases duly appealed to it,
especially constitutional questions. It must be emphasized that
as a member of the Philippine Bar he is required to observe and
maintain the respect due to the courts of justice and judicial
officers (Section 20(b), Rule 138 of the Revised Rules of Court).
Likewise, Canon 1 of
427
VOL.98,JUNE30,1980
427
the Canons of Professional Ethics expressly provides that: It is

the duty of the lawyer to maintain towards the Courts a
respectful attitude, not for the sake of the temporary incumbent
of the judicial office, but for the maintenance of its supreme
importance. And this Court had stressed that the duty of an
attorney to the courts can only be maintained by rendering no
service involving any disrespect to the judicial office which he is
bound to uphold (Rheem of the Philippines v. Ferrer, 20 SCRA
441, 444 [1967] citing the case of Lualhati v. Albert, 57 Phil. 86,
92 [1932]).
Same; Same; Same; Same; Same.Moreover, this Court takes
judicial notice of the fact that herein respondent David, in the
previous case of Integrated Construction Services, Inc. and
Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]),
had sent letters addressed to the then Chief Justice Querube C.
Makalintal and later to the Chief Justice Fred Ruiz Castro,

requesting for the issuance of certification on the basis of the
aforementioned provision of the New Constitution which were
not given due consideration. And knowing this, respondent
David should have been more prudent and cautious in filing with
the court a quo any motion for execution.
Same; Same; Same; Same; Same.On the part of Judge Jose H.
Tecson, his presumptuous and precipitate act of granting the
motion for execution of respondent David likewise constitutes
disrespect to, as well as disregard of, the authority of this Court
because he knew for a fact that the case was still pending
appeal as the records thereof had not yet been remanded to it
and that no certification has been issued by this Court. As a
judicial officer, Judge Tecson is charged with the knowledge of
the fact that this Court has yet to make a definite
pronouncement on Section 11, paragraph 2, Article X of the New
Constitution. Judge Tecson should know that only the Supreme
Court can authoritatively interpret Section 11(2) of Article X of
the 1973 Constitution. Yet, Judge Tecson assumed the role of the
Highest Court of the Land.
PETITION for review the decision of the Court of Appeals.
Certiorari.
MAKASIAR,J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals promulgated on February 14, 1975 in CA428
428
G.R. No. 40583-R, affirming the decision of the Court of Instance

of Manila, Branch V, dated September 4, 1967, in Civil Case No.
61802 entitled Juan T. David, plaintiff, versus R. Marino Corpus,
defendant, for the recovery of attorneys fees for professional
services rendered by the plaintiff, private respondent herein, to
the defendant, petitioner herein.
A
Having been close friends, aside from being both members of
the Civil Liberties Union, petitioner Corpus intimately calls
respondent David by his nickname Juaning and the latter
addresses the former simply as Marino.
The factual setting of this case is stated in the decision of the
lower court, thus:
It appears that in March, 1958, the defendant was charged
administratively by several employee of the Central Bank Export
Department of which the defendant is the director. The
defendant was represented by Atty. Rosauro Alvarez. Pending
the investigation and effective March 18, 1958, he defendant
was suspended from office. After the investigating committee
found the administrative charges to be without merit, and
subsequently recommended the immediate reinstatement of the
defendant, the then Governor of Central Bank, Miguel Cuaderno,
Sr., recommended that the defendant be considered resigned on
the ground that he had lost confidence in him. The Monetary
Board, by a resolution of July 20, 1959, declared the defendant
as resigned as of the date of suspension.
On August 18, 1959, the defendant, thru Atty. Alvarez, filed the
Court of First Instance of Manila a petition for certiorari,
mandamus and quo warranto with preliminary mandatory
injunction and damages against Miguel Cuaderno, Sr., the
Central Bank and Mario Marcos who was appointed to the
position of the defendant, said case having been docketed as
Civil Case No. 41226 and assigned to Branch VII presided over
by Judge Gregorio T. Lantin. On September 7, 1959, the

respondent filed a motion to dismiss the petition, alleging
among other grounds, the failure of the defendant to exhaust
available administrative remedies (Exh. X). On September 25,
1959, the defendant, thru Atty. Alvarez, filed his opposition to
the said motion. On March 17, 1960, during the course of the
presentation of the evidence for the petition for a writ of
preliminary man429
VOL.98,JUNE30,1980
429
datory injunction, Atty. Alvarez manifested that the defendant

