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GSIS V COURT OF APPEALS

DAVIDE; January 29, 1993


FACTS
- Several years back, the Queen's Row Subdivision, Inc. (QRSI) entered into a
construction project agreement with the Government Service Insurance System
(GSIS) by virtue of which the latter agreed to extend a financing loan to the former
for the construction and development of a residential subdivision, comprising some
four hundred ninety-three (4,493) housing units, situated at Molino, Bacoor, Cavite;
these units were to be sold to GSIS members in accordance with the System's
housing program.
- Pursuant to said project agreement, QRSI entered into a construction contract with
private respondent Valencia involving various phases of land development in the
said subdivision. Upon accomplishing and completing his undertaking under the
contract, Valencia demanded payment from QRSI. Despite repeated demands,
however, QRSI refused to pay. Valencia then filed the complaint in the
aforementioned Civil Case No. BCV-78-33, an action for a sum of money with prayer
for the issuance of a writ of preliminary attachment. During the trial of the case,
Valencia, after manifesting that he was not seeking any relief against the personal
funds of petitioner GSIS, proceeded to present his evidence. No evidence was
offered by both the petitioner and QRSI.
- On 25 March 1982, Valencia filed a motion for execution pending appeal. Actually,
no motion for reconsideration or notice of appeal was filed by both QRSI and the
petitioner. Although the motion was granted by the trial court, the writs issued as a
consequence thereof were returned unsatisfied. Thereupon, private respondent
Valencia filed a Motion for Examination of Debtors of the Judgment Debtor. With the
permission of the trial judge, a certain Mr. Valeriano M. Espiritu, a plaintiff in a
separate collection suit against both the petitioner and QRSI, 4 was joined as
movant with Valencia. Acting on said motion, the trial court ordered Mr. Armando
Diaz, Assistant General Manager for Loans and Investments of the GSIS, to appear
and testify in accordance with Sections 38 to 40, Rule 39 of the Rules of Court.
- On 10 November 1982, respondent Valencia filed a petition to cite petitioner in
contempt of court for the latter's failure to comply with the writ of execution. On 15
November 1982, the trial court issued an order directing the petitioner to comply
with the writ of execution and instructing Mr. Diaz to appear on 26 November 1982,
petitioner filed an Urgent Motion for Reconsideration of the 15 November 1982
Order. Pending resolution of this motion, petitioner partially paid respondent
Valencia on 26 November 1982 the amount of ONE HUNDRED FIFTY FOUR
THOUSAND FOUR HUNDRED SEVENTY SIX and 14/100 PESOS (P154,476.14) out of
the retained funds held for the account of QRSI.
- Thereafter, on 20 October 1983, another alias writ of execution was issued by the
trial court.
- On 5 December 1983, respondent Sheriff served upon the petitioner a notice of
garnished upon all monies and credits belonging to QRSI which were under the
control and possession of the petitioner. An answer to the Sheriff's notice was
submitted by the latter stating that the GSIS is not a debtor of QRSI; that it has no
credits, monies or interests belonging to QRSI in its possession or control; and that it
is in fact the biggest creditor of QRSI whose outstanding account as of 9 December
1983 stood at FIFTY EIGHT MILLION TWO HUNDRED SIXTY ONE THOUSAND SEVEN
HUNDRED SEVENTY THREE and 19/100 PESOS (58,261,773.19).

- In its 5 July 1985 Order, the trial court ruled that the petitioner was holding funds
for QRSI; it thus directed the petitioner to pay both Valencia and Valeriano Espiritu
the amount adjudged and covered by the writs of execution after deducting the
payments previously made.
- Petitioner's motion for reconsideration of the said order was denied by the trial
court in its Order of 22 May 1986 on the ground that, inter alia, the claim that QRSI
is obligated to the GSIS was not established by evidence during the trial of the case.
- On 9 June 1986, the trial court again issued an alias writ of execution.
Consequently, notices of garnishment were served by the Sheriff upon the
petitioner and the Philippine National Bank (PNB).
On 13 June 1986, petitioner filed a motion for the reconsideration of the 22 May
1986 Order and on 16 June 1986, it filed a Notice of Appeal Ad Cautelam from the
Orders of 5 July 1985 and 22 May 1986. It thereafter filed its motion to quash the
alias writ of execution.
- In its Order of 10 July 1986, the trial court denied the aforesaid motion for
reconsideration.
- The petitioner thus filed on 18 September 1986 with the Court of Appeals a
petition for certiorari and prohibition to set aside the aforesaid Orders of 5 July
1985, 22 May 1986 and 10 July 1986, as well as the alias writ of execution of 9 June
1986 and the Notices of Garnishment of 10 June 1986. The case was docketed as
CA-G. R. No. 09956.
- In its Decision promulgated on 17 April 1986, the Court of Appeals dismissed the
aforesaid petition principally on the ground that the trial court's Decision of 2 March
1982 "has long become final" as neither QRSI nor the herein petitioner had moved
for its reconsideration or appealed therefrom within the reglementary period. It
considered as "inexcusable" petitioner's contention that it did not need to appeal
the decision because according to the trial court, "defendant GSIS shall not be
personally liable for the obligation of QRSI" because the following portion of the
trial court's decision:
"3. Requiring defendant GSIS to hold whatever amounts it has granted to,
retained and obtained for defendant Queen's Row, and to deliver same to
plaintiff by way of payment of the aforecited amount ordered recovered by
plaintiff, the same to be credited as payment made by defendant Queen's Row. It
is distinctly made clear that defendant GSIS shall not be personally liable for the
said obligation of co-defendant Queen's Row, except, as herein above-ordered;
however, pending payment of the said claim of plaintiff, defendants are ordered
to respect and satisfy the contractor's lien in favor of the plaintiff as provided for
by law."
constitutes:
". . . a final or definitive judgment on the merits from which the party adversely
affected can make an appeal. Said decision imposes an obligation on GSIS which
GSIS has acquiesced to do by its failure to appeal therefrom."
and that:
"Consequently, when GSIS conformed to the decision and allowed it to attain
finality, it in effect admitted that indeed it has in its possession or control credits,
monies, and interests belonging to QRSI and therefore it obliged itself to pay the
latter's obligation to Valencia as in fact, it did make a partial payment thereto in
the amount of P154,476.14 (Annexes "A" and "B", p. 141, Ibid) on November 26,
1982.

- And as pointed out by the private respondent in its Comment to the petition, the
challenged decision has not only become final and executory but has in fact been
partially executed by virtue of the payment on November 26, 1982 by GSIS
pursuant to a writ of execution issued against it out of its retentions. The fact or
payment meanwhile also constitutes as (sic) a waiver of the legal compensation
being invoked by petitioner GSIS."
- Unsatisfied with the said decision, petitioner came to this Court by way of a
petition for review under Rule 45 of the Rules of Court; the case was docketed as G.
R. No. 87980. In the Resolution of 27 November 1989, this Court denied the petition
because of the petitioner's failure to show that the appellate court's decision is not
supported by substantial evidence and that the conclusions therein are contrary to
law and jurisprudence. This Court stated:
"A careful review of the petition shows that it has no merit. The decision of the
respondent Regional Trial Court had long become final before the appeal to the
Court of Appeals was made.
The Argument that Queen's Row owes GSIS certain sums of money was rejected
by the two courts below because it was never raised during the trial and no
evidence was presented on the matter. The respondent court correctly applied
PD 1594 on government infrastructure contracts regarding progress payments
and the withholding of retention money everytime a certain percentage of the
work is completed by the respondent and they have been sold by the GSIS to its
members.
The argument of the petitioner that a separate action should be filed by the
private respondent against GSIS was correctly rejected because the GSIS was a
party to the case from the very start. As pointed out by the respondent, the legal
compensation invoked by the GSIS whereby there would be compensation as
between GSIS and Queen's Row was waived by the fact that GSIS made partial
payments to Valencia."
- The motion to reconsider this Resolution was denied with finality in the Resolution
of 15 January 1990.
- Thereafter, respondent Valencia moved for the issuance of an alias writ or
execution for the amount of FIVE MILLION SEVEN HUNDRED FIFTY NINE THOUSAND
SIX HUNDRED SEVENTY SEVEN and 97/100 PESOS (P5,759,677.97). An opposition
thereto was filed by the petitioner contesting only the amount due and payable,
particularly the interests imposed therein. On 7 June 1990, the trial court issued an
order.
GABRIEL V MONTE DE PIEDAD
LAUREL; April 14, 1941
NATURE
Petition for review on certiorari.
FACTS
- Petitioner was a jewel appraiser in the pawnshop of Monte de Piedad from 1913 to
May 1933.
- On December 1932, he executed a chattel mortgage to secure the payment of
deficiencies caused by his erroneous appraisal of jewels pawned to the appellee,

amounting to toP14,679.07, with 6% interest from said date (paid by installments of