was abandoning his prayer for a writ of preliminary mandatory
injunction, and asked for a ruling on the motion to dismiss. On
June 14, 1960, Judge Lantin dismissed Civil Case No. 41226 for
failure to exhaust the administrative remedies available to the
herein defendant.
On June 24, 1960, Atty. Alvarez received a copy of the order of
dismissal. It was at this state that the plaintiff entered into the
case under circumstances about which the parties herein have
given divergent versions.
According to the plaintiff, six or seven days prior to the
expiration of the period for appeal from the order of dismissal he
chanced to meet the late Rafael Corpus, father of the defendant,
at the Taza de Oro coffee shop. After they talked about the
defendants having lost his case before Judge Lantin, and
knowing that the plaintiff and the defendant were both members
of the Civil Liberties Union, Rafael Corpus requested the plaintiff
to go over the case and further said that he would send his son,
the herein defendant, to the plaintiff to find out what could be
done about the case. The defendant called up the plaintiff the
following morning for an appointment, and the plaintiff agreed to
see him in the latters office. At said conference, the defendant
requested the plaintiff to handle the case because Atty. Alvarez
had already been disenchanted and wanted to give up the case.
Although at first reluctant to handle the case, the plaintiff finally
agreed on condition that he and Atty. Alvarez would collaborate
in the case.
The defendants version of how the plaintiff came into the case
is as follows:
After the order of dismissal issued by Judge Lantin was
published in the newspapers, the plaintiff sought a conference
with the defendant at Taza de Oro, but the defendant told him
that he would rather meet the plaintiff at the Swiss Inn. Even
before the case was dismissed the plaintiff had shown interest in
the same by being present during the hearings of said case in
the sala of Judge Lantin. When the plaintiff and the defendant
met at the Swiss Inn, the plaintiff handed the defendant a
memorandum prepared by him on how he can secure the
reversal of the order of dismissal by means of a formula stated
in said memorandum. During the said occasion the plaintiff
scribbled some notes on a paper napkin (Exhibit 19). On June 28,
1960 the defendant wrote the plaintiff, sending with it a copy of
the order of Judge Lantin dated June 14, 1960 (Exhibit S).
Inasmuch as said letter, Exhibit S, already mentions the
memorandum of the
430
430
plaintiff, the defendant contends that it was not six or seven

days prior to the expiration of the period of appeal (which should
be on or about July 2 or 3, 1960) but on a date even earlier than
June 28, 1960 that the plaintiff and the defendant met together
to discuss the latters case.
Laying aside for the moment the true circumstances under
which the plaintiff started rendering professional services to the
defendant, the undisputed evidence shows that on July 7, 1960,
the plaintiff filed a motion for reconsideration of the order of
dismissal under the joint signatures of the plaintiff and Atty.
Alvarez (Exhibit B). The plaintiff argued the said motion during
the hearing thereof. On August 8, 1960, he filed a 13-page
Memorandum of Authorities in support of said motion for
reconsideration
(Exhibit
C).
A
3-page
supplemental
memorandum of authorities was filed by the plaintiff on
September 6, 1960 (Exhibit D)
On November 15, 1960, Judge Lantin denied the motion for
reconsideration. On November 19, 1960, the plaintiff perfected
the appeal from the order of dismissal dated June 14, 1960. For
purposes of said appeal, the plaintiff prepared a 232-page brief
and submitted the same before the Supreme Court in Baguio
City on April 20, 1961. The plaintiff was the one who orally
argued the case before the Supreme Court. In connection with
the trip to Baguio for the said oral argument, the plaintiff used
his car which broke down and necessitated extensive repairs
paid for by the plaintiff himself.
On March 30, 1962, the Supreme Court promulgated
decision reversing the order of dismissal and remanding
case for further proceedings. On April 18, 1962, after
promulgation of the decision of the Supreme Court reversing
its
the
the
the
dismissal of the case, the defendant wrote the plaintiff the

following letter, Exhibit Q:
xxxx
Dear Juaning:
Will you please accept the attached check in the amount of
TWO THOUSAND (P2,000.00) PESOS for legal services in the
handling of L-17860 recently decided by the Supreme Court? I
wish I could give more but as you know we were banking on a
SC decision reinstating me and reimbursing my back-salaries. I
had been wanting to offer some token of my appreciation of
your legal fight for and in my behalf, and it was only last week
that I received something on account of a pending claim.
431
VOL.98,JUNE30,1980
431
Looking forward to a continuation of the case in the lower court,
I remain
Sincerely yours,
Illegible
xxxxx
In a reply letter dated April 25, 1962, the plaintiff returned the
check, explaining said act as follows:
April 25, 1962
My dear Marino:
Yesterday, I received your letter of April 18th with its enclosure.

I wish to thank you for your kind thoughts, however, please
dont take offense if I have to return the check. I will explain.
When I decided to render professional services in your case, I
was motivated by the value to me of the very intimate relations
which you and I have enjoyed during the past many many years.
It was not, primarily, for a professional fee.
Although we were not fortunate to have obtained a decision in
your case which should have put an end to it. I feel that we have
reason to be jubilant over the outcome, because, the final
favorable outcome of the case seems certain, irrespective of the
length of time required to terminate the same.
Your appreciation of the efforts I have invested in your case is
enough compensation therefor, however, when you shall have
obtained a decision which would have finally resolved the case
in your favor, remembering me then will make me happy. In the
meantime, you will make me happier by just keeping the check.
Sincerely yours,
JUANING
xxxxxx
432
432
When the case was remanded for further proceedings before
Judge Lantin, the evidence for the defendant was presented by
Atty. Alvarez with the plaintiff cooperating in the same. On June
24, 1963, Judge Lantin rendered his decision in favor of the
defendant, declaring illegal the resolution of the Monetary Board
of July 20, 1959, and ordering the defendants reinstatement

and the payment of his back salaries and allowances. The
respondents in said Civil Case No. 41226 filed a motion for
reconsideration which was opposed by the herein plaintiff. The
said decision was appealed by the respondents, as well as by
the herein defendant with respect to the award of P5,000.00
attorneys fees. The plaintiff prepared two briefs for submission
to the Court of Appeals, one as appellee (Exhibit H) and the
other as appellant (Exhibit H-1). The Court of Appeals, however,
certified the case to the Supreme Court in 1964.
On March 31, 1965, the Supreme Court rendered a decision
affirming the judgment of the Court of First Instance of Manila.
On April 19, 1965, the plaintiffs law office made a formal
demand upon the defendant for collection of 50% of the amount
recovered by the defendant as back salaries and other
emoluments from the Central Bank (Exhibit N). This letter was
written after the defendant failed to appear at an appointment
with the plaintiff so that they could go together to the Central
Bank to claim the possession of the office to which the
defendant was reinstated and after a confrontation in the office
of the plaintiff wherein the plaintiff was demanding 50% of the
back salaries and other emoluments amounting to P203,000.00
recoverable by the defendant. The defendant demurred to this
demand inasmuch as he had plenty of outstanding obligations
and that his tax liability for said back salaries was around
P90,000.00, and that he expected to net only around P10,000.00
after deducting all expenses and taxes.
On the same date, April 19, 1965 the plaintiff wrote the
Governor of Central Bank requesting that the amount
representing the back salaries of the defendant be made out in
two checks, one in favor of the defendant and the other
representing the professional fees equivalent to 50% of the said
back salaries being claimed by the plaintiff (Exhibit 8). Failing to
obtain the desired relief from the Central Bank, the plaintiff
instituted this action before this Court on July 20, 1965 (italics
supplied).
As therein defendant, herein petitioner Marino Corpus filed on
August 5, 1965 an answer with counterclaim. On
433
VOL.98,JUNE30,1980
433
August 30, 1965, private respondent Atty. Juan T. David, plaintiff
therein, filed a reply with answer to the counterclaim of
petitioner.
After due trial, the lower court rendered judgment on September
4, 1967, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the
defendant to pay plaintiff the sum of P30,000.00 in the concept
of professional fees, and to pay the costs (pp. 112-113, CA
Record on Appeal, p. 54, rec.)
After receipt on September 7, 1967 of a copy of the afore-quoted
judgment, petitioner Marino Corpus, defendant therein, filed on
October 7, 1967 a notice of appeal from said judgment to the
Court of Appeals. In his appeal, he alleged that the lower court
erred:
1.In not holding that the plaintiffs professional services were
offered and rendered gratuitously;
2.Assuming that plaintiff is entitled to compensation in
holding that he was entitled to attorneys fees in the amount of
P30,000.00 when at most he would be entitled to only
P2,500.00;
3.In not dismissing plaintiffs complaint; and
4.In not awarding damages and attorneys fees to the

defendant (p. 2, CA Decision, p. 26, rec.)
Likewise, private respondent Atty. Juan T. David, plaintiff therein,
appealed to the Court of Appeals on October 9, 1967 assigning
one error, to wit:
The lower court erred in ordering the defendant to pay the
plaintiff only the sum of P30,000.00 in the concept of attorneys
fees (p. 1, CA Decision, p. 25, rec.).
On February 14, 1975, respondent Court of Appeals promulgated
its decision affirming in toto the decision of the lower court, with
costs against petitioner Marino Corpus (Annex A, Petition for
Certiorari, p. 25, rec.)
434
434
Hence, the instant petition for review on certiorari, petitioner
contending that the respondent Court of Appeals erred in finding
that petitioner accepted private respondents services with the
understanding of both that he (private respondent) was to be
compensated in money; and that the fee of private respondent
was contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19,
rec.)
On October 1, 1975, the case was deemed submitted for
decision (p. 177, rec.), after the parties filed their respective
memoranda.
B
On January 31, 1978, private respondent Atty. Juan T. David filed
a petition to remand the case to the court a quo for execution of
the latters decision in Civil Case No. 61802, dated September 4,

1967, alleging that said decision is already deemed affirmed
pursuant to Section 11(2), Article X of the New Constitution by
reason of the failure of this Tribunal to decide the case within 18
months. Then on July 7, 1978, another petition to remand the
case to the lower court for execution was filed by herein private
respondent.
Subsequently, private respondent Atty. Juan T. David filed with
the court a quo a motion dated September 13, 1978 for the
issuance of a writ of execution of the lower courts decision in
the aforesaid civil case, also invoking Section 11 (2), Article X of
the 1973 Constitution. In an order dated September 19, 1978,
the lower court, through Judge Jose H. Tecson, directed the
issuance of a writ of execution. The writ of execution was issued
on October 2, 1978 and a notice of garnishment was also issued
on October 13, 1978 to garnish the bank deposits of herein
petitioner Marino Corpus in the Commercial Bank and Trust
Company, Makati Branch.
It appears that on October 13, 1978, herein petitioner filed a
motion for reconsideration of the September 19, 1978 order.
Private respondent Atty. Juan T. David filed on October 19, 1978
an opposition to said motion and herein petitioner filed a reply
on October 30, 1978. The lower court denied said motion tor
reconsideration in its order dated November 7, 1978.
435
VOL.98,JUNE30,1980
435
It appears also that in a letter dated October 18, 1978, herein
petitioner Marino Corpus requested this Court to inquire into
what appears to be an irregularity in the issuance of the
aforesaid garnishment notice to the Commercial Bank and Trust