P300/month).
- To recover balance of P11,345.75 of aforementioned sum, Monte de Piedad filed a
civil case against petitioner.
- Petitioner, in his answer, denied all specifications therein and also denied under
oath the genuineness of the execution of the alleged chattel mortgage attached
thereto. He alleged that 1) the chattel mortgage was part of a scheme by
respondent to cover for losses incurred in its pawnshop department; 2) a criminal
action had been instituted against him where said chattel mortgage was presented
but he was acquitted therein; and 3) the said acquittal was a bar to the civil case.
Petitioners' Claim
- By way of cross-complaint, the petitioner alleged 1) that the chattel mortgage was
entered into by E. Marco for and in behalf of Monte de Piedad, without being
authorized to do so by the latter; 2) that he was induced, through false
representation, to sign said mortgage against his will; 3) that the chattel mortgage
was based upon all nonexisting subject matter and nonexisting consideration; and
4) that the chattel mortgage was null and void ab initio.
- By way of counterclaim, the petitioner alleged 1) that the payments made by him
were made through deceit and consisted of P300 monthly deductions to his salary;
2) that he received P356.25 a month as expert appraiser and that he was separated
arbitrarily at the end of May 1933 from plaintiff entity without lawful cause and one
month notice and plaintiff failed to pay him his salaries for May and June 1933, in
accordance with law; and 3) that due to the criminal and the present case, he
suffered damages and losses both materially and in his reputation in the amount of
at least P15,000.00
ISSUE
WON the provisions of the chattel mortgage are contrary to law, morals and public
policy rendering it ineffective and the principal obligation secured by it void
HELD
Ratio Courts should not rashly extend the rule which holds that a contract is void as
against public policy.
Reasoning The term public policy is vague and uncertain in meaning, floating
and changeable in connotation. In absence of express legislation or constitutional
prohibition, a court, in order to declare a contract void as against public policy, must
find that the contract as to the consideration or thing to be done, has a tendency to
injure the public, is against the public good, or contravenes some established
interests of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether of personal liability or
of private property.
The contract at bar does not militate against the public good. Neither does it
contravene the policy of the law nor the established interests of the society.
As to petitioners contention that the chattel mortgage lacks consideration, it was
already established that it was executed voluntarily by the him to guarantee
deficiencies resulting from his erroneous appraisal of the jewels. A preexisting
admitted liability is a good consideration for a promise. The fact that the bargain is
a hard one will not deprive it of its validity.
A contract is to be judged by its character, and courts will look to the substance and
not to the mere form of the transaction. The freedom of contract is both a

constitutional and statutory right and to uphold this right, courts should move with
all the necessary caution and prudence in holding contracts void.
Disposition The petition is hereby dismissed and the judgment sought to be
reviewed is affirmed, with costs against the petitioner.
PAKISTAN INTERNATIONAL AIRLINES CORPORATION v. OPLE
FELICIANO; September 28, 1990
NATURE
Petition for certiorari to review the order of the Minister of Labor
FACTS
- On 2 December 1978, petitioner Pakistan International Airlines Corporation (PIA), a
foreign corporation licensed to do business in the Philippines, executed in Manila
two separate contracts of employment, one with private respondent Farrales and
the other with private respondent Mamasig. The contracts provided in pertinent
portion as follows:
"5. DURATION OF EMPLOYMENTAND PENALTY
This agreement is for a period of three years, but can be extended by the mutual
consent of the parties.
xxxxxxxxx
6. TERMINATION
xxxxxxxxx
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.
xxxxxxxxx
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 year and four months prior to the expiration of the
contracts of employment, PIA sent separate letters both dated 1 August 1980 to
private respondents Farrales and Mamasig advising both that their services as flight
attendants would be terminated "effective 1 September 1980, conformably to
clause 6 (b) of the employment agreement [they had] executed with [PIA]."
- On 9 September 1980, private respondents Farrales and Mamasig jointly instituted
a complaint 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, both parties were ordered to submit their
position papers and evidence supporting their respective positions. The PIA
submitted its position paper, but no evidence, and there claimed that both private
respondents were habitually absent and 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 Estrella ordered the
reinstatement of private respondents with full backwages or, in the alternative, the
payment to them of the amounts equivalent to their salaries for the remainder of
the fixed three-year period of their employment contracts; the payment to private
respondent Mamasig of an amount equivalent to the value of a round trip ticket
Manila-USA-Manila; and payment of a bonus to each of the private respondents
equivalent to their one-month salary. The Order stated that 1) private respondents
had attained the status of regular employees after they had rendered more than a
year of continued service; 2) the stipulation limiting the period of the employment
contract to three years was null and void as violative of the provisions of the Labor
Code and its implementing rules and regulations on regular and casual employment
and, 3) 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. 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
''.
- In the instant Petition for Certiorari, PIA assails the award of the Regional Director
and the Order of the Deputy Minister for having been issued in disregard and in
violation of Petitioner's rights under the employment contracts with private
respondents. 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. Paragraph 5 of that contract set a term of three 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.
ISSUE
WON the principle of party autonomy in contracts is absolute
HELD
NO
- A contract freely entered into should, of course, be respected 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, counter-balancing the principle of autonomy of contracting parties is
the equally general rule that provisions of applicable law, especially provisions
relating to matters affected with public policy, are deemed written into the contract.
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.
- Both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was inconsistent with Articles 280 and
281 of the Labor Code as they existed at the time the contract of employment was
entered into, and hence refused to give effect to said paragraph 5. These Articles
are 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 he 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., 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. 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 PIA and private respondents, we consider that those provisions must be
read together and when so read, the fixed period of three 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-year period ostensibly granted by paragraph 5 by rendering such
period in effect a facultative one at the option of the employer PIA. For 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 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 years, and thus to escape
completely the thrust of Articles 280 and 281 of the Labor Code.
- PIA cannot take refuge in paragraph 10 of its employment agreement which
specifies, firstly; the law of Pakistan as the applicable law of the agreement and,
secondly, lays the venue for settlement of any dispute arising out of or in
connection with the agreement "only [in] courts of Karachi, Pakistan". The first
clause of paragraph 10 cannot be invoked to prevent the application of Philippine
labor laws and regulations to the subject matter of this case, i.e., the employeremployee 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 PIA 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 contracts 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.
CUI V ARELLANO UNIVERSITY
CONCEPCION; May 30, 1961
NATURE
Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of
Manila, absolving defendant Arellano University from plaintiff's complaint, with costs
against the plaintiff, and dismissing defendant's counterclaim, for insufficiency of
proof thereon.
FACTS
- Before the school year 1948-1949 Cui took up a preparatory law course in Arellano
University, after which he enrolled in the College of Law of said university starting
school year 1948-1949.