Company, by virtue of which his bank deposits were garnished
and he was prevented from making withdrawals from his bank
account.
In OUR resolution of November 3, 1978, WE required private
respondent Atty. Juan T. David and the Commercial Bank and
Trust Company to comment on petitioners letter, and for the
bank to explain why it did not honor petitioners withdrawals
from his bank deposits when no garnishment order has been
issued by the Supreme Court. This Court further inquired from
the lower court whether it has issued any garnishment order
during the pendency of the present case.
On November 27, 1978, the Commercial Bank and Trust
Company filed its comment which was noted in the Courts
resolution of December 4, 1978. In said resolution, the Court
also required Judge Jose H. Tecson to comply with the resolution
of November 3, 1978, inquiring as to whether he had issued any
garnishment order, and to explain why a writ of execution was
issued despite the pendency of the present case before the
Supreme Court.
Further, WE required private respondent Atty. Juan T. David to
explain his failure to file his comment, and to file the same as
directed by the resolution of the Court dated November 3, 1978.
Private respondents compliance came on December 13, 1978,
requesting to be excused from the filing of his comment because
herein petitioners letter was unverified. Judge Tecsons
compliance was filed on December 15, 1978, to which herein
petitioner replied on January 11, 1979.
In OUR resolution dated January 3, 1979, WE set aside the order
of Judge Jose H. Tecson dated September 19, 1978, the writ of
execution as well as the notice of garnishment, and required
private respondent Atty. Juan T. David to show cause why he
should not be cited for contempt for his failure to file his
comment as directed by the resolution of the Court dated

December 4, 1978, and for filing a motion for execution know436
436
ing that the case is pending appeal and review before this Court.
Likewise, the Court required Judge Jose H. Tecson to show cause
why he should not be cited for contempt for issuing an order
directing the issuance of a writ of execution and for issuing such
writ despite the pendency of the present case in the Supreme
Court.
On January 12, 1979, Judge Jose H. Tecson filed his complianceexplanation as directed by the aforesaid resolution of January 3,
1979, while private respondent Atty. Juan T. David filed on
January 30, 1979 his compliance and motion for reconsideration
after the Court has granted him an extension of time to file his
compliance.
Private respondent Atty. Juan T. David filed on February 28,
1979, a petition praying that the merits of his compliance be
resolved by the Court en banc. Subsequently, on March 26,
1979, another petition was filed by herein private respondent
asking the Chief Justice and the members of the First Division to
inhibit themselves from participating in the determination of the
merits of his compliance and for its merits to be resolved by the
Court en banc.
C
The main thrust of this petition for review is whether or not
private respondent Atty. Juan T. David is entitled to attorneys
fees.
Petitioner Marino Corpus contends that respondent David is not

entitled to attorneys fees because there was no contract to that
effect. On the other hand, respondent David contends that the
absence of a formal contract for the payment of at torneys fees
will not negate the payment thereof because the contract may
be express or implied, and there was an implied understanding
between the petitioner and private respondent that the former
will pay the latter attorneys fees when a final decision shall
have been rendered in favor of the petitioner reinstating him to
his former position in the Central Bank and paying his back
salaries.
437
VOL.98,JUNE30,1980
437
I
WE find respondent Davids position meritorious. While there
was express agreement between petitioner Corpus and
respondent David as regards attorneys fees, the facts of the
case support the position of respondent David that there was at
least an implied agreement for the payment of attorneys fees.
Petitioners act of giving the check for P2,000.00 through his
aforestated April 18, 1962 letter to respondent David indicates
petitioners commitment to pay the former attorneys fees,
which is stressed by expressing that I wish I could give more
but as you know we were banking on a SC decision reinstating
me and reimbursing my back salaries. This last sentiment
constitutes a promise to pay more upon his reinstatement and
payment of his back salaries. Petitioner ended his letter that he
was looking forward to a continuation of the case in the lower
court, x x x, to which the certiorari-mandamus-quo warranto
case was remanded

proceedings.
by
the
Supreme
Court
for
further
Moreover, respondent Davids letter-reply of April 25, 1962

confirms the promise of petitioner Corpus to pay attorneys fees
upon his reinstatement and payment of back salaries. Said reply
states that respondent David decided to be his counsel in the
case because of the value to him of their intimate relationship
over the years and not, primarily, for a professional fee. It is
patent then, that respondent David agreed to render
professional services to petitioner Corpus secondarily for a
professional fee. This is stressed by the last paragraph of said
reply which states that however, when you shall have obtained
a decision which would have finally resolved the case in your
favor, remembering me then will make me happy. In the
meantime, you will make me happier by just keeping the check.
Thereafter, respondent David continued to render legal services
to petitioner Corpus, in collaboration with Atty. Alvarez until he
and Atty. Alvarez secured the decision directing petitioners
reinstatement with back salaries, which legal services were
undisputedly accepted by, and benefited petitioner.
438
438
Moreover, there is no reason to doubt respondent Davids
assertion that Don Rafael Corpus, the late father of petitioner
Corpus, requested respondent to help his son, whose suit for
reinstatement was dismissed by the lower court; that pursuant
to such request, respondent conferred in his office with
petitioner, who requested respondent to handle the case as his
lawyer, Atty. Alvarez, was already disenchanted and wanted to
give up the case; and that respondent agreed on the case. It