- Plaintiff took up his law studies in the defendant university up to and including the
first semester of the fourth year. During all the school years in which plaintiff was
studying law in defendant law college, Francisco R. Capistrano, brother of the
mother of plaintiff, was the dean of the College of Law and legal counsel of the
defendant university.
- Cui enrolled for the last semester of his law studies in the defendant university
but failed to pay his tuition fees.
- Since his uncle, Dean Capistrano, severed his connection with Arellano University
and has accepted the deanship and chancellorship of the College of Law of Abad
Santos University, Cui left Arellano University and enrolled for the last semester of
his fourth year law in Abad Santos. Cui graduated from Abad Santos University.
- Plaintiff, during all the time he was studying law in Arellano University, was
awarded scholarship grants, for scholastic merit, so that his semestral tuition fees
were returned to him after the end of each semester. From Cuis first semester of his
first year law up to and including the first semester of his last year in Arellano, the
total amount of tuition fees he paid, which was refunded to him, is P1,033.87.
- Before being awarded scholarship grants, Cui was made to sign the following
contract, covenant and agreement:
'In consideration of the scholarship granted to me by the University, I hereby waive
my right to transfer to another school without having refunded to the University
(defendant) the equivalent of my scholarship cash. (Sgd.) EMETERIO CUI'."
- Aug 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of
1949, which reads in part:
"1. some schools offer full or partial scholarships to deserving students. Such
inducements should be encouraged. But to stipulate the condition that such
scholarships are good only if the students concerned continue in the same school
nullifies the principle of merit in the award of these scholarships.
"2. such scholarships are merited and earned. The amount in tuition and other
fees corresponding to these scholarships should not be subsequently charged to the
recipient students when they decide to quit school or to transfer to another
institution.
"3 Several complaints have actually been received from students who have enjoyed
scholarships, full or partial, to the effect that they could not transfer to other
schools since their credentials would not be released unless they would pay the fees
corresponding to the period of the scholarships. Where the Bureau believes that the
right of the student to transfer is being denied on this ground, it reserves the right
to authorize such transfer."
- After graduating from Abad Santos University, he applied to take the bar
examinations. He petitioned Arellano University to provide him his transcript of
records. The defendant refused until after Cui had paid back the P1,033.87.
- Cui asked the Bureau of Private Schools to pass upon the issue on his right to
secure the transcript of his record in Arellano University, without being required to
refund P1,033.87. The Bureau of Private Schools upheld the position taken by the
plaintiff and so advised the defendant. This notwithstanding, Arellano University
refused to issue transcript of record, unless refund were made, and even
recommended to said Bureau that it issue a written order directing the defendant to
release said transcript of record, "so that the case may be presented to the court for
judicial action". Cui was thus constrained to pay P1,033.87, in order that he could
take the bar examinations in 1953.

- Defendant claims that the provisions of its contract with plaintiff are valid and
binding, and that the memorandum above-referred to is null and void.
ISSUE
WON the provision of the contract between plaintiff and defendant, whereby Cui
waived his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid
HELD
NO. The stipulation in question is contrary to public policy and hence, null and void.
- In order to declare a contract void as against public policy, a court must find that
the contract as to consideration or the thing to be done, contravenes some
established interest of society, or is inconsistent with sound policy and good morals,
or tends clearly to undermine the security of individual rights. (Gabriel vs. Monte de
Piedad)
- The Courts decision was mainly a quotation of the letter of Bureau of Private
Schools, which the Court held as correctly argued. It says in part:
- If Arellano University understood clearly the real essence of scholarships and the
motives which prompted the Bureau to issue Memorandum No. 38, s. 1949, it
should have not entered into a contract of waiver with Cui on September 10, 1951,
which is a direct violation of our Memorandum and an open challenge to the
authority of the Director of Private Schools because the contract was repugnant to
sound morality and civic honesty.
- Scholarships are awarded in recognition of merit, not to keep outstanding students
in school to bolsters prestige. In the understanding of that university, scholarships
award is a business scheme designed to increase the business potential of an
educational institution. Thus conceived it is not only inconsistent with sound policy
but also good morals.
- Morals, as defined by Manresa, is good customs; those generally accepted
principles of morality which have received some kind of social and practical
confirmation.
- The practice of awarding scholarships to attract students and keep them in school
is not good customs nor has it received some kind of social and practical
confirmation except in some private institutions as in Arellano University.
Disposition The decision appealed from is reversed, and another one shall be
entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with
interest thereon at the legal rate from September 1, 1954, date of the institution of
this case, as well as the costs, and dismissing defendant's counterclaim.
ARROYO V BERWIN
CARSON; March 3, 1917
FACTS
- Both plaintiff and defendant are residents of the municipality of Iloilo
- Defendant is a procurador judicial in the law office of the Attorney John Bordman
and is duly authorized by the court to practice in justice of the peace courts of the
Province of Iloilo
Defendant represented Marcela Juaneza in the justice of the peace court of Iloilo in
the proceeding for theft prosecuted by the plaintiff Ignacio Arroyo

- On August 14, 1914, the defendant requested the plaintiff to agree to dismiss the
said criminal proceeding and stipulated with the plaintiff that his client Marcela
Juaniza would recognize the plaintiffs ownership in the land situated on Calle San
Juan of the municipality of Iloilo where his said client ordered the cane cut, which
land and which cut cane are referred to in the cuase for theft. Furthermore, the
defendant agreed that the plaintiff should obtain a Torrens title to the said land
during the next term of the court and that defendants client Marcel Juaneza would
not oppose the application for registration to be filed by the said applicant provided
that the plaintiff would ask the prosecuting attorney to dismiss the said proceedings
filed against Marcela Juaneza and Alejandro Castro for the crime of theft
- Plaintiff on his part complied with the agreement
- In exchange, the defendant did not comply with the agreement
- Plaintiff delivered to the defendant a written agreement for signature of the said
Marcel Juaneza attesting that the defendants said client recognized the plaintiffs
ownership of the land and that she would not oppose the plaintiffs application for
registration
- The defendant has not returned to the plaintiff the said written agreement
notwithstanding the demands of the latter
ISSUE
WON the agreement between the plaintiff and the defendant had valid stipulations
HELD
NO
It was contrary to public policy. The SC affirmed the decision of the trial judge
dismissing the complaint on the ground of the illegality of the consideration of the
alleged contract. An agreement by the owner of stolen goods to stifle the
prosecution of the person charged with the theft, for a pecuniary or other valuable
consideration, is manifestly contrary to public policy and the due administration of
justice.
Article 1255, CC:
- The contracting parties may make the agreement and establish the clauses and
conditions which they may deem advisable, provided they are not in contravention
of law, morals, or public order.
Article 1275, CC:
- Contracts without consideration or with an illicit one have no effect whatsoever. A
consideration is illicit when it is contrary to law and good morals.