would have been unethical for respondent to even offer his
services when petitioner had a competent counsel in the person
of Atty. Alvarez, who has been teaching political, constitutional
and administrative law for over twenty years.
Likewise, it appears that after the Supreme Court affirmed on
March 31, 1965 the order of the lower court reinstating
petitioner Corpus with back salaries and awarding attorneys
fees of P5,000.00, respondent David made a written demand on
April 19, 1965 upon petitioner Corpus for the payment of his
attorneys fees in an amount equivalent to 50% of what was
paid as back salaries (Exh. N, p. 75, Folder of Exhibits, Civil Case
No. 61802). Petitioner Corpus, in his reply dated May 7, 1965 to
the aforesaid written demand, while disagreeing as to the
amount of attorneys fees demanded, did not categorically deny
the right of respondent David to attorneys fees but on the
contrary gave the latter the amount of P2,500.00, which is onehalf () of the court-awarded attorneys fees of P5,000.00, thus
impliedly admitting the right of respondent David to attorneys
fees (Exh. K, p. 57, Folder of Exhibits, Civil Case No. 61802).
It is further shown by the records that in the motion filed on
March 5, 1975 by petitioner Corpus before the Court of Appeals
for the reconsideration of its decision affirming the order of the
lower court granting P30,000.00 attorneys fees to respondent
David, he admitted that he was the first to acknowledge that
respondent David was entitled to compensation for legal
services rendered when he sent the check for P2,000.00 in his
letter of April 18, 1962, and he is still willing to compensate the
respondent but only to the extent of P10,000.00 (p. 44, rec.).
This admission serves only to further
439
VOL.98,JUNE30,1980
439
emphasize the fact that petitioner Corpus was aware all the time
that he was liable to pay attorneys fees to respondent David
which is therefore inconsistent with his position that the services
of respondent David were gratuitous, which did not entitle said
respondent to compensation.
It may be advanced that respondent David may be faulted for
not reducing the agreement for attorneys fees with petitioner
Corpus in writing. However, this should be viewed from their
special relationship. It appears that both have been friends for
several years and were co-members of the Civil Liberties Union.
In addition, respondent David and petitioners father, the late
Rafael Corpus, were also close friends. Thus, the absence of an
express contract for attorneys fees between respondent David
and petitioner Corpus is no argument against the payment of
attorneys fees, considering their close relationship which
signifies mutual trust and confidence between them.
II
Moreover, the payment of attorneys fees to respondent David
may also be justified by virtue of the innominate contract of
facio ut des (I do and you give) which is based on the principle
that no one shall unjustly enrich himself at the expense of
another. innominate contracts have been elevated to a codal
provision in the New Civil Code by providing under Article 1307
that such contracts shall be regulated by the stipulations of the
parties, by the general provisions or principles of obligations and
contracts, by the rules governing the most analogous nominate
contracts, and by the customs of the people. The rationale of
this article was stated in the 1903 case of Perez vs. Pomar (2
Phil. 982). In that case, the Court sustained the claim of plaintiff
Perez for payment of services rendered against defendant Pomar
despite the absence of an express contract to that effect, thus:
It does not appear that any written contract was entered into
between the parties for the employment of the plaintiff as
interpreter, or that any other innominate contract was entered
into; but
440
440
whether the plaintiffs services were solicited or whether they
were offered to the defendant for his assistance, inasmuch as
these services were accepted and made use of by the latter, we
must consider that there was a tacit and mutual consent as to
the rendition of the services. This gives rise to the obligation
upon the person benefited by the services to make
compensation therefor, since the bilateral obligation to render
service as interpreter, on the one hand, and on the other to pay
for the service rendered, is thereby incurred. (Arts. 1088, 1089,
and 1262 of the Civil Code).
xxxxxx
x x x. Whether the service was solicited or offered, the fact
remains that Perez rendered to Pomar services as interpreter. As
it does not appear that he did this gratuitously, the duty is
imposed upon the defendant, he having accepted the benefit of
the service, to pay a just compensation therefor, by virtue of the
innominate contract of facio ut des implicitly established.
xxxxx.
x x x because it is a well-known principle of law that no one
shouls be permitted to enrich himself to the damage of another
(italics supplied; see also Tolentino, Civil Code of the Philippines,
p. 388, Vol. IV [1962], citing Estate of Heguera vs. Tandra, 81
Phil. 404 [1948]; Arroyo vs. Azur. 76 Phil. 493 [1946]; and Perez
vs. Pomar, 2 Phil. 682 [1903]).
WE reiterated this rule in Pacific Merchandising Corp. vs.
Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976])
citing the case of Perez v. Pomar, supra, thus:
Where one has rendered services to another, and these
services are accepted by the latter, in the absence of proof that
the service was rendered gratuitously, it is but just that he
should pay a reasonable remuneration therefor because it is a
well-known principle of law, that no one should be permitted to
enrich himself to the damage of another (italics supplied).
Likewise, under American law, the same rule obtains (7 CJS
1079; F.L Stitt & Co. v. Powell, 114 So 375).
441
VOL.98,JUNE30,1980
441
III
There was no contract for contingent fee between Corpus and
respondent David. Contingent fees depend on an express
contract therefor. Thus, an attorney is not entitled to a
percentage of the amount recovered by his client in the absence
of an express contract to that effect (7 C.J.S. 1063 citing
Thurston v. Travelers Ins. Co., 258 N.W. 66, 128 Neb. 141).
Where services were rendered without any agreement
whatever as to the amount or terms of compensation, the
attorney is not acting under a contract for a contingent fee, and
a letter by the attorney to the client stating that a certain sum
would be a reasonable amount to charge for his services and
adding that a rate of not less than five percent nor more than
ten would be reasonable and customary does not convert the
original agreement into a contract for a contingent fee (7 C.J.S.
1063 citing Fleming v. Phinizy, 134 S.E. 814).
While there was no express contract between the parties for the
payment of attorneys fees, the fact remains that respondent
David rendered legal services to petitioner Corpus and therefore
as aforestated, is entitled to compensation under the innominate
contract ot facio ut des. And such being the case, respondent
David is entitled to a reasonable compensation.
IV
In determining a reasonable fee to be paid to respondent David
as compensation for his services, on a quantum meruit basis, it
is proper to consider all the facts and circumstances obtaining in
this case particularly the following:
The extent of the services rendered by respondent David should
be considered together with the extent of the services of
petitioners other counsel, Atty. Rosauro Alvarez. It is undisputed
that Atty. Rosauro Alvarez had rendered legal services as
principal counsel for more than six (6) years while respondent
David has rendered legal services as collaborating
442
442
counsel for almost four (4) years. It appears that Atty. Alvarez
started to render legal services after the administrative case
was filed on March 7, 1958 against petitioner Corpus. He
represented petitioner Corpus in the hearing of said case which
was conducted from May 5, 1958 to October 8, 1958, involving
56 sessions, and this resulted in the complete exoneration by