FILIPINAS COMPAIA DE SEGUROS, ET AL. V MANDANAS


CONCEPCION; June 20, 1966
NATURE
Special Civil Action For Declaratory Relief
FACTS
- 39 non-life insurance companies instituted this action in the CFI of Manila, to
secure a declaration of legality of Article 22 of the Constitution of the Philippine
Rating Bureau, of which they are members, inasmuch as respondent Insurance

Commissioner (who regulates the business concerned and of the transactions


involved therein) assails its validity upon the ground that it constitutes an illegal or
undue restraint of trade.
- Subsequent to the filing of the petition, 20 other non-life insurance companies,
likewise, members of said Bureau were allowed to intervene in support of the
petition.
- CFI- rendered judgment declaring that the aforementioned Article 22 is neither
contrary to law nor against public policy; it may be lawfully observed and enforced.
- Hence this appeal by respondent Insurance Commissioner, who insists that the
Article in question constitutes an illegal or undue restraint of trade and, hence, null
and void.
- In said Article 22, members of the Bureau "agree not to represent nor to effect
reinsurance with, nor to accept reinsurance from any company, body, or
underwriter, licensed to do business in the Philippines not a member in good
standing of the Bureau", and so the said provision is illegal as a combination in
restraint of trade according to Mandanas.
ISSUE
WON the purpose or effect of Art 22 of the Constitution of the Philippine Rating
Bureau is illegal as a combination in restraint of trade
HELD
Nothing is unlawful, or immoral, or unreasonable, or contrary to public policy either
in the objectives thus sought to be attained by the Bureau, or in the means availed
of to achieve said objectives, or in the consequences of the accomplishment
thereof.
- The purpose of said Article 22 is not to eliminate competition, but to promote
ethical practices among non-life insurance companies, although, incidentally it may
discourage, and hence, eliminate unfair competition, through underrating, which in
itself is eventually injurious to the public. Salvador Estradas (Chairman of the
Bureau) testimony1 shows that the limitation upon reinsurance contained in the
aforementioned Article 22 does not affect the public at all, for, whether there is
reinsurance or not, the liability of the insurer in favor of the insured is the same.
Besides, there are sufficient foreign reinsurance companies operating in the
Philippines from which non-members of the Bureau may secure reinsurance. What is

He declared that the purpose of Article 22 is to maintain a high degree or standard of ethical practice, so that insurance
companies may earn and maintain the respect of the public, because the intense competition between the great number of non-life
insurance companies operating in the Philippines is conducive to unethical practices, oftentimes taking the form of underrating; that
to achieve this purpose it is highly desirable to have cooperative action between said companies in the compilation of their total
experience in the business, so that the Bureau could determine more accurately the proper rate of premium to be charged from the
insured;
that, several years ago, the very Insurance Commissioner had indicated to the Bureau the necessity of doing something to combat
underrating, for, otherwise, he would urge the amendment of the law so that appropriate measures could be taken therefore by his
office;
that much of the work of the Bureau has to do with rate-making and policy-wording;
that rate-making is actually dependent very much on statistics;
that, unlike life insurance companies, which have tables of mortality to guide them in the fixing of rates, non-life insurance
companies have, as yet, no such guides;
that, accordingly, non-life insurance companies need an adequate record of losses and premium collections that will enable them to
determine the amount of risk involved in each type of risk and, hence, to determine the rates or premiums that should be charged in
insuring every type of risk;
that this information cannot be compiled without full cooperation on the part of the companies concerned, which cannot be
expected from non-members of the Bureau, over which the latter has no control;
and that, in addition to submitting information about their respective experience, said Bureau members must, likewise, share in the
rather appreciable expenses entailed in compiling the aforementioned data and in analyzing the same

more, whatever the Bureau may do in the matter of rate-fixing is not decisive
insofar as the public is concerned, for no insurance company in the Philippines may
charge a rate of premium that has not been approved by the Insurance
Commissioner as per Circular No. 54.
- In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau
applied for the license required therein, and submitted with its application a copy of
said Constitution.
On April 28, 1954, respondent's office issued to the Bureau the license applied for,
certifying not only that it had complied with the requirements of Circular No. 54,
but, also, that the license empowered it "to engage in the making of rates or policy
conditions to be used by insurance companies in the Philippines". - Subsequently,
thereafter, the Bureau applied for and was granted yearly the requisite license to
operate in accordance with the provisions of its Constitution.
- During all this time, respondent's office did not question, but impliedly
acknowledged, the legality of Article 22. It was not until March 11, 1960, that it
assailed its validity.
Reasoning
- The test on whether a given agreement constitutes an unlawful machination or a
combination in restraint of trade:
Ferrazini vs. Gsell- is, whether, under the particular circumstances of the case and
the nature of the particular contract involved in it, the contract is, or is not,
unreasonable.
This view was reiterated in Ollendorf vs. Abrahamson and Red Line Transportation
Co. vs. Bachrach Motor Co. (67 Phil. 77), in the following language:
...The general tendency, we believe, of modern authority, is to make the test
whether the restraint is reasonably necessary for the protection of the contracting
parties. If the contract is reasonably necessary
to protect the interest of the
parties, it will be upheld.
xxx
xxx
xxx
...we adopt the modern rule that the validity of restraints upon trade or
employment is to be determined by
the intrinsic reasonableness of the restriction
in each case, rather than by any fixed rule, and that such restrictions
may
be
upheld when not contrary to the public welfare and not greater than is necessary to
afford a fair and reasonable protection to the party in whose favor it is
imposed. (Ollendorf vs. Abrahamson, 38 Phil. 585.)
...The test of validity is whether under the particular circumstances of the
case and considering the nature
of the particular contract involved, public
interest and welfare are not involved and the restraint is not only reasonably
necessary for the protection of the contracting parties but will not affect the public
interest or service. (Red Line Transportation Co. vs. Bachrach Motor Co.)
Disposition The decision appealed from should be, as it is hereby AFFIRMED,
without costs.
BUSTAMANTE V ROSEL
PARDO; November 29, 1999
NATURE
Petition for review on certiorari to annul the decision of CA reversiong and setting
aside the decision of the RTC of QC

FACTS
- March 8, 1987 Norma Rosel entered into a loan agreement with Natalia
Bustamante and her late husband
Ismael. The contract indicated that the
Bustamantes wanted to borrow P100,000 for a period of 2 years conted from March
1, 1987 with an interest of 18% per annum. This was guaranteed by a collateral 79
sqm parcel of land inclusive of the apartment built on it. In the event that the
borrowers fail to pay, the lender has the option to buy or purchase the collateral for
P200,000 inclusive of the borrowed money and interest.
- When the loan was about to mature, Rosel proposed to buy the land at the set
price in the loan agreement. The Bustamantes refused to sell and requested for
extension of time and offered to sell another residential lot in Proj 8, QC with the
principal loan and interest to be paid as down payment. Rosel refused to extend the
payment of the loan and to accept the other lot offered as it was occupied by
squatters and that the Bustamantes were not the owners of the land but were mere
land developers entitled to the subdivision shares or commission if and when they
developed at least of the subdivision area.
- March 1, 1989 petitioners tendered payment of the loan to respondents, which
the latter refused to accept, insisting on petitioners signing of a prepared deed of
absolute sale of the collateral.
- February 28, 1990 the respondents filed with the RTC of QC for specific
performance with consignation against petitioner and her spouse
- March 4, 1990 respondents sent a demand letter asking petitioner to sell the
collateral pursuant to the option to buy in the loan agreement.
- March 5, 1990 petitioner filed in the RTC a petition for consignation and
deposited P153,000 with the City Treasurer of QC on August 10, 1990
- When petitioner refused to sell the collateral and barangay conciliation failed,
respondents consigned the amount of P47,500.00 with the trial court. Respondents
considered the principal loan of P100,000.00 and 18% interest per annum thereon,
which amounted to P52,500.00. The principal loan and the interest taken together
amounted to P152,500.00, leaving a balance of P 47,500.00.10
- TC denied the plaintiffs prayer for the defendants execution of the Deed of Sale
to convey the collateral in the plaintiffs favor. It also ordered the defendants to pay
the loan with interest at 18% per annum commencing on March 2, 1989 up to and
until August 10, 1990, when defendants deposited the amount with the Office of the
City Treasurer.
- July 8, 1996 CA reversed the ruling of the RTC
- January 20, 1997 Court required respondents to comment on the petition, which
the respondents filed February 27.
- February 9, 1998 SC resolved to deny the petition on the ground that there was
no reversible error in the decision of the CA in ordering the execution of the
necessary deed of sale in conformity with the stipulated agreement.
- The petitioner filed a motion for reconsideration of the denial alleging that the real
intention of the parties to the loan was to put up the collateral as guarantee similar
to an equitable mortgage according to Article 1602 of the Civil Code.
- Respondents filed an opposition to petitioner's motion for reconsideration. They
contend that the agreement between the parties was not a sale with right of repurchase, but a loan with interest at 18% per annum for a period of two years and if
petitioner fails to pay, the respondent was given the right to purchase the property
or apartment for P200,000.00, which is not contrary to law, morals, good customs,
public order or public policy.

ISSUES
1. WON petitioner failed to pay the loan at its maturity date
2. WON the stipulation in the loan contract was valid and enforceable.
HELD
1. NO, the petitioner did not fail to pay the loan.
Reasoning The petitioner tendered payment to settle the loan which respondents
refused to accept, insisting that petitioner sell to them the collateral of the loan.
2. NO, the stipulation in the loan is void as it constitutes pactum commisorium.
Reasoning We note the eagerness of respondents to acquire the property given as
collateral to guarantee the loan. The sale of the collateral is an obligation with a
suspensive condition. It is dependent upon the happening of an event, without
which the obligation to sell does not arise. Since the event did not occur,
respondents do not have the right to demand fulfillment of petitioner's obligation,
especially where the same would not only be disadvantageous to petitioner but
would also unjustly enrich respondents considering the inadequate consideration
(P200,000.00) for a 70 square meter property.
- Although the contract has the force of law, an exception is Art 1306 2. There
revealed a subtle intention of the creditor to acquire the property given as security
for the loan, which is embraced in the concept of pactum commissorium.
- Elements of pactum commissorium: (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (2) there should be
a stipulation for automatic appropriation by the creditor of the thing mortgaged in
case of non-payment of the principal obligation within the stipulated period.
Disposition WHEREFORE, we GRANT petitioner's motion for reconsideration and
SET ASIDE the Court's resolution of February 9, 1998. We REVERSE the decision of
the Court of Appeals
FLORENTINO V ENCARNACION, SR.
GUERRERO; September 30, 1977
NATURE
APPEAL from the decision of the Court of First Instance of Ilocos Sur. Arciaga, J.
FACTS
- On May 22, 1964, the petitioners-appellants and the petitioners-appelleed filed
with CFI an application for the registration under Act 496 of a parcel of agricultural
land located at Cabugao, Ilocos Sur. The application alleged among other things that
the applicants are the common and pro-indiviso owners in fee simple of the said
land with the improvements existing thereon; that to the best of the knowledge and
belief, there is no mortgage, hen or encumbrance of any kind whatsoever affecting
said land, nor any other person having any estate or interest thereon, legal or
equitable, remainder, reservation at in expectancy; that said applicants had
acquired the aforesaid land thru and by inheritance from their predecessors in
interest, their aunt, Doa Encarnacion Florentino, and Angel Encarnacion acquired
their respective shares of the land thru purchase from the original heirs, Jesus,

2 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

Caridad, Lourdes and Dolores, all surnamed Singson, on one hand and from
Asuncion Florentino on the other.
- After due notice and publication, the Court set the application for hearing. Only the
Director of Lands filed an opposition but was later withdrawn so an order of general
default was issued. Upon application of the applicants, the Clerk of Court was
commissioned and authorized to receive the evidence of the applicants and ordered
to submit the same for the Court's proper resolution.
- Exhibit O-1 embodied in the deed of extrajudicial partition (Exhibit O), which states
that with respect to the land situated in Barrio Lubong, Dacquel, Cabugao, Ilocos
Sur, the fruits thereof shall serve to defray the religious expenses, was the source of
contention in this case (Spanish text). Florentino wanted to include Exhibit O-1 on
the title but the Encarnacions opposed and subsequently withdrawn their
application on their shares, which was opposed by the former.
- The Court after hearing the motion for withdrawal and the opposition issued an
order and for the purpose of ascertaining and implifying that the products of the
land made subject matter of this land registration case had been used in answering
for the payment of expenses for the religious functions specified in the Deed of
Extrajudicial Partition which was no registered in the office of the Register of Deeds
from time immemorial; and that the applicants knew of this arrangement and the
Deed of Extrajudicial Partition of August 24, 1947, was not signed by Angel
Encarnacion or Salvador Encarnacion, Jr.
- CFI: The self-imposed arrangement in favor of the Church is a simple donation, but
is void since the donee has not accepted the donation and Salvador Encarnacion, Jr.
and Angel Encarnacion had not made any oral or written grant at all so the court
allowed the religious expenses to be made and entered on the undivided shares,
interests and participations of all the applicants in this case, except that of Salvador
Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion."
- The petitioners-appellants filed their Reply to the Opposition reiterating their
previous arguments, and also attacking the jurisdiction of the registration court to
pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such
is litigable only in an ordinary action and not proper in a land registration
proceeding.
- The Motion for Reconsideration and of New Trial was denied for lack of merit, but
the court modified in highlighting that the donee Church has not showed its clear
acceptance of the donation, and is the real party of this case, not the petitionersappellants
ISSUES
1. WON the lower own erred in concluding that the stipulation embodied in Exhibit O
on religious expenses is just an arrangement stipulation, or grant revocable at the
unilateral option of the co-owners
1.1 WON the lower court erred in finding and concluding that the encumbrance or
religious expenses embodied in Exhibit O, the extrajudicial partition between the coheirs, is binding only on the applicants Miguel Florentino, Rosario Encarnacion de
Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino,
Remedios Encarnacion and Severina Encarnacion
2. WON the lower court erred in holding that rule that the petitioners-appellants are
not the real parties in interest, but the Church

3. WON the lower court as a registration court erred in passing upon the merits of
the encumbrance (Exhibit O-1) as the same was never put to issue and as the
question involved is an adjudication of rights of the parties
HELD
1. YES
The court erred in concluding that the stipulation is just an arrangement stipulation.
It cannot be revoked unilaterally.
Ratio The contract must bind both parties, based on the principles (1) that
obligation wising from contracts have the force of law between the contracting
parties; and (2) that them must be mutuality between the parties band on their
essential equality, to which is repugnant to have one party bound by the contract
leaving the other free therefrom.
Reasoning The stipulation (Exhibit O-1) is part of an extrajudicial partition (Exh. O)
duly agreed and signed by the parties, hence the same must bind the contracting
parties thereto and its validity or compliance cannot be left to the will of one of
them
- The said stipulation is a stipulation pour autrui. A stipulation pour autrui is a
stipulation in favor of a third person conferring a clear and deliberate favor upon
him, and which stipulation is merely a part of a contract entered into by the parties,
neither of whom acted as agent of the third person, and such third person may
demand its fulfillment provided that he communicates his acceptance to the obligor
before it is revoked.
-Requisites: (1) that the stipulation in favor of a third person should be a part, not
the whole, of the contract, (2) that the favorable stipulation should not be
conditioned or compensated by any kind of obligation whatever; and (3) neither of
the contracting parties bears the legal representation or authorization of third party.
-Valid stipulation pour autrui: it must be the purpose and intent of the
stipulating parties to benefit the third person, and it is not sufficient that the third
person may be incidentally benefited by the stipulation. The intention of the parties
may be disclosed by their contract. It matters not whether the stipulation is in the
nature of a gift or whether there is an obligation owing from the promise to the third
person. That no such obligation exists may in some degree assist in determining
whether the parties intended to benefit a third person.
-The evidence on record shows that the true intent of the parties is to confer a direct
and material benefit upon the Church.
- While a stipulation in favor of a third person has no binding effect in itself before
its acceptance by the party favored, the law does not provide when the third person
must make his acceptance. As a rule, there is no time limit; such third person has all
the time until the stipulation is revoked. Here, We find that the Church accepted
(implicitly) the stipulation in its favor before it is sought to be revoked by some of
the coowners.
1.1 YES
The court should have found the other co-owners to be bound by the extrajudicial
partition.
Ratio Being subsequent purchasers, they are privies or successors in interest; it is
axiomatic that contracts are enforceable against the parties and their privies.
Reasoning The co-owners are shown to have given their conformity to such
agreement when they kept their peace in 1962 and 1963, having already bought
their respective shares of the subject land but did not question the enforcement of