the Investigating Committee of all the charges against the
petitioner. It appears further that after the Monetary Board, in its
resolution of July 20, 1959, declared petitioner Corpus as being
considered resigned from the service, Atty. Alvarez instituted on
August 18, 1958 Civil Case No. 41126 in the Court of First
Instance of Manila for the setting aside of the aforestated
resolution and for the reinstatement of petitioner Corpus. Atty.
Alvarez actively participated in the proceedings.
On the other hand, respondent David entered his appearance as
counsel for petitioner Corpus sometime after the dismissal on
June 14, 1960 of the aforesaid civil case. From the time he
entered his appearance, both he and Atty. Alvarez rendered legal
services to petitioner Corpus in connection with the appeals of
the aforementioned civil case to the Court of Appeals and to the
Supreme Court. The records disclose that in connection with the
appeal from the June 14, 1960 order of dismissal, respondent
David prepared and signed pleadings although the same were
made for and on behalf of Atty. Alvarez and himself. And it is not
far-fetched to conclude that all appearances were made by both
counsels considering that Atty. Alvarez was the principal counsel
and respondent David was the collaborating counsel. Thus, when
the case was called for oral argument on April 20, 1961 before
the Supreme Court, respondent David and Atty. Alvarez
appeared for petitioner Corpus although it was David who orally
argued the case.
When the Supreme Court, in its decision of March 30, 1962,
remanded the case to the lower court for further proceedings, it
was Atty. Alvarez who conducted the presentation of evidence
while respondent David assisted him. The records also reveal
that respondent David prepared and signed for Atty. Alvarez and
himself, certain pleadings, including a memorandum.
443
VOL.98,JUNE30,1980
443
Moreover, after the lower court rendered judgment on June 24,
1963 ordering the reinstatement and payment of back salaries
to petitioner Corpus and awarding him P5,000.00 by way of
attorneys fees, both petitioner Corpus and the respondents in
said case appealed the judgment. At that stage, respondent
David again prepared and signed for Atty. Alvarez and himself,
the necessary pleadings, including two appeal briefs. And in
addition, he made oral arguments in the hearings of motions
filed in the lower court before the records of the case were
forwarded to the appellate court. Furthermore, while it appears
that it was Atty. Alvarez who laid down the basic theory and
foundation of the case of petitioner Corpus in the administrative
case and later in the civil case, respondent David also advanced
legal propositions. Petitioner Corpus contends that said legal
propositions were invariably rejected by the courts. This is,
however, of no moment because the fact remains that
respondent David faithfully rendered legal services for the
success of petitioners case.
The benefits secured for petitioner Corpus may also be
considered in ascertaining what should be the compensation of
respondent David. It cannot be denied that both Atty. Alvarez
and respondent David were instrumental in obtaining substantial
benefits for petitioner Corpus which consisted primarily of his
reinstatement, recovery of back salaries and the vindication of
his honor and reputation. But, note should also be taken of the
fact that respondent David came at the crucial stage when the
case of petitioner Corpus was dismissed by the lower court.
Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus
the sum of P20,000.00 or at most P22,500.00 (T.s.n., Jan. 11,
1967, pp. 34-35; T.s.n., Feb. 10, 1967, pp. 48-49). On the other
hand, petitioner Corpus, after WE suggested on August 15, 1975

that they settle the case amicably has, in his September 15,
1975 pleading filed before this Court (p. 166, rec.), manifested
his willingness to pay P10,000.00 for the services of respondent
David. However, respondent David has not manifested his
intention to accept the offer.
444
444
In his complaint in the instant case, he asked for P75,000.00
as his attorneys fees. The records reveal that petitioner Corpus
actually received only P150,158.50 as back salaries and
emoluments after deducting taxes as well as retirement and life
insurance premiums due to the GSIS. The amount thus claimed
by respondent David represents 50% of the amount actually
received by petitioner Corpus. The lower court, however,
awarded only P30,000.00 and it was affirmed by the Court of
Appeals.
Considering the aforestated circumstances, WE are of the
opinion that the reasonable compensation of respondent David
should be P20,000.00.
V
WE find private respondent Juan T. David and Judge Jose H.
Tecson, Presiding Judge of the Court of First Instance of Manila,
Branch V, guilty of contempt of court.
Respondent David filed on or about September 13, 1978 a
motion with the court a quo for the issuance of a writ of
execution to enforce its decision in Civil Case No. 61802, subject
of the present petition, knowing fully well that it was then still
pending appeal before this Court. In addition, no certification

that the aforesaid decision is already deemed affirmed had as
yet been issued by the Chief Justice pursuant to Section 11,
paragraph 2, Article X of the New Constitution; because
respondent Davids petitions filed with the Supreme Court on
January 31, 1978 and on July 7, 1978 to remand the case to the
trial court for execution and for the issuance of such certification
had not yet been acted upon as the same were still pending
consideration by this Court. In fact, this Court has not as of this
time made any pronouncement on the aforesaid provision of the
New Constitution.
This act of respondent David constitutes disrespect to, as well as
disregard of, the authority of this Court as the final arbiter of all
cases duly appealed to it, especially constitutional questions. It
must be emphasized that as a member of the Philippine Bar he
is required to observe and maintain the
445
VOL.98,JUNE30,1980
445
respect due to the courts of justice and judicial officers (Section
20 (b), Rule 138 of the Revised Rules of Court). Likewise, Canon
1 of the Canons of Professional Ethics expressly provides that: It
is the duty of the lawyer to maintain towards the Courts a
respectful attitude, not for the sake of the temporary incumbent
of the judicial office, but for the maintenance of its supreme
importance. And this Court had stressed that the duty of an
attorney to the courts can only be maintained by rendering no
service involving any disrespect to the judicial office which he is
bound to uphold (Rheem of the Philippines v. Ferrer, 20 SCRA
441, 444 [1967] citing the case of Lualhati v. Albert, 57 Phil. 86,
92 [1932]).
Moreover, this Court takes judicial notice of the fact that herein
respondent David, in the previous case of Integrated
Construction Services, Inc. and Engineering Construction, Inc. v.
Relova (65 SCRA 638 [1975]), had sent letters addressed to the
then Chief Justice Querube C. Makalintal and later to the late
Chief Justice Fred Ruiz Castro, requesting for the issuance of
certification on the basis of the aforementioned provision of the
New Constitution which were not given due consideration. And
knowing this, respondent David should have been more prudent
and cautious in filing with the court a quo any motion for
execution.
Furthermore, there was even a taint of arrogance and defiance
on the part of respondent David in not filing his comment to the
letter-complaint dated October 18, 1978 of petitioner Corpus, as
required by this Court in its November 3, 1978 and December 4,
1978 resolutions which were duly received by him; and instead,
he sent on December 13, 1978 a letter requesting to be excused
from the filing of his comment on the lame excuse that
petitioners letter-complaint was not verified.
On the part of Judge Jose H. Tecson, his presumptuous and
precipitate act of granting the motion for execution of
respondent David likewise constitutes disrespect to, as well as
disregard of, the authority of this Court because he knew for a
fact that the case was still pending appeal as the records thereof
had not yet been remanded to it and that no certification has
been issued by this Court. As a judicial officer, Judge
446
446

Tecson is charged with the knowledge of the fact that this Court
has yet to make a definite pronouncement on Section 11,
paragraph 2, Article X of the New Constitution. Judge Tecson
should know that only the Supreme Court can authoritatively
interpret Section 11 (2) of Article X of the 1973 Constitution. Yet,
Judge Tecson assumed the role of the Highest Court of the Land.
He should be reminded of what Justice Laurel, speaking for the
Court, has said in People v. Vera (65 Phil. 56, 82 [1937]):
A becoming modesty of inferior courts demands conscious
realization of the position that they occupy in the interrelation
and operation of the integrated judicial system of the nation.
It may also be added that the improvident act of respondent
David in filing the motion for execution and the precipitate act of
Judge Tecson in issuing the writ of execution are intriguing as
they invite suspicion that there was connivance between the
two. Respondent David would seem to imply that his claim for
attorneys fees should be given preference over the other cases
now pending in this Court. Certainly, such should not be the
case because there are cases which by their nature require
immediate or preferential attention by this Tribunal, like habeas
corpus cases, labor cases and criminal cases involving death
sentence, let alone cases involving properties and property
rights of poor litigants pending decision or resolution long before
the New Constitution of 1973. Nobility and exemplary
forbearance were expected of Atty. David, who is old and
experienced in the practice of the legal profession, from which
he has derived a great measure of economic well-being and
independence.
Consequently, the filing of the motion for immediate execution
and the issuance of the writ of execution constitute a defiance
and usurpation of the jurisdiction of the Supreme Court. As a
disciplinary measure for the preservation and vindication of the
dignity of this Supreme Tribunal, respondent Atty. Juan T. David
should be REPRIMANDED for his precipitate action of filing a

motion for execution as well as Judge Jose H. Tecson for his
improvident issuance of a writ of execution
447
VOL.98,JUNE30,1980
447
while the case is pending appeal before the Supreme Court, and
a repetition of said acts would be dealt with more severely.
WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY
DIRECTED TO PAY RESPONDENT ATTY. JUAN T. DAVID THE SUM
OF TWENTY THOUSAND (P20,000.00) PESOS AS ATTORNEYS
FEES.
RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON
OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH V, ARE
HEREBY DECLARED GUILTY OF CONTEMPT AND ARE HEREBY
REPRIMANDED, WITH A WARNING THAT REPETITION OF THE
SAME OR SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY.
COSTS AGAINST PETITIONER.
SO ORDERED.
Teehankee (Chairman), Fernandez and Melencio-Herrera, JJ.,
concur.
Guerrero, J., is on leave.
De Castro, J., in the result.
Notes.No valid notice of attorneys lien is made where the
same was filed with the trial court at the time when the record of
the case was in the Court of Appeals. (G. A. Machineries, Inc. vs.
Court of Appeals, 79 SCRA 291).
In every case of disbarment, the burden of proof lies with the