the agreement as against them. They are also shown to have knowledge of Exhibit
O-1 as they had admitted in a Deed of Real Mortgage executed by them.
2. YES
Ratio That one of the parties to a contract pour autrui is entitled to bring an action
for its enforcement or to prevent its breach is too clear to need any extensive
discussion. Upon the other hand, that the contract involved contained a stipulation
pour autrui amplifies this settled rule only in the sense that the third person for
whose benefit the contract was entered into may also demand its fulfillment
provided he had communicated his acceptance thereof to the obligor before the
stipulation in his favor is revoked.
Reasoning The annotation of Exhibit O-1 on the face of the title to be issued in
this case is merely a guarantee of the continued enforcement and fulfillment of the
beneficial stipulation.
3. NO
Ratio The otherwise rigid rule that the jurisdiction of the Land Registration Court,
being special and limited in character and proceedings thereon summary in nature,
does not extend to cases involving issues properly litigable in other independent
suits or ordinary civil actions
Reasoning The peculiarity of the exceptions is based not alone on the fact that
Land Registration Courts are likewise the same Courts of First Instance, but also the
following premises: (1) Mutual consent of the parties or their acquiescence in
submitting the aforesaid issues for determination by the court in the registration
proceedings; (2) Full opportunity given to the parties in the presentation of their
respective sides of the issues and of the evidence in support thereto; (3)
Consideration by the court that the evidence already of record is sufficient and
adequate for rendering a decision upon these issues.
-Also, the case has been languishing in our courts for thirteen long years. To require
that it be remanded to the lower own for another proceeding under its general
jurisdiction is not in consonance with our avowed policy of speedy justice.
Disposition IN VIEW OF THE FOREGOING, the decision of the Court of First
Instance of Ilocos Sur in Land Registration Case No. N-310 is affirmed but modified
to allow the annotation of Exhibit O-1 as an encumbrance on the face of the title to
be finally issued in favor of all the applicants (herein appellants and herein
appellees) in the registration proceedings below.

COQUIA V FIELDMENS INSURANCE CO., INC.


CONCEPCION; November 29, 1968
NATURE
Appeal from a decision of the Court of First Instance of Manila
FACTS
- On Dec. 1, 1961, The Fieldmens Insurance Co. issued in favor of the Manila Yellow
Taxicab Co. a common carrier accident insurance policy, covering the period from
Dec. 1, 1961 to Dec. 1, 1962. It was stipulated in said policy that the Company will
indemnify the Insured in the event of accident against all sums which the Insured
will become legally liable to pay for the death or bodily injury to any fare-paying
passenger including the driver, conductor and/or inspector who is riding in the

motor vehicle insured at the time of accident or injury. On Feb. 10, 1962, as a
result of a vehicular accident in Pangasinan, Carlito Coquia, driver of one of the taxi
cabs covered by said policy, was killed. The Insured filed therefor a claim for
P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of
compromise. The Insured rejected the same and made a counter-offer for
P4,000.00, but the Company did not accept it. Because of the failure of the
Company and the Insured to agree with respect to the amount to be paid to the
heirs of the driver, the Insured and the parents of Carlito, the Coquias, finally
brought this action against the Company to collect the proceeds of the
aforementioned policy. The trial court rendered a decision sentencing the Company
to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by
the Company, which contends that plaintiffs have no cause of action because: 1)
the Coquias have no contractual relation with the Company; and 2) the Insured has
not complied with the provisions of the policy concerning arbitration based on Sec
17 of the policy reading: If any difference or dispute shall arise with respect to the
amount of the Company's liability under this Policy, the same shall be referred to
the decision of a single arbitrator to be agreed upon by both parties or failing such
agreement of a single arbitrator, to the decision of two arbitrators, one to be
appointed in writing by each of the parties within one calendar month after having
been required in writing so to do by either of the parties and in case of
disagreement between the arbitrators, to the decision of an umpire who shall have
been appointed in writing by the arbitrators before entering on the reference and
the costs of and incident to the reference shall be dealt with in the Award. And it is
hereby expressly stipulated and declared that it shall be a condition precedent to
any right of action or suit upon this Policy that the award by such arbitrator,
arbitrators or umpire of the amount of the Company's liability hereunder if disputed
shall be first obtained.
ISSUE
WON the Coquias have cause of action
HELD
YES
Ratio If a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation.
Reasoning Although in general, only parties to a contract may bring an action
based thereon, this rule is subject to exceptions, one of which is found in the second
paragraph of Art. 1311 of the Civil Code of the Philippines. This is but a restatement
of a well-known principle concerning contracts pour autrui, the enforcement of
which may be demanded by a third party for whose benefit it was made, although
not a party to the contract, before the stipulation in his favor has been revoked by
the contracting parties. The policy in question provides, inter alia, that the Company
will indemnify any authorized driver who is driving the motor vehicle of the Insured
and, in the event of death of said driver, the Company shall, likewise, indemnify his
personal representatives. Thus, the policy is typical of contracts pour autrui, this
characteristic being made more manifest by the fact that the deceased driver, paid
fifty percent of the premiums, which were deducted from his weekly commissions.
Under these conditions, the Coquias who, admittedly are the sole heirs of the
deceased have a direct cause of action against the Company, and, since they

could have maintained this action themselves, without the assistance of the
Insured, it goes without saying that they could and did properly join the latter in
filing the complaint hereon. The second defense cannot stand because none of the
parties invoked this section, or made any reference to arbitration, during the
negotiations preceding the institution of the present case. Their aforementioned
acts or omissions had the effect of a waiver of their respective right to demand an
arbitration. The test for determining whether there has been a waiver in a particular
case is as follows: "Any conduct of the parties inconsistent with the notion that they
treated the arbitration provision as in effect, or any conduct which might be
reasonably construed as showing that they did not intend to avail themselves of
such provision, may amount to a waiver thereof and estop the party charged with
such conduct from claiming its benefits".
Disposition Decision appealed from is affirmed.

INTEGRATED PACKAGING CORP V CA, FIL-ANCHOR PAPER CO, INC.