complainant to show that the respondent is guilty of the acts
charged. (Beltran vs. Magsarili, 79 SCRA 655).
A notary public who acted under an honest mistake of fact in
regards the age of a person who executed a power of attorney
before him is exonerated from the disbarment charge. (Soto vs.
Lacre, 77 SCRA 453).
The right to the practice of law is not a natural or constitutional
right, but is in the nature of a privilege or franchise. It is limited
to persons of good moral character with special qualifications
duly ascertained and certified. (In re: Sycip, 92 SCRA 1).
448
448
A counsels fee of P10,000.00 is fair where the adverse party
acted in wanton disregard of respondents rights. (St. Peter
Memorial Park, Inc. vs. Cleofas, 92 SCRA 389).
Attorneys fees awarded by inferior court may be reduced motu
proprio by the appellate court. (Ramos vs. Court of Appeals, 63
SCRA 331).
In impairment of contract, attorneys fees of 10% of the award is
reasonable. (Central Bank of the Philippines vs. Court of Appeals,
63 SCRA 431).
Even if counsel has already an existing right to his attorneys
fees at the time of issuance of the writ of preliminary mandatory
injunction in his favor, said writ will still be vitiated by absence
of showing that the non-issuance thereof would cause
irreparable injury or damage to counsel. (Integrated

Construction Services, Inc. vs. Relova, 65 SCRA 638).
Agreement in written on attorneys fees cannot be reduced by
amicable settlement of private litigants. (Calalang vs. De Borja,
66 SCRA 365).
Claim of attorneys fees is reasonable considering the work still
to be performed on the foreclosure proceedings and the
collection work by judicial proceedings. (De Cortes vs.
Venturanza, 79 SCRA 709). [Corpus vs. Court of Appeals, 98
SCRA 424(1980)]

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G.R. No. 116665. March 20, 1996.

to be paid in case of breach thereof. Here, the municipal trial

The facts are stated in the opinion of the Court.

VOL. 255, MARCH 20, 1996

Under a one (1) year lease contract commencing on July 1, 1992

an ejectment suit are the fair rental value or the reasonable

1 139 SCRA 431.

VOL. 255, MARCH 20, 1996

This is clearly an agreement for liquidated damagesentitling

5 Limjoco v. CA and Robert Tan, 37 SCRA 663, 671.

Where the lease contract entered into by an agent is for more

G.R. No. 61594. September 28, 1990.*

VOL. 190, SEPTEMBER 28, 1990

Contracts; Parties may not contract away applicable provisions

where from the circumstances it is apparent that periods have

VOL. 190, SEPTEMBER 28, 1990

on the matter; it must therefore be presumed that the applicable

On 2 December 1978, petitioner Pakistan International Airlines

Notwithstanding anything to contrary as herein provided, PIA

10. APPLICABLE LAW:

1 Rollo, pp.12 and 17.

VOL. 190, SEPTEMBER 28, 1990

their services as flight stewardesses would be terminated

implementing rules and regulations on regular and casual

1. Petitioner's first contention is that the Regional Director,

VOL. 190, SEPTEMBER 28, 1990

regulations as the Secretary may promulgate x x x" (Italics

the conclusive (juris et de jure) character of the presumption

VOL. 190, SEPTEMBER 28, 1990

notice to the employee or, in lieu of such notice, one-month's

employment shall continue while such actually exists." (Italics

12 G.R. No. L-48494, promulgated 5 February 1990.

VOL. 190, SEPTEMBER 28, 1990

the circumvention of the right of the employee to be secured in

Accordingly, and since the entire purpose behind the

employer and employee dealt with each other on more or less

the employer PIA. For petitioner PIA claims to be authorized to

13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

VOL. 190, SEPTEMBER 28, 1990

laws and regulations cannot be rendered illusory by the parties

14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal

SUPREME COURT REPORTS ANNOTATED

Note.No violation by Labor Arbiter of rules of administrative

G.R. No. 61594. September 28, 1990.*

VOL. 190, SEPTEMBER 28, 1990

Contracts; Parties may not contract away applicable provisions

where from the circumstances it is apparent that periods have

VOL. 190, SEPTEMBER 28, 1990

on the matter; it must therefore be presumed that the applicable

On 2 December 1978, petitioner Pakistan International Airlines

Notwithstanding anything to contrary as herein provided, PIA

10. APPLICABLE LAW:

1 Rollo, pp.12 and 17.

VOL. 190, SEPTEMBER 28, 1990

their services as flight stewardesses would be terminated

implementing rules and regulations on regular and casual

1. Petitioner's first contention is that the Regional Director,

VOL. 190, SEPTEMBER 28, 1990

regulations as the Secretary may promulgate x x x" (Italics

the conclusive (juris et de jure) character of the presumption

VOL. 190, SEPTEMBER 28, 1990

notice to the employee or, in lieu of such notice, one-month's

employment shall continue while such actually exists." (Italics

12 G.R. No. L-48494, promulgated 5 February 1990.