QUISUMBING; June 8, 2000
NATURE
Petition to review the CA decision of April 20, 1994, reversing the judgment of the
RTC in an action for recovery of sum of money filed by private respondent against
petitioner
FACTS
- May 5, 1978: Petitioner and private respondent executed an order agreement:
respondent bound itself to deliver 3,450 reams of printing paper (coated, 2 sides
basis, 80 lbs, short grain) under the following schedule:
May and June 1978: 450 reams at P290/ream
August and September: 450 reams at P290/ream
January 1979: 575 reams at P307.20/ream
March: 575 reams at P307.20/ream
July: 575 reams at P307.20/ream
October: 575 at P307.20/ream
S.O.P. of parties: materials were to be paid w/in 30-90 days from delivery
- June 7, 1978: petitioner entered into contract with Philacor to print 3 volumes of
books, 1 volume by November, 1978; another by November, 1979, and the last one
by November, 1980.
- July 30, 1979: respondent had delivered to petitioner 1,097 reams out of the
3,450.
- Petitioner alleged it wrote private respondent that further delay in delivering the
balance would greatly prejudice petitioner
- June, 1980 July, 1981: respondent delivered various quantities amounting to
P766,101.70.
- Petitioner had difficulties paying
- Respondent made a formal demand for petitioner to settle the outstanding
account
- Petitioner made partial payments of P97,200.00 applied to its back accounts
-Petitioner entered into additional printing contract with Philacor but unfortunately
failed to comply with its contract

- Thus, Philacor demanded compensation from petitioner for the delay and damage
suffered
- August 14, 1981: respondent filed with RTC a collection suit against petitioner for
the sum of P766,101.70, the unpaid purchase price of printing paper bought by
petitioner on credit
- Petitioner denied the allegations of complaint. Counterclaim: that private
respondent was able to deliver only 1,097 reams, which was short of 2,875 reams,
in total disregard of their agreement; that private respondent failed to deliver
despite demand therefore, hence petitioner suffered damages and failed to realize
expected profits; and that their complaint was prematurely filed
- respondent submitted a supplemental complaint, alleging that petitioner made
additional purchases of printing paper on credit amounting to P94,200; and that
petitioner refused to pay its outstanding obligation.
- July 5, 1990: Trial court:
1. petitioner should pay respondent P763,101.70.
2. petitioners claim meritorious: if not for the delay of private respondent to
deliver printing paper, petitioner could have sold books to Philacor and realized a
profit of P790,324.30 from the sale
3. petitioner suffered dislocation of contracts as a result of respondents
failure: awarded moral damages
- CA reversed and set aside decision.
1. Ordered petitioner to pay respondent P763,101.70
2. deleted the P790,324.30 compensatory damages and moral damages
Petitioners' Claim
[I] the court of appeals erred in concluding that private respondent did not violate
the order agreement.
[ii] the court of appeals erred in concluding that respondent is not liable for
petitioners breach of contract with philacor.
[iii] the court of appeals erred in concluding that petitioner is not entitled to
damages against private respondent.
ISSUES
Substantive
1. WON private respondent violated the order agreement
2. WON private respondent is liable for petitioners breach of contract with Philacor
HELD
1. NO
Ratio When there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or the buyer neglects or refuses
without just cause to take delivery of or pay for one or more installments, it
depends in each case on the terms of the contract and the circumstances of the
case, whether the breach of contract is so material as to justify the injured party in
refusing to proceed further and suing for damages for breach of the entire contract,
or whether the breach is severable, giving rise to a claim for compensation but not
to a right to treat the whole contract as broken. (art. 1583)
Reasoning In this case, as found a quo petitioners evidence failed to establish that
it had paid for the printing paper covered by the delivery invoices on time.
Consequently, private respondent has the right to cease making further delivery,
hence the private respondent did not violate the order agreement. On the contrary,

it was petitioner which breached the agreement as it failed to pay on time the
materials delivered by private respondent. Respondent appellate court correctly
ruled that private respondent did not violate the order agreement.
2. NO
Ratio Aforesaid contracts could not affect third persons like private respondent
because of the basic civil law principle of relativity of contracts which provides that
contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof.
Reasoning The order agreement entered into by petitioner and private respondent
has not been shown as having a direct bearing on the contracts of petitioner with
Philacor. The paper specified in the order agreement between petitioner and private
respondent are markedly different from the paper involved in the contracts of
petitioner with Philacor. The demand made by Philacor upon petitioner for the latter
to comply with its printing contract is dated February 15, 1984, which is clearly
made long after private respondent had filed its complaint on August 14, 1981. This
demand relates to contracts with Philacor dated April 12, 1983 and May 13, 1983,
which were entered into by petitioner after private respondent filed the instant case.
Disposition The instant petition is DENIED. The decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.
DAYWALT V LA CORP DE LOS PADRES AGUSTINOS RECOLETOS
STREET; February 4, 1919
NATURE
Appeal from judgment of CFI Manila
FACTS
- In 1902, Teodorica Endencia, an unmarried woman Mindoro, executed a contract
where she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in
the barrio of Mangarin, Bulalacaoose, MIndoro
- It was agreed that a deed should be executed as soon as the title is perfected in
the proceedings of the Court of Land Registration and a Torrens title procured
therefore in Endencias name
- A decree recognizing the right of Endencia as owner was entered in said court in
August 1906, but the Torrens certificate was not issued until later
- The parties made a new contract with a view to carrying their original agreement
into effect; this new contract was executed in the form of deed of conveyance and is
dated 16 Aug 1906
- The price is P4,000 and the area of the land enclosed in the boundaries is 452
hectares and a fraction
- The second contract was not immediately carried into effect for the reason that
the Torrens certificate was not yet obtainable
- On Oct 3 1908, the parties entered into another agreement, replacing the old; said
agreement bound Endencia to deliver the land, upon receiving the Torrens title, to
the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National
Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of
a balance of P3,100
- The Torrens certificate was in time issued to Teodorica Endencia, but in the course
of the proceedings in the registration of the land, it was found by official survey that

the area of the tract inclosed in the boundaries stated in the contract was about
1,248 hectares instead of 452 hectares as stated in the contract. Due to this,
Endencia became reluctant to transfer the whole tract to the purchaser Daywalt;
this led to litigation which upon appeal to the SC, Daywalt obtained a decree for
specific performance; such decree appears to have become finally effective in early
1914
- The defendant, La Corporacion de los Padres Recoletos, is a religious corporation.
The corporation was was at this time the owner of an estate in Mindoro known as
the San Jose Estate and also of a property immediately adjacent to the land which
Endencia had sold to Daywalt
- Its representative, Fr. Sanz, had long been well acquainted with Endencia and
exerted over her an influence and ascendency due to his religious character as well
as to the personal friendship which existed between them; and Endencia was
accustomed to seek, and was given the advice of Father Sanz and other members of
his order
- Fr Sanz was aware of the contract of 1902 (1 st contract to sell); Sanz and the other
members also knew about the 2nd contract executed in 1903
- When the Torrens certificate was finally issued in 1909 in favor of Endencia, she
delivered it for safekeeping to the defendant corporation, and it was then taken to
Manila where it remained in the custody and under the control of P. Juan Labarga
- When La Corporation sold the San Jose Estate in 1909, some 2,368 head of cattle
were removed to the estate of the corporation immediately adjacent to the property
which the plaintiff had purchased from Teodorica Endencia
- As Teodorica still retained possession of said property Father Sanz entered into an
arrangement with her where large numbers of cattle belonging to the defendant
corporation were pastured upon said land during a period extending from June 1,
1909, to May 1, 1914
- Daywalt sought to recover from corporation P24,000 as damages for the use and
occupation of the land by reason of pasturing the cattle during the said period
- TC fixed damages at P2,497
- Plaintiff appealed for higher damages; defendant did not question the fact of
awarding damages per se in the first cause of action
- Plaintiff, in a 2nd cause of action, also sought to recover from defendant
P500,000, as damages on the ground that said corporation, for its own selfish
purposes, unlawfully induced Endencia to refrain from the performance of her
contract for the sale of the land in question and to withhold delivery to the plaintiff
of the Torrens title, and further, maliciously and without reasonable cause,
maintained her in her defense to the action of specific performance which was
finally decided in favor of the plaintiff in this court
- Plaintiff claimed that in 1911, he, as the owner of the land which he bought from
Endencia entered into a contract with S. B. Wakefield, of San Francisco, for the sale
and disposal of said lands to a sugar growing and milling enterprise, the successful
launching of which depended on the ability of Daywalt to get possession of the land
and the Torrens certificate of title, however, the Torrens title was still in Labargas
hands, the latter having refused to turn said title over to Endencia; thus, the
contract could not be consummated
- Plaintiff alleged that, by interfering in the performance of the contract in question
and obstructing the plaintiff in his efforts to secure the certificate of title to the land,
the defendant corporation made itself a co-participant with Teodorica Endencia in
the breach of said contract

ISSUES
1. WON damages in the 1st cause of action should be increased
2. WON La Corporation who is not a party to the contract of sale of land will be
liable for the damages by colluding with the vendor and maintaining her in the
effort to resist an action for specific performance
HELD
1. NO
-The trial court estimated the rental value of the land for grazing purposes at 50
centavos per hectare per annum, and roughly adopted the period of four years as
the time for which compensation at that rate should be made.
-The SC is of the opinion that the damages assessed are sufficient to compensate
the plaintiff for the use and occupation of the land during the whole time it was
used
-There is evidence in the record strongly tending to show that the wrongful use of
the land by the defendant was not continuous throughout the year but was confined
mostly to the season when the forage obtainable on the land of the defendant was
not sufficient to maintain its cattle, for which reason it became necessary to allow
them to go over to pasture on the land in question
2. NO
-To our mind a fair conclusion on this feature of the case is that Fr Juan Labarga and
his associates believed in good faith that the contract could not be enforced and
that Endencia would be wronged if it should be carried into effect
-Whatever may be the character of the liability which a stranger to a contract may
incur by advising or assisting one of the parties to evade performance, there is one
proposition upon which all must agree. This is that the stranger cannot become
more extensively liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in
excess of those that could be recovered against the immediate party to the contract
would lead to results at once grotesque and unjust.
-The defendants liability cannot exceed Endencias (the principal of the contract)
(Court proceeds to determine Endencias liability-- the damages laid under the
second cause of action in the complaint could not be recovered from her, first,
because the damages in question are special damages which were not within
contemplation of the parties when the contract was made, and secondly, because
said damages are too remote to be the subject of recovery)
-Plaintiff relies on English and US decisions which have ruled that a person who is a
stranger to a contract may, by an unjustifiable interference in the performance
thereof, render himself liable for the damages consequent upon non-performance,
as recognized in Gilchrist v Cuddy
-Upon the said authorities it is enough if the wrongdoer having knowledge of the
existence of the contract relation in bad faith sets about to break it up. Whether his
motive is to benefit himself or gratify his spite by working mischief to the employer
is immaterial
-If a party enters into contract to go for another upon a journey to a remote and
unhealthful climate, and a third person with a bona fide purpose of benefiting the
one who is under contract to go dissuades him from the step, no action will lie. But
if the advice is not disinterested and the persuasion is used for "the indirect purpose

of benefiting the defendant at the expense of the plaintiff," the intermedler is liable
if his advice is taken and the contract broken
-No question can be made as to the liability of one who interferes with a contract
existing between others by means which under known legal canons can be
denominated an unlawful means. Thus, if performance is prevented by force,
intimidation, coercion, or threats, or by false or defamatory statements, or by
nuisance or riot, the person using such unlawful means is under all the authorities
liable for the damage which ensues
-Article 1902 of the Civil Code declares that any person who by an act or omission
characterized by fault or negligence, causes damage to another shall be liable for
the damage so done. The SC takes the rule to mean that a person is liable for
damage done to another by any culpable act; and by "culpable act" we mean any
act which is blameworthy when judged by accepted legal standards. Nevertheless,
it must be admitted that the codes and jurisprudence of the civil law furnish a
somewhat uncongenial field in which to propagate the idea that a stranger to a
contract may be sued for the breach thereof
-Article 1257 of the Civil Code declares that contracts are binding only between the
parties and their privies. In conformity with this it has been held that a stranger to a
contract has no right of action for the nonfulfillment of the contract except in the
case especially contemplated in the second paragraph of the same article
-If the two antagonistic ideas which we have just brought into juxtaposition are
capable of reconciliation, the process must be accomplished by distinguishing
clearly between the right of action arising from the improper interference with the
contract by a stranger thereto, considered as an independent act generative of civil
liability, and the right of action ex- contractu against a party to the contract
resulting from the breach thereof
SO PING BUN V CA
QUISUMBING; September 21, 1999
NATURE
Petition for review on certiorari of a decision of the Court of Appeals
FACTS
- In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered
into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI)
- Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int.,
924-B and 924-C, Soler Street, Binondo, Manila which Tek Hua used as storage
space for its textiles
-The contracts each had a one-year term. They provided that should the lessee
continue to occupy the premises after the term, the lease shall be on a month-tomonth basis.
- When the contracts expired, the parties did not renew the contracts, but Tek Hua
continued to occupy the premises
-In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua
Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein
respondent corporation.
- When So Pek Giok, managing partner of Tek Hua Trading, died in 1986, So Pek
Gioks grandson, petitioner So Ping Bun, occupied the warehouse for his own textile
business, Trendsetter Marketing

-On March 1, 1991, private respondent Tiong, president of Tek Hua Enterprising Corp
sent a letter to petitioner So Ping Bun asking him to vacate the premises
-Petitioner refused to vacate and instead, on March 4, 1992, petitioner requested
formal contracts of lease with DCCSI in favor of Trendsetter Marketing
-DCCSI acceded to petitioners request
-Private respondents filed a petition for injunction, pressing for the nullification of
the lease contracts between DCCSI and petitioner. They also claimed damages.
-Trial Court ruled in favor of respondents
-CA affirmed
ISSUES
1. WON So Ping Bun is guilty of tortuous interference of contract
2. WON So Ping Bun should be liable for attorneys fees
HELD
1. YES
Ratio There is tort interference when during the existence of a valid contract, a
third person, to whom the existence of such contract is known, interferes without
legal justification or excuse.
Reasoning A duty which the law of torts is concerned with is respect for the
property of others, and a cause of action ex delicto may be predicated upon an
unlawful interference by one person of the enjoyment by the other of his private
property.
-This may pertain to a situation where a third person induces a party to renege on or
violate his undertaking under a contract.
-In the case at bar, petitioners Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived respondent corporation of
the latters property right. Clearly, and as correctly viewed by the appellate court,
the three elements of tort interference, (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence of contract; and (3)
interference of the third person is without legal justification or excuse, are present
in the instant case.
-In Gilchrist vs. Cuddy, the court held that where there was no malice in the
interference of a contract, and the impulse behind ones conduct lies in a proper
business interest rather than in wrongful motives, a party cannot be a malicious
interferer.
-In the instant case, though petitioner took interest in the property of respondent
corporation and benefited from it, nothing on record imputes deliberate wrongful
motives or malice on him.
-Section 1314 of the Civil Code categorically provides that, Any third person who
induces another to violate his contract shall be liable for damages to the other
contracting party
-Lack of malice, however, precludes damages. But it does not relieve petitioner of
the legal liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent injunction and
nullification of the lease contracts between DCCSI and Trendsetter Marketing,
without awarding damages.
2. YES

Ratio When the defendants act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest, the recovery of
attorneys fees is allowed.
Reasoning Art. 2208 of the Civil Code reads:
In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(2) When the defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest
-The court has consistently held that the award of considerable damages should
have clear factual and legal bases
- Considering that the respondent corporations lease contract, at the time when the
cause of action accrued, ran only on a month-to-month basis whence before it was
on a yearly basis, the reduced amount of attorneys fees ordered by the Court of
Appeals is still exorbitant in the light of prevailing jurisprudence. Consequently, the
amount of two hundred thousand (P200,000.00) awarded by respondent appellate
court should be reduced to one hundred thousand (P100,000.00) pesos as the
reasonable award for attorneys fees in favor of private respondent corporation.
Disposition The petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals are hereby AFFIRMED, with MODIFICATION that the award of
attorneys fees is reduced from two hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos.