Obli Cases Last Batch

Republic of the Philippines
Supreme Court
Baguio City

SECOND DIVISION

Ma. Corina Jiao, et al. vs. NLRC, et al.. –
G.R. No. 182331 April 18, 2012; x-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐
-‐x

DECISION

REYES, J.:

Nature of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court wherein the petitioners assail the Resolutions dated November 7, 2007[1] and March 26,
2008,[2] respectively, of the Court of Appeals (CA) in CA-‐G.R. SP No. 101065.

Antecedent Facts

The petitioners were regular employees of the Philippine Banking Corporation
(Philbank), each with at least ten years of service in the company.[3] Pursuant to its
Memorandum dated August 28, 1970, Philbank established a Gratuity Pay Plan (Old Plan) for its
employees. The Old Plan provided:

1. Any employee who has reached the compulsory retirement
age of 60 years, or who wishes to retire or resign prior to the attainment of
such age or who is separated from service by reason of death, sickness or
other causes beyond his/her control shall for himself or thru his/her heirs
file with the personnel office an application for the payment of benefits
under the plan[.][4]

Section 1 laid down the benefits to which the employee would be entitled, to wit:

Section 1

Benefits

1.1 The gratuity pay of an employee shall be an amount
equivalent to one-‐month salary for every year of credited service,
computed on the basis of last salary received.
1.2 An employee with credited service of 10 years or more, shall
be entitled to and paid the full amount of the gratuity pay, but in no case
shall the gratuity pay exceed the equivalent of 24 months, or two years,
salary.[5]

On March 8, 1991, Philbank implemented a new Gratuity Pay Plan (New Gratuity
Plan).[6] In particular, the New Gratuity Plan stated thus:

x x x An Employee who is involuntarily separated from the
service by reason of death, sickness or physical disability, or for any
authorized cause under the law such as redundancy, or other causes not
due to his own fault, misconduct or voluntary resignation, shall be entitled
to either one hundred percent (100%) of his accrued gratuity benefit or
the actual benefit due him under the Plan, whichever is greater.[7]

In February 2000, Philbank merged with Global Business Bank, Inc. (Globalbank), with
the former as the surviving corporation and the latter as the absorbed corporation, but the bank
operated under the name Global Business Bank, Inc. As a result of the merger, complainants’
respective positions became redundant. A Special Separation Program (SSP) was implemented
and the petitioners were granted a separation package equivalent to one and a half month’s pay
(or 150% of one month’s salary) for every year of service based on their current salary. Before
the petitioners could avail of this program, they were required to sign two documents, namely,
an Acceptance Letter and a Release, Waiver, Quitclaim (quitclaim).[8]

As their positions were included in the redundancy declaration, the petitioners
availed of the SSP, signed acceptance letters and executed quitclaims in Globalbank’s favor[9] in
consideration of their receipt of separation pay equivalent to 150% of their monthly salaries for
every year of service.

In August 2002, respondent Metropolitan Bank and Trust Company (Metrobank)
acquired the assets and liabilities of Globalbank through a Deed of Assignment of Assets and
Assumption of Liabilities.[10]

Subsequently, the petitioners filed separate complaints for non-‐payment of
separation pay with prayer for damages and attorney’s fees before the National Labor Relations
Commission (NLRC).[11]

The petitioners asserted that, under the Old Plan, they were entitled to an additional
50% of their gratuity pay on top of 150% of one month’s salary for every year of service they had
already received. They insisted that 100% of the 150% rightfully belongs to them as their
separation pay. Thus, the remaining 50% was only half of the gratuity pay that they are entitled
to under the Old Plan. They argued that even if the New Gratuity Plan were to be followed, the
computation would be the same, since Section 10.1 of the New Gratuity Plan provided that:

10.1 Employees who have attained a regular status as of March 8,
1991 who are covered by the Old Gratuity Plan and are now covered by
this Plan shall be entitled to which is the higher benefit between the two
Plans. Double recovery from both plans is not allowed.[12]

The petitioners further argued that the quitclaims they signed should not bar them
from claiming their full entitlement under the law. They also claimed that they were defrauded
into signing the same without full knowledge of its legal implications.[13]

On the other hand, Globalbank asserted that the SSP should prevail and the
petitioners were no longer entitled to the additional 50% gratuity pay which was already paid,
the same having been included in the computation of their separation pay. It maintained further
that the waivers executed by the petitioners should be held binding, since these were executed
in good faith and with the latter’s full knowledge and understanding.[14]

Meanwhile, Metrobank denied any liability, citing the absence of an employment
relationship with the petitioners. It argued that its acquisition of the assets and liabilities of
Globalbank did not include the latter’s obligation to its employees. Moreover, Metrobank
pointed out that the petitioners’ employment with Globalbank had already been severed before
it took over the latter’s banking operations.[15]

The Labor Arbiter’s Decision

On August 30, 2004, the Labor Arbiter (LA) promulgated a decision[16] dismissing the
complaint.[17] The LA ruled that the petitioners were not entitled to the additional 50% in
gratuity pay that they were asking for.[18]

The LA held that the 150% rate used by Globalbank could legally cover both the
separation pay and the gratuity pay of complainants. The LA upheld the right of the employer to
enact a new gratuity plan after finding that its enactment was not attended by bad faith or any
design to defraud complainants. Thus, the New Gratuity Plan must be deemed to have
superseded the Old Plan.[19] The LA also ruled that the minimum amount due to the petitioners
under the New Gratuity Plan, in relation to Article 283 of the Labor Code was one month’s pay
for every year of service. Thus, anything over that amount was discretionary.
As to the validity of the quitclaim, the LA held that the issue has been rendered moot.
Nonetheless, the LA upheld the petitioners’ undertaking under their respective quitclaims,
considering the amount involved is not unconscionable, and that their supposed lack of
complete understanding did not mean that they were coerced or deceived into executing the
same.[20]

The LA also absolved Metrobank from liability. The LA found that the petitioners had
already been separated from Globalbank when Metrobank took over the former’s banking
operations. Moreover, the liabilities that Metrobank assumed were limited to those arising from
banking operations and excluded those pertaining to Globalbank’s employees or to claims of
previous employees.[21]

The NLRC’s Decision

Aggrieved, the petitioners appealed to the NLRC. In a decision[22] dated August 15,
2007, the NLRC dismissed the appeal and affirmed the LA’s decision.

The NLRC held that the petitioners did not acquire a vested right to Philbank’s
gratuity plans since, at the outset, it was made clear that these plans would not perpetuate into
eternity. It also noted that, under the SSP, the employee to be separated due to redundancy
would be receiving more than the rate in the old plan and higher than the legal rate for the
separated employees.

The petitioners elevated the case to the CA via a Petition for Certiorari under Rule 65.

The CA’s Decision

In the first of the assailed CA resolutions, the CA ruled that the petition was
dismissible outright for failure of the petitioners to file a motion for reconsideration of the
decision under review before resorting to certiorari. Further, the CA held that the case did not
fall under any of the recognized exceptions to the rule on motions for reconsideration.[23]

The petitioners then moved for the reconsideration, which was denied in the second
assailed Resolution, noting the absence of an explanation for their failure to file a motion for
reconsideration of the assailed NLRC decision in their petition for certiorari.[24]

The Issues

The petitioners are now before this Court raising the following errors supposedly
committed by the CA:

1. In dismissing the petition for failure to file a motion
for reconsideration before filing a petition under Rule 65 as it blatantly
ignored the application of the recent jurisprudence on labor law.

2. In dismissing the petition without taking into
consideration the meritorious grounds laid down by [the] petitioners by
categorically outlining the grave abuse of discretion amounting to lack or
excess of jurisdiction committed by [the] NLRC in affirming the decision of
the Labor Arbiter, to wit:

2.a. In holding that [the] petitioners “did not
acquire a vested right under the PHILBANK gratuity
plan.”

2.b. In holding that “the bank had abandoned
the old plan” (referring to the old Gratuity Pay Plan)
and replaced it with a Special Separation Program
under which [the] petitioners “would be receiving
more than the rate in the old plan and higher than
the legal rate for redundant employees.”

2.c. In holding that the benefits under the
Special Separation Program legally replaced not only
the gratuity pay plan to which [the] petitioners were
entitled under the old and new Gratuity Pay Plans
but also all other benefits including separation pay
under the law.
2.d. In not holding that when [the] petitioners
were separated due to redundancy they were
entitled per provision of Article 283 of the Labor
Code to separation pay equivalent to one month pay
for every year of service.

2.e. In holding that [the] petitioners are bound
under the Acceptance x x x and Release, Waiver and
Quitclaim x x x that they had executed and [cannot]
question the same, hence they [cannot] claim
benefits in addition to those they had received from
the bank.

2.f. In not holding that respondent
METROBANK is the parent corporation of
GLOBALBANK and the latter is the subsidiary, hence
METROBANK is liable for the payment of the
employment benefits of [the] petitioners as it had
acquired all the assets of GLOBALBANK.

2.g. In not holding that the Assignment of
Assets and Liabilities x x x executed by GLOBALBANK
and METROBANK is a scheme to defraud [the]
petitioners of the employment benefits due them
upon separation from service.

2.h. In not holding that [the] respondents are
liable to [the] petitioners for moral, exemplary and
temperate damages because [the] respondents are
guilty of deceit and fraud in not paying [the]
petitioners the full amount of their employment
benefits.[25]

The Court’s Decision

The Petition has no merit, hence, must be denied.

The petitioners’ unexplained
failure to move for the
reconsideration of the NLRC’s
resolution before applying for
a writ of certiorari in the CA is
reason enough to deny such
application.

We shall first discuss the procedural issue raised by the petitioners: whether the CA
erred in dismissing their petition due to their failure to file a motion for reconsideration of the
NLRC’s adverse resolution.

The petitioners claim that it was error for the CA to have dismissed their petition on
the sole basis thereof. According to the petitioners, they had opted not to file a motion for
reconsideration as the issues that will be raised therein are those that the NLRC had already
passed upon. The petitioners likewise invoke the liberal application of procedural rules.

To begin with, the petitioners do not have the discretion or prerogative to determine
the propriety of complying with procedural rules. This Court had repeatedly emphasized in
various cases involving the tedious attempts of litigants to relieve themselves of the
consequences of their neglect to follow a simple procedural requirement for perfecting a
petition for certiorari that he who seeks a writ of certiorari must apply for it only in the manner
and strictly in accordance with the provisions of the law and the Rules. The petitioners may not
arrogate to themselves the determination of whether a motion for reconsideration is necessary
or not. To dispense with the requirement of filing a motion for reconsideration, the petitioners
must show a concrete, compelling, and valid reason for doing so.[26]

As the CA correctly noted, the petitioners did not bother to explain their omission
and only did so in their motion for reconsideration of the dismissal of their petition. Aside from
the fact that such belated effort will not resurrect their application for a writ of certiorari, the
reason proffered by the petitioners does not fall under any of the recognized instances when
the filing of a motion for reconsideration may be dispensed with. Whimsical and arbitrary
deviations from the rules cannot be condoned in the guise of a plea for a liberal interpretation
thereof. We cannot respond with alacrity to every claim of injustice and bend the rules to
placate vociferous protestors crying and claiming to be victims of a wrong.[27]

We now rule on the substantive issues.

The petitioners’ receipt of
separation pay equivalent to
their one and a half months
salary for every year of service
as provided in the SSP and the
New Gratuity Plan more than
sufficiently complies with the
Labor Code, which only
requires the payment of
separation pay at the rate of
one month salary for every
year of service.

The petitioners do not question the legality of their separation from the service or
the basis for holding their positions redundant. What they raise is their entitlement to gratuity
pay, as provided in the Old Plan, in addition to what they received under the SSP. According to
the petitioners, they are entitled to separation pay at a rate of one month salary for every year
of service under the Labor Code and gratuity pay at a rate of one month salary for every year of
service whether under the Old Plan or the New Gratuity Plan. Since what they received as
separation pay was equivalent to only 150% or one and one-‐half of their monthly salaries for
every year of service, the respondents are still liable to pay them the deficiency equivalent to
one-‐half of their monthly salary for every year of service.

We disagree.

The New Gratuity Plan has
repealed the Old Plan.

It is clear from the provisions of Section 8 of the New Gratuity Plan that the Old Plan has
been revoked or superseded. Thus:

SECTION 8
INTEGRATION OF SOCIAL LEGISLATION,
CONTRACTS, ETC.

8.1 This Plan is not intended to duplicate or cause the double
payment of similar or analogous benefits provided for under existing labor
and social security laws. Accordingly, benefits under this Plan shall be
deemed integrated with and in lieu of (i) statutory benefits under the New
Labor Code and Social Security Laws, as now or hereafter amended[;] and
(ii) analogous benefits granted under present or future collective
bargaining agreements, and other employee benefit plans providing
analogous benefits which may be imposed by future legislations. In the
event the benefits due under the Plan are less than those due and
demandable under the provisions of the New Labor Code and/or present
or future Collective Bargaining Agreements and/or future plans of similar
nature imposed by law, the Fund shall respond for the difference.[28]

Globalbank’s right to replace the Old Plan and the New Gratuity Plan is within legal
bounds as the terms thereof are in accordance with the provisions of the Labor Code and
complies with the minimum requirements thereof. Contrary to the petitioners’ claim, they had
no vested right over the benefits under the Old Plan considering that none of the events
contemplated thereunder occurred prior to the repeal thereof by the adoption of the New
Gratuity Plan. Such right accrues only upon their separation from service for causes
contemplated under the Old Plan and the petitioners can only avail the benefits under the plan
that is effective at the time of their dismissal. In this case, when the merger and the redundancy
program were implemented, what was in effect were the New Gratuity Plan and the SSP; the
petitioners cannot, thus, insist on the provisions of the Old Plan which is no longer existent.

The SSP did not revoke or
supersede the New Gratuity
Plan.

On the other hand, the issuance of the SSP did not result to the repeal of the New
Gratuity Plan. As the following provision of the SSP shows, the terms of the New Gratuity Plan
had been expressly incorporated in the SSP and should, thus, be implemented alongside the
SSP:

II. Separation Pay Package

Affected employees are entitled to the following tax free:

a. Gratuity Benefits which they are entitled to under
the respective retirement plans. The bank shall give a premium by
rounding up the benefit to an equivalent of 1.5 months salary per
every year of service based on their salary as of separation date.[29]
(emphasis supplied)

The SSP was not intended to supersede the New Gratuity Plan. On the contrary, the SSP
was issued to make the benefits under the New Gratuity Plan available to employees whose
positions had become redundant because of the merger between Philbank and Globalbank,
subject to compliance with certain requirements such as age and length of service, and to
improve such benefits by increasing or rounding it up to an amount equivalent to the affected
employees’ one and a half monthly salary for every year of service. In other words, the benefits
to which the redundated employees are entitled to, including the petitioners, are the benefits
under the New Gratuity Plan, albeit increased by the SSP.

Considering that the New Gratuity Plan still stands and has not been revoked by the SSP,
does this mean that the petitioners can claim the benefits thereunder in addition to or on top of
what is required under the Article 283 of the Labor Code?

For as long as the minimum
requirements of the Labor
Code are met, it is within the
management prerogatives of
employers to come up with
separation packages that will
be given in lieu of what is
provided under the Labor
Code.

A direct reference to the New Gratuity Plan reveals the contrary. The above-‐quoted
Section 8 of the New Gratuity Plan expressly states that “the benefits under this Plan shall be
deemed integrated with and in lieu of (i) statutory benefits under the New Labor Code and
Social Security Laws, as now or hereafter amended” and that “[t]his Plan is not intended to
duplicate or cause the double payment of similar or analogous benefits provided for under
existing labor and security laws.”

Article 283 of the Labor Code[30] provides only the required minimum amount of
separation pay, which employees dismissed for any of the authorized causes are entitled to
receive. Employers, therefore, have the right to create plans, providing for separation pay in an
amount over and above what is imposed by Article 283. There is nothing therein that prohibits
employers and employees from contracting on the terms of employment, or from entering into
agreements on employee benefits, so long as they do not violate the Labor Code or any other
law, and are not contrary to morals, good customs, public order, or public policy.[31] As this
Court held in a case:

[E]ntitlement to benefits consequent thereto are not limited to
those provided by said provision of law. Otherwise, the provisions of
collective bargaining agreements, individual employment contracts, and
voluntary retirement plans of companies would be rendered inutile if we
were to limit the award of monetary benefits to an employee only to those
provided by statute. x x x.[32]

Previously, the Court adopted the CA’s ruling, upholding the validity of a similar
provision in a company’s retirement plan:

[T]here is no further doubt that the payment of separation pay is a
requirement of the law, i.e.[,] the Labor Code, which is a social legislation.
The clear intent of Article XI, section 6 [of the Retirement Plan] is to input
the effects of social legislation in the circulation of Retirement benefits due
to retiring employees x x x. The Retirement Plan itself clearly sets forth
the intention of the parties to entitle employees only to whatever is
greater between the Retirement Benefits then due and that which the
law requires to be given by way of separation pay. To give way to
complainant’s demands would be to totally ignore the contractual
obligations of the parties in the Retirement Plan, and to distort the clear
intent of the parties as expressed in the terms and conditions contained in
such plan. x x x.[33] (emphasis supplied)

Consequently, if the petitioners were allowed to receive separation pay from both the
Labor Code, on the one hand, and the New Gratuity Plan and the SSP, on the other, they would
receive double compensation for the same cause (i.e., separation from the service due to
redundancy) even if such is contrary to the provisions of the New Gratuity Plan. The petitioners’
claim of being shortchanged is certainly unfounded. They have recognized the validity of the SSP
and the New Gratuity Plan as evidenced by the acceptance letters and quitclaims they executed;
and the benefits they received under the SSP and the New Gratuity Plan are more than what is
required by the Labor Code.

In the absence of proof that
any of the vices of consent are
present, the petitioners’
acceptance letters and
quitclaims are valid; thus,
barring them from claiming
additional separation pay.

The Court now comes to the issue on the validity of the acceptance letters and quitclaims
that the petitioners executed, which they claim do not preclude them from asking for the
benefits rightfully due them under the law.

It is true that quitclaims executed by employees are often frowned upon as contrary to
public policy.[34] Hence, deeds of release or quitclaims cannot bar employees from demanding
benefits to which they are legally entitled or from contesting the legality of their dismissal. The
acceptance of those benefits would not amount to estoppel.[35]

However, the Court, in other cases, has upheld quitclaims if found to comply with the
following requisites: (1) the employee executes a deed of quitclaim voluntarily; (2) there is no
fraud or deceit on the part of any of the parties; (3) the consideration of the quitclaim is credible
and reasonable; and (4) the contract is not contrary to law, public order, public policy, morals or
good customs or prejudicial to a third person with a right recognized by law.[36]
In this case, there is no allegation of fraud or deceit employed by the respondents in
making the petitioners sign the acceptance letters and quitclaims. Neither was there any claim
of force or duress exerted upon the petitioners to compel them to sign the acceptance letters
and quitclaims. Likewise, the consideration is credible and reasonable since the petitioners are
getting more than the amount required under the law. Thus, the acceptance letters and
quitclaims executed by the petitioners are valid and binding.

Considering that the petitioners have already waived their right to file an action for
any of their claims in relation to their employment with Globalbank, the question of whether
Metrobank can be held liable for these claims is now academic. However, in order to put to rest
any doubt in the petitioners’ minds as to Metrobank’s liabilities, we shall proceed to discuss this
issue.

We hold that Metrobank cannot be held liable for the petitioners’ claims.

As a rule, a corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the debts; (2) where the
transaction amounts to a consolidation or merger of the corporations; (3) where the purchasing
corporation is merely a continuation of the selling corporation; and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts.[37]
Under the Deed of Assignments of Assets and Assumption of Liabilities[38] between
Globalbank and Metrobank, the latter accepted the former’s assets in exchange for assuming its
liabilities. The liabilities that Metrobank assumed, which were clearly set out in Annex “A” of the
instrument, are: deposit liabilities; interbank loans payable; bills payable; manager’s checks and
demand drafts outstanding; accrued taxes, interest and other expenses; and deferred credits
and other liabilities.[39]

Based on this enumeration, the liabilities that Metrobank assumed can be
characterized as those pertaining to Globalbank’s banking operations. They do not include
Globalbank’s liabilities to pay separation pay to its former employees. This must be so because it
is understood that the same liabilities ended when the petitioners were paid the amounts
embodied in their respective acceptance letters and quitclaims. Hence, this obligation could not
have been passed on to Metrobank.

The petitioners insist that Metrobank is liable because it is the “parent” company of
Globalbank and that majority of the latter’s board of directors are also members of the former’s
board of directors.

While the petitioners’ allegations are true, one fact cannot be ignored – that Globalbank
has a separate and distinct juridical personality. The petitioners’ own evidence – Global Business
Holdings, Inc.’s General Information Sheet[40] filed with the Securities and Exchange
Commission – bears this out.

Even then, the petitioners would want this Court to pierce the veil of corporate
identity in order to hold Metrobank liable for their claims.

What the petitioners desire, the Court cannot do. This fiction of corporate entity can
only be disregarded in cases when it is used to defeat public convenience, justify wrong, protect
fraud, or defend crime. Moreover, to justify the disregard of the separate juridical personality of
a corporation, the wrongdoing must be clearly and convincingly established.[41]

In the instant case, none of these circumstances is present such as to warrant
piercing the veil of corporate fiction and treating Globalbank and Metrobank as one.

Lastly, the petitioners’ prayer for the award of damages must be denied for lack of
legal basis.

In sum, the New Gratuity Plan and SSP are valid and must be given effect, inasmuch
as their provisions are not contrary to law; and, indeed, grant benefits that meet the minimum
amount required by the Labor Code. The petitioners have voluntarily sought such benefits and
upon their receipt thereof, executed quitclaims in Globalbank’s favor. The petitioners cannot,
upon a mere change of mind, seek to invalidate such quitclaims and renege on their undertaking
thereunder, which, to begin with, is supported by a substantial consideration and which they
had knowingly assumed and imposed upon themselves.

WHEREFORE, the foregoing premises considered, the petition is DENIED. The assailed
Resolutions dated November 7, 2007 and March 26, 2008, respectively, of the Court of Appeals
in CA-‐G.R. SP No. 101065 are AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE PORTUGAL PEREZ
Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Supreme Court
Manila

FIRST DIVISION

ASIAN CONSTRUCTION and G.R. No. 167942
DEVELOPMENT CORPORATION,
Petitioner,
Present:

CORONA, C.J., Chairperson,
-‐ versus -‐ VELASCO, JR.,
LEONARDO-‐DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
CATHAY PACIFIC STEEL
CORPORATION, (CAPASCO), Promulgated:
Respondent. June 29, 2010
x -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ x

D E C I S I O N

DEL CASTILLO, J.:

Parties would do well to always be conscious of their freedom to accept or reject printed stipulations
supplied by only one party that form part of the contract they enter into. Failure to object to such stipulations,
which are not excessive or unconscionable, will bind them to its performance.

This Petition for Review assails the August 18, 2004 Decision[1] of the Court of Appeals (CA) in CA-‐G.R.
CV. No. 66741 which affirmed with modification the Decision[2] of the Regional Trial Court (RTC) of Antipolo
City, Branch 73 in Civil Case No. 98-‐5093. Also assailed is the May 3, 2005 Resolution[3] denying the motion
for reconsideration.
Factual Antecedents

On several occasions between June and July of 1997, petitioner Asian Construction and Development
Corp. purchased from respondent Cathay Pacific Steel Corp. various reinforcing steel bars worth
P2,650,916.40 covered by a total of 12 invoices. On November 21, 1997, petitioner made a partial payment
of P2,159,211.49, and on March 2, 1998, another partial payment of P250,000, leaving a balance of
P214,704.91. Respondent sent two demand letters dated May 12, 1998, and August 10, 1998, respectively,
but no payment was made by petitioner. On November 24, 1998, respondent filed a complaint for a sum of
money and damages with the RTC of Antipolo, docketed as Civil Case No. 98-‐5093.

In its answer, petitioner denied that it authorized the purchases/purchase orders from the respondent;
it alleged that no demand for payment was made or received by petitioner, it had no knowledge as to the
truth of the invoices, statement of accounts and letters as they were never received by petitioner, it had not
received the reinforcing steel bars, the amount billed by respondent was bloated and no deduction was made
for the corresponding payments made by petitioner and that it had not agreed to pay interest and attorney's
fees.

Ruling of the Regional Trial Court

After the pre-‐trial conference was terminated, trial of the case on the merits was set. Hearing of the
case was postponed several times. During the hearing on November 22, 1999, petitioner and its counsel were
absent despite notice, and upon motion of the respondent, the trial court granted and set the ex-‐parte
hearing of the case before a designated commissioner. On December 1, 1999, respondent presented its sole
witness, David O. Chua (Chua), vice president of respondent company. Thereafter, respondent offered its
evidence and rested its case.

On January 10, 2000, the trial court rendered a Decision in favor of the respondent, the fallo of which
reads:

WHEREFORE, premises considered, defendant Asian [Construction] and
Development Corporation is hereby ordered to pay to the plaintiff:

1. P319,050.48 inclusive of interest as of 17 November 1998 plus 2%
interest per month until the full amount is paid;

2. P79,762.62 as attorney's fees and as appearance fees; and

3. The costs of suit.

SO ORDERED.[4]

Ruling of the Court of Appeals

Petitioner then appealed the case to the CA which found that based on the invoices there is a specific
amount of interest agreed upon, which is 24% per annum. It also found that the outstanding balance of
petitioner is P241,704.91 which must earn interest from May 12, 1998, which is the date of extra-‐judicial
demand. The dispositive portion of the CA Decision states:

WHEREFORE, premises considered, the assailed decision is AFFIRMED with
MODIFICATION in this wise:

‘WHEREFORE, premises considered, defendant Asian
Construction and Development Corporation is hereby
ordered to pay to the plaintiff:

1. P241,704.91 plus 24% interest per annum
from May 12, 1998 until finality of this decision;

2. 10% of the total amount due as attorney's
fees; and

3. The costs of suit.

SO ORDERED.’

SO ORDERED.[5]

After the denial by the CA of its motion for reconsideration, petitioner filed the present petition for
review on certiorari.

Issues

Petitioner raises the following issues:

I-‐ WHETHER X X X PETITIONER DID NOT QUESTION ITS LIABILITY IN ITS
ANSWER.

II-‐ WHETHER X X X THE TRIAL COURT AND COURT OF APPEALS ERRED IN
ADMITTING THE PHOTOCOPIES OF THE DELIVERY RECEIPTS AND THE
TESTIMONY OF MR. DAVID CHUA AS ADMISSIBLE IN EVIDENCE.

III-‐ WHETHER X X X THE COURT OF APPEALS ERRED IN IMPOSING 24% PERCENT
INTEREST FROM MAY 12, 1998 UNTIL FINALITY OF DECISION; AND

IV-‐ WHETHER X X X RESPONDENT IS ENTITLED TO ATTORNEY'S FEES.[6]

Petitioner's Arguments

Petitioner contends that it disputed in its Answer the liability imputed to it by respondent. It also
contends that respondent failed to prove the affirmative allegations in the complaint. It argues that the
photocopies of the delivery receipts were not admissible in evidence and that the witness Chua was
incompetent to establish the admissibility of secondary evidence.

Petitioner also contends that the CA did not adhere to the precedent set in the landmark case of Eastern
Shipping Lines v. Court of Appeals[7] in the computation of interest. It further argues that respondent is not
entitled to an award of attorney's fees.

Respondent's Arguments

Respondent on the other hand contends that petitioner's affirmative defenses are not only inconsistent
with each other but also reveals an admission of petitioner's obligation to respondent. Respondent also
submits that it has duly proven its claim by a preponderance of evidence. The originals of the invoices were
presented during the hearing and the loss of the delivery receipts was properly established by respondent,
hence the admission of the secondary evidence was proper.

Respondent further submits that the interest rate of 24% per annum was expressly stipulated in the
invoice and should thus be the rate used in the computation of the interest. It also contends that the award of
attorney's fees is proper because it was constrained to engage the services of counsel and litigate in order to
protect its interests.

Our Ruling

The petition is partly meritorious.

Obligation was duly established

As a rule, only questions of law may be appealed to the Court by petition for review. The Court is not a
trier of facts, its jurisdiction is limited to errors of law. Moreover factual findings of the trial court, particularly
when affirmed by the CA, are generally binding on this Court.

In the present case, the orders by, deliveries to, and pick-‐ups by, petitioner of reinforcing steel bars
having a total value of P2,650,916.40 were evidenced by the testimony of Chua and the invoices. Notably the
invoices contained a statement to the effect that the reinforcing steel bars were received in good order and
condition.

The total payment in the amount of P2,409,211.49 made by petitioner was also supported by
evidence. Some payments made were in fact admitted in the Answer of petitioner.[8]

With regard to the testimony of Chua, the fact that he is the head of Marketing and Finance proves that
he is competent to testify on the sale of the reinforcing steel bars to petitioner and its unpaid balance. The
notations addressed to him on the purchase orders and his signature on the demand letters further support
the finding that he has personal knowledge of the transactions he testified on. Mere allegations of his
incompetence to testify on such matters, are not proof and these cannot prevail over evidence to the
contrary.

As for the delivery receipts, there is sufficient uncontroverted evidence showing loss of the originals
despite the diligence exerted to find the same. Copies of the same are thus admissible.[9]

The factual findings of the trial court and the CA were based on a preponderance of evidence which
were not refuted with contrary evidence by petitioner. We thus find no reason to disturb the factual findings
of the trial court and the CA.

Applicable Interest Rate

Article 1306 of the Civil Code provides that 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."

In the present case, the sales invoices expressly stipulated the payment of interest and attorney's fees in
case of overdue accounts and collection suits, to wit: "Interest at 24% per annum is to be charged to all
accounts overdue plus 25% additional on unpaid invoice for attorney's fees aside from court cost, the parties
expressly submit themselves to the venue of the courts in Rizal, in case of legal proceeding." The sales invoices
are in the nature of contracts of adhesion. "The court has repeatedly held that contracts of adhesion are as
binding as ordinary contracts. Those who adhere to the contract are in reality free to reject it entirely and if
they adhere, they give their consent. It is true that in some occasions the Court struck down such contracts as
void when the weaker party is imposed upon in dealing with the dominant party and is reduced to the
alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal
footing."[10] Considering that petitioner is not a small time construction company, having such construction
projects as the MRT III and the Mauban Power Plant, "petitioner is presumed to have full knowledge and to
have acted with due care or, at the very least, to have been aware of the terms and conditions of the
contract. Petitioner was free to contract the services of another supplier if respondent's terms were not
acceptable".[11] By contracting with respondent for the supply of the reinforcing steel bars and not
interposing any objection to the stipulations in the sales invoice, petitioner did not only bind itself to pay the
stated selling price, it also bound itself to pay (1) interest of 24% per annum on overdue accounts and (2) 25%
of the unpaid invoice for attorney's fees. Thus, the lower courts did not err in using the invoices as basis for
the award of interest.

Attorney's Fees

In Titan Construction Corporation v. Uni-‐Field Enterprises, Inc.,[12] an apt discussion on attorney's fees
was made by the Court, thus:

The law allows a party to recover attorney's fees under a written
agreement. In Barons Marketing Corporation v. Court of Appeals, the Court ruled
that:

[T]he attorney's fees here are in the nature of
liquidated damages and the stipulation therefor is aptly
called a penal clause. It has been said that so long as such
stipulation does not contravene law, morals, or public order,
it is strictly binding upon defendant. The attorney's fees so
provided are awarded in favor of the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate
on liquidated damages to be paid in case of breach. A stipulation on liquidated
damages is a penalty clause where the obligor assumes a greater liability in case of
breach of an obligation. The obligor is bound to pay the stipulated amount without
need for proof on the existence and on the measure of damages caused by the
breach.[13]

In the present case, the invoices stipulate for 25% of the overdue accounts as attorney's fees. The
overdue account in this case amounts to P241,704.91, 25% of which is P60,426.23. This amount is not
excessive or unconscionable, hence, we sustain the amount of attorney's fees as stipulated by the parties.

WHEREFORE, the petition is DENIED. The August 18, 2004 Decision of the Court of Appeals in CA-‐G.R.
CV No. 66741 is AFFIRMED with the MODIFICATION that the attorney's fees is fixed at P60,426.23.

SO ORDERED.

MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-‐DE CASTRO

JOSE PORTUGAL PEREZ
Associate Justice


Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.

RENATO C. CORONA
Chief Justice

SECOND DIVISION
HERALD BLACK DACASIN, G.R. No. 168785

Petitioner,
Present:
CARPIO, J., Chairperson,

BRION,
- versus - DEL CASTILLO,
ABAD, and
PEREZ, JJ.
SHARON DEL MUNDO DACASIN, Promulgated:

Respondent. February 5, 2010
x----------------------------------------------------------------------------------------x
DECISION
CARPIO, J.:
The Case
For review[1] is a dismissal[2] of a suit to enforce a post-foreign divorce child custody

agreement for lack of jurisdiction.
The Facts
Petitioner Herald Dacasin (petitioner), American, and respondent Sharon Del Mundo
Dacasin (respondent), Filipino, were married in Manila in April 1994. They have one daughter,
Stephanie, born on 21 September 1995. In June 1999, respondent sought and obtained from the
Circuit Court, 19th Judicial Circuit, Lake County, Illinois (Illinois court) a divorce decree against
petitioner.[3] In its ruling, the Illinois court dissolved the marriage of petitioner and respondent,
awarded to respondent sole custody of Stephanie and retained jurisdiction over the case for
enforcement purposes.
On 28 January 2002, petitioner and respondent executed in Manila a contract

(Agreement[4]) for the joint custody of Stephanie. The parties chose Philippine courts as
exclusive forum to adjudicate disputes arising from the Agreement. Respondent undertook to
obtain from the Illinois court an order “relinquishing” jurisdiction to Philippine courts.
In 2004, petitioner sued respondent in the Regional Trial Court of Makati City, Branch 60
(trial court) to enforce the Agreement. Petitioner alleged that in violation of the Agreement,
respondent exercised sole custody over Stephanie.
Respondent sought the dismissal of the complaint for, among others, lack of jurisdiction
because of the Illinois court’s retention of jurisdiction to enforce the divorce decree.
The Ruling of the Trial Court
In its Order dated 1 March 2005, the trial court sustained respondent’s motion and
dismissed the case for lack of jurisdiction. The trial court held that: (1) it is precluded from
taking cognizance over the suit considering the Illinois court’s retention of jurisdiction to enforce
its divorce decree, including its order awarding sole custody of Stephanie to respondent; (2) the
divorce decree is binding on petitioner following the “nationality rule” prevailing in this
jurisdiction;[5] and (3) the Agreement is void for contravening Article 2035, paragraph 5 of the
Civil Code[6] prohibiting compromise agreements on jurisdiction.[7]
Petitioner sought reconsideration, raising the new argument that the divorce decree
obtained by respondent is void. Thus, the divorce decree is no bar to the trial court’s exercise of
jurisdiction over the case.
In its Order dated 23 June 2005, the trial court denied reconsideration, holding that unlike in
the case of respondent, the divorce decree is binding on petitioner under the laws of his
nationality.
Hence, this petition.
Petitioner submits the following alternative theories for the validity of the Agreement to
justify its enforcement by the trial court: (1) the Agreement novated the valid divorce decree,
modifying the terms of child custody from sole (maternal) to joint;[8] or (2) the Agreement is
independent of the divorce decree obtained by respondent.
The Issue
The question is whether the trial court has jurisdiction to take cognizance of petitioner’s suit
and enforce the Agreement on the joint custody of the parties’ child.
The Ruling of the Court
The trial court has jurisdiction to entertain petitioner’s suit but not to enforce the Agreement
which is void. However, factual and equity considerations militate against the dismissal of
petitioner’s suit and call for the remand of the case to settle the question of Stephanie’s custody.
Regional Trial Courts Vested With Jurisdiction

to Enforce Contracts
Subject matter jurisdiction is conferred by law. At the time petitioner filed his suit in
the trial court, statutory law vests on Regional Trial Courts exclusive original jurisdiction over
civil actions incapable of pecuniary estimation.[9] An action for specific performance, such as
petitioner’s suit to enforce the Agreement on joint child custody, belongs to this species of
actions.[10] Thus, jurisdiction-wise, petitioner went to the right court.
Indeed, the trial court’s refusal to entertain petitioner’s suit was grounded not on its
lack of power to do so but on its thinking that the Illinois court’s divorce decree stripped it of
jurisdiction. This conclusion is unfounded. What the Illinois court retained was “jurisdiction x x x
for the purpose of enforcing all and sundry the various provisions of [its] Judgment for
Dissolution.”[11] Petitioner’s suit seeks the enforcement not of the “various provisions” of the
divorce decree but of the post-divorce Agreement on joint child custody. Thus, the action lies
beyond the zone of the Illinois court’s so-called “retained jurisdiction.”
Petitioner’s Suit Lacks Cause of Action
The foregoing notwithstanding, the trial court cannot enforce the Agreement which is
contrary to law.
In this jurisdiction, parties to a contract are free to stipulate the terms of agreement
subject to the minimum ban on stipulations contrary to law, morals, good customs, public order,
or public policy.[12] Otherwise, the contract is denied legal existence, deemed “inexistent and
void from the beginning.”[13] For lack of relevant stipulation in the Agreement, these and other
ancillary Philippine substantive law serve as default parameters to test the validity of the
Agreement’s joint child custody stipulations.[14]
At the time the parties executed the Agreement on 28 January 2002, two facts are undisputed:
(1) Stephanie was under seven years old (having been born on 21 September 1995); and (2)
petitioner and respondent were no longer married under the laws of the United States because of
the divorce decree. The relevant Philippine law on child custody for spouses separated in fact or
in law[15] (under the second paragraph of Article 213 of the Family Code) is also undisputed:
“no child under seven years of age shall be separated from the mother x x x.”[16] (This statutory
awarding of sole parental custody[17] to the mother is mandatory,[18] grounded on sound policy
consideration,[19] subject only to a narrow exception not alleged to obtain here.[20]) Clearly
then, the Agreement’s object to establish a post-divorce joint custody regime between respondent
and petitioner over their child under seven years old contravenes Philippine law.
The Agreement is not only void ab initio for being contrary to law, it has also been
repudiated by the mother when she refused to allow joint custody by the father. The Agreement
would be valid if the spouses have not divorced or separated because the law provides for joint
parental authority when spouses live together.[21] However, upon separation of the spouses, the
mother takes sole custody under the law if the child is below seven years old and any agreement
to the contrary is void. Thus, the law suspends the joint custody regime for (1) children under
seven of (2) separated or divorced spouses. Simply put, for a child within this age bracket (and
for commonsensical reasons), the law decides for the separated or divorced parents how best to
take care of the child and that is to give custody to the separated mother. Indeed, the separated
parents cannot contract away the provision in the Family Code on the maternal custody of
children below seven years anymore than they can privately agree that a mother who is
unemployed, immoral, habitually drunk, drug addict, insane or afflicted with a communicable
disease will have sole custody of a child under seven as these are reasons deemed compelling to
preclude the application of the exclusive maternal custody regime under the second paragraph of
Article 213.[22]
It will not do to argue that the second paragraph of Article 213 of the Family Code
applies only to judicial custodial agreements based on its text that “No child under seven years of
age shall be separated from the mother, unless the court finds compelling reasons to order
otherwise.” To limit this provision’s enforceability to court sanctioned agreements while placing
private agreements beyond its reach is to sanction a double standard in custody regulation of
children under seven years old of separated parents. This effectively empowers separated parents,
by the simple expedient of avoiding the courts, to subvert a legislative policy vesting to the
separated mother sole custody of her children under seven years of age “to avoid a tragedy where
a mother has seen her baby torn away from her.”[23] This ignores the legislative basis that “[n]o
man can sound the deep sorrows of a mother who is deprived of her child of tender age.”[24]
It could very well be that Article 213’s bias favoring one separated parent (mother)
over the other (father) encourages paternal neglect, presumes incapacity for joint parental
custody, robs the parents of custodial options, or hijacks decision-making between the separated
parents.[25] However, these are objections which question the law’s wisdom not its validity or
uniform enforceability. The forum to air and remedy these grievances is the legislature, not this
Court. At any rate, the rule’s seeming harshness or undesirability is tempered by ancillary
agreements the separated parents may wish to enter such as granting the father visitation and
other privileges. These arrangements are not inconsistent with the regime of sole maternal
custody under the second paragraph of Article 213 which merely grants to the mother final
authority on the care and custody of the minor under seven years of age, in case of disagreements.
Further, the imposed custodial regime under the second paragraph of Article 213 is limited in
duration, lasting only until the child’s seventh year. From the eighth year until the child’s
emancipation, the law gives the separated parents freedom, subject to the usual contractual
limitations, to agree on custody regimes they see fit to adopt. Lastly, even supposing that
petitioner and respondent are not barred from entering into the Agreement for the joint custody of
Stephanie, respondent repudiated the Agreement by asserting sole custody over Stephanie.
Respondent’s act effectively brought the parties back to ambit of the default custodial regime in
the second paragraph of Article 213 of the Family Code vesting on respondent sole custody of
Stephanie.
Nor can petitioner rely on the divorce decree’s alleged invalidity - not because the
Illinois court lacked jurisdiction or that the divorce decree violated Illinois law, but because the
divorce was obtained by his Filipino spouse[26] - to support the Agreement’s enforceability. The
argument that foreigners in this jurisdiction are not bound by foreign divorce decrees is hardly
novel. Van Dorn v. Romillo[27] settled the matter by holding that an alien spouse of a Filipino is
bound by a divorce decree obtained abroad.[28] There, we dismissed the alien divorcee’s
Philippine suit for accounting of alleged post-divorce conjugal property and rejected his
submission that the foreign divorce (obtained by the Filipino spouse) is not valid in this
jurisdiction in this wise:
There can be no question as to the validity of that Nevada

divorce in any of the States of the United States. The decree is binding
on private respondent as an American citizen. For instance, private
respondent cannot sue petitioner, as her husband, in any State of the Union.
What he is contending in this case is that the divorce is not valid and
binding in this jurisdiction, the same being contrary to local law and
public policy.
It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, only
Philippine nationals are covered by the policy against absolute divorces the same being
considered contrary to our concept of public policy and morality. However, aliens may obtain
divorces abroad, which may be recognized in the Philippines, provided they are valid
according to their national law. In this case, the divorce in Nevada released private
respondent from the marriage from the standards of American law, under which divorce
dissolves the marriage.
xxxx
Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He
would have no standing to sue in the case below as petitioner’s husband entitled to exercise
control over conjugal assets. As he is bound by the Decision of his own country’s Court, which
validly exercised jurisdiction over him, and whose decision he does not repudiate, he is estopped
by his own representation before said Court from asserting his right over the alleged conjugal
property. (Emphasis supplied)
We reiterated Van Dorn in Pilapil v. Ibay-Somera[29] to dismiss criminal complaints

for adultery filed by the alien divorcee (who obtained the foreign divorce decree) against his
former Filipino spouse because he no longer qualified as “offended spouse” entitled to file the
complaints under Philippine procedural rules. Thus, it should be clear by now that a foreign
divorce decree carries as much validity against the alien divorcee in this jurisdiction as it
does in the jurisdiction of the alien’s nationality, irrespective of who obtained the
divorce.
The Facts of the Case and Nature of Proceeding

Justify Remand
Instead of ordering the dismissal of petitioner’s suit, the logical end to its lack of cause of
action, we remand the case for the trial court to settle the question of Stephanie’s custody.
Stephanie is now nearly 15 years old, thus removing the case outside of the ambit of the
mandatory maternal custody regime under Article 213 and bringing it within coverage of the
default standard on child custody proceedings – the best interest of the child.[30] As the
question of custody is already before the trial court and the child’s parents, by executing
the Agreement, initially showed inclination to share custody, it is in the interest of swift
and efficient rendition of justice to allow the parties to take advantage of the court’s
jurisdiction, submit evidence on the custodial arrangement best serving Stephanie’s
interest, and let the trial court render judgment. This disposition is consistent with the
settled doctrine that in child custody proceedings, equity may be invoked to serve the
child’s best interest.[31]
WHEREFORE, we REVERSE the Orders dated 1 March 2005 and 23 June 2005 of the
Regional Trial Court of Makati City, Branch 60. The case is REMANDED for further
proceedings consistent with this ruling.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO ROBERTO A. ABAD

JOSE P. PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice

Supreme Court
Baguio City

THIRD DIVISION

PHILIPPINE CHARTER INSURANCE CORPORATION, G.R. No. 180898

Petitioner,
Present:

VELASCO, JR., J., Chairperson,
-‐ versus -‐ PERALTA,
ABAD,
MENDOZA, and
PERLAS-‐BERNABE, JJ.

PETROLEUM DISTRIBUTORS & SERVICE CORPORATION
Respondent.
Promulgated:

April 18, 2012

X -‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐ X
D E C I S I O N

MENDOZA, J.:

Before the Court is a petition for review under Rule 45 of the Rules of Court seeking
the reversal of the July 31, 2007 Decision[1] and the December 28, 2007 Resolution[2] of the
Court of Appeals (CA) in CA-‐G.R. CV No. 82417, which affirmed with modification the January 12,
2004 Decision of the Regional Trial Court, Branch 111, Pasay City (RTC).

The Facts:

On January 27, 1999, respondent Petroleum Distributors and Services Corporation
(PDSC), through its president, Conrado P. Limcaco, entered into a building contract[3] with N.C.
Francia Construction Corporation (FCC), represented by its president and chief executive officer,
Emmanuel T. Francia, for the construction of a four-‐story commercial and parking complex
located at MIA Road corner Domestic Road, Pasay City, known as Park ‘N Fly Building (Park ‘N
Fly). Under the contract, FCC agreed to undertake the construction of Park ‘N Fly for the price
of ₱45,522,197.72.

The parties agreed that the construction work would begin on February 1, 1999.
Under the Project Evaluation and Review Technique Critical Path Method (PERT-‐CPM), the
project was divided into two stages: Phase 1[4] of the construction work would be finished on
May 17, 1999 and Phase 2[5] would begin on May 18, 1999 and finish on October 20, 1999. The
project should be turned over by October 21, 1999.[6] It was further stipulated that in the event
FCC failed to finish the project within the period specified, liquidated damages equivalent to
1/10 of 1% of the contract price for every day of delay shall accrue in favor of PDSC.[7]

To ensure compliance with its obligation, FCC’s individual officers, namely, Natividad
Francia, Emmanuel C. Francia, Jr., Anna Sheila C. Francia, San Diego Felipe G. Bermudez,
Emmanuel T. Francia, Charlemagne C. Francia, and Ruben G. Caperiña, signed the Undertaking
of Surety[8] holding themselves personally liable for the accountabilities of FCC.

Also, FCC procured Performance Bond No. 31915 amounting to ₱6,828,329.00 from
petitioner Philippine Charter Insurance Corporation (PCIC) to secure full and faithful
performance of its obligation under the Building Contract.[9]

The construction of the Park ‘N Fly started on February 1, 1999.

Pursuant to the Building Contract, PDSC sourced out construction materials and
subcontracted various phases of the work to help obtain the lowest cost of the construction and
speed up the work of the project. These resulted in the reduction of the contract price.[10]

During the Phase 1 of the project, PDSC noticed that FCC was sixteen (16) days behind
schedule. In a Letter[11] dated March 25, 1999, it reminded FCC to catch up with the schedule
of the projected work path, or it would impose the penalty of 1/10 of the 1% of the contract
price. The problem, however, was not addressed, as the delay increased to 30 days[12] and
ballooned to 60 days.[13]

Consequently, on September 10, 1999, FCC executed a deed of assignment,[14]
assigning a portion of its receivables from Caltex Philippines, Inc. (Caltex), and a chattel
mortgage,[15] conveying some of its construction equipment to PDSC as additional security for
the faithful compliance with its obligation.

On even date, PDSC and FCC likewise executed a memorandum of agreement
(MOA),[16] wherein the parties agreed to revise the work schedule of the project. As a
consequence, Performance Bond No. 31915 was extended up to March 2, 2000.[17]

For failure of FCC to accomplish the project within the agreed completion period,
PDSC, in a letter[18] dated December 3, 1999, informed FCC that it was terminating their
contract based on Article 12, Paragraph 12.1 of the Building Contract. Subsequently, PDSC sent
demand letters[19] to FCC and its officers for the payment of liquidated damages amounting to
₱9,149,962.02 for the delay. In the same manner, PDSC wrote PCIC asking for remuneration
pursuant to Performance Bond No. 31915.[20]

Despite notice, PDSC did not receive any reply from either FCC or PCIC, constraining it
to file a complaint[21] for damages, recovery of possession of personal property and/or
foreclosure of mortgage with prayer for the issuance of a writ of replevin and writ of
attachment, against FCC and its officers before the RTC. PDSC later filed a supplemental
complaint[22] impleading PCIC, claiming coverage under Performance Bond No. 31915 in the
amount of ₱6,828,329.66.

In its Amended Answer with affirmative defense and counterclaim,[23] FCC admitted
that it entered into a contract with PDSC for the construction of the Park ‘N Fly building. It,
however, asserted that due to outsourcing of different materials and subcontracting of various
phases of works made by PDSC, the contract price was invariably reduced to ₱19,809,822.12.

FCC denied any liability to PDSC claiming that any such claim by the latter had been
waived, abandoned or otherwise extinguished by the execution of the September 10, 1999
MOA. FCC claimed that in the said MOA, PDSC assumed all the obligations originally reposed
upon it. FCC further explained that the PERT-‐CPM agreed upon by the parties covering the first
phase of the work project was severely affected when PDSC deleted several scopes of work and
undertook to perform the same. In fact, the PERT-‐CPM was evaluated and it was concluded that
the delay was attributable to both of them. FCC added that after Phase I of the project, it sent a
progress billing in the amount of ₱939,165.00 but PDSC approved the amount of ₱639,165.00
only after deducting the cost of the attributable delay with the agreement that from then on,
PDSC should shoulder all expenses in the construction of the building until completion; that FCC
would provide the workers on the condition that they would be paid by PDSC; and that it would
allow PDSC free use of the construction equipments that were in the project site.

For its part, PCIC averred that as a surety, it was not liable as a principal obligor; that
its liability under the bond was conditional and subsidiary and that it could be made liable only
upon FCC’s default of its obligation in the Building Contract up to the extent of the terms and
conditions of the bond. PCIC also alleged that its obligation under the performance bond was
terminated when it expired on October 15, 1999 and the extension of the performance bond
until March 2, 2000 was not binding as it was made without its knowledge and consent.

PCIC added that PDSC’s claim against it had been waived, abandoned or extinguished
by the September 10, 1999 MOA. It also argued that its obligation was indeed extinguished
when PDSC terminated the contract on December 3, 1999 and took over the construction and it
failed to file its claim within ten (10) days from the expiry date or from the alleged default of
FCC.[24]

Nonetheless, in the event that PCIC would be made liable, its liability should be in
proportion to the liabilities of the other sureties.

On January 12, 2004, the RTC rendered its Decision[25] in favor of PDSC. The RTC
found FCC guilty of delay when it failed to finish and turn over the project on October 15, 1999.
It pronounced FCC and PCIC jointly and severally liable and ordered them to pay PDSC the
amount of ₱9,000,000.00 as damages and ₱50,000.00 as attorney’s fees plus interest.

FCC and PCIC filed their respective notice of appeal[26] with the RTC. On February 12,
2004, the RTC issued its Order[27] giving due course to the notice of appeal.

On July 31, 2007, the CA modified the RTC’s decision.[28] The CA agreed that FCC
incurred delay in the construction of the project. It, however, found that the computation of the
liquidated damages should be based on the reduced contract price of ₱19,809,822.12. The
dispositive portion reads:

WHEREFORE, the Decision dated 12 January 2004 of the
Regional Trial Court of Pasay City, Branch 111 is AFFIRMED with
MODIFICATION in that appellants N.C. Francia Construction Corporation,
Natividad Francia, Emmanuel Francia, Jr., Anna Sheila Francia San Diego,
Felipe Bermudez, Emmanuel Francia, Charlemagne Francia, Ruben
Caperiña, and Philippine Charter Insurance Corporation are hereby held
solidarily liable to pay appellee Petroleum Distributors & Services
Corporation (1) liquidated damages in the sum of ₱3,882,725.13, which
shall earn legal interest at the rate of 6% per annum from 10 January 2000
until finality of this judgment; (2) attorney’s fees amounting to ₱50,000.00;
and (3) cost of suit. Pursuant to Performance Bond No. 31915, the liability
of appellant Philippine Charter Insurance Corporation should not exceed
₱6,828,329.66.

Appellants N.C Francia Construction Corporation, Emmanuel
Francia and Natividad Francia are adjudged liable to pay appellant
Philippine Charter Insurance Corporation for the amount the latter may
have paid under Performance Bond No. 31915.

SO ORDERED.[29]

FCC and PCIC filed their separate motions for reconsideration[30] but the CA denied
them in its December 28, 2007 Resolution.[31]

Hence, this petition.

It is well to note that only PCIC appealed the CA’s decision. It became final and
executory with regard to FCC and the other parties in the case. Hence, the Court shall limit its
discussion to the liability of PCIC.

In its Memorandum,[32] PCIC anchored its petition on the following issues:
1. Whether or not the Court of Appeals, in adjudging
Petitioner liable for liquidated damages, expanded liability under
Performance Bond No. 31915 which on its face answers only for actual
and compensatory damages, not liquidated damages.

Assuming arguendo liability for liquidated damages under the
performance bond, whether or not the Court of Appeals erred in not
declaring that the award of liquidated damages is iniquitous and
unconscionable and in not applying the provisions of Article 2227, Civil
Code, and Palmares v. Court of Appeals, 288 SCRA 422.

2. Whether or not the Memorandum of Agreement dated
Sept. 10, 1999 entered into by respondent and Francia Construction,
confirmed in a letter dated Sept. 20, 1999, -‐-‐-‐ without Petitioner’s
knowledge or consent-‐-‐-‐, the effect that all costs, expenses, payments
and obligations shall be deemed paid, performed and fully settled as of
Sept. 10, 1999, discharged Petitioner from liability under the
performance bond under Article 2079, Civil Code.

3. Whether or not the Court of Appeals, having made the
finding of fact that the sums of Php2,793,000.00 and Php662,836.50
should be deducted from Php3,882,725.13, erred in not deducting the
amounts in the dispositive portion of the decision.[33]

In sum, the issues before the Court are (1) whether or not PCIC is liable for liquidated
damages under the performance bond; (2) whether or not the September 10, 1999 MOA
executed by PDSC and FCC extinguished PCIC’s liability under the performance bond; and (3)
whether or not the amounts of ₱2,793,000.00 and ₱662,836.50 are deductible from the
liquidated damages awarded by the CA.

PCIC argues that in case of a breach of contract, the performance bond is answerable
only for actual or compensatory, not for liquidated damages. The terms of the bond are clear
that the liability of the surety is determined by the contract of suretyship and cannot be
extended by implication beyond the terms of the contract. Nonetheless, even assuming that it is
liable under the performance bond, the liability should be based on equity. It claims that it is
unlawful and iniquitous to hold FCC responsible for the delay of the subcontractor
commissioned by PDSC.

PCIC adds that the act of PDSC of subcontracting the various stages of the project
resulted in a revision of work schedule and extension of the completion date that ultimately
released both FCC and PCIC of whatever claims PDSC may have against them. PCIC is of the
impression that since the subcontracting made by PDSC was made without its consent and
knowledge, its liability under the performance bond should be extinguished.

PCIC also pointed out that the receivable in the amount of ₱2,793,000.00 acquired by
PDSC from Caltex and the proceeds from the auction sale in the sum of ₱662,836.50 should be
deducted from the award of ₱3,882,725.13.

The Court finds no merit in the petition.

The Building Contract entered into by PDSC and FCC provides that:

Art. 2 ESSENCE OF THE CONTRACT

2.1 It is understood that time, quality of work in accordance
with the OWNER’s requirements, and reduced
construction costs are the essence of this Contract.

2.2 The CONTRACTOR shall commence the construction for the
first two (2) levels not later than five (5) days
immediately after the date of execution of this Contract
and shall regularly proceed and complete the
construction within Two Hundred Fifty-‐Nine (259)
calendar days reckoned from the date of signing of this
Contract or not later than October 15, 1999, whichever
is earlier. To ensure completion of the work within the
time given herein, construction work shall be conducted
at least twenty hours each day with at least two (2)
work shift for every day actually worked.

2.3 In the event that the construction is not completed within
the aforesaid period of time, the OWNER is entitled
and shall have the right to deduct from any amount
that may be due to the CONTRACTOR the sum of one-‐
tenth (1/10) of one percent (1%) of the contract price
for every day of delay in whatever stage of the project
as liquidated damages, and not by way of penalty, and
without prejudice to such other remedies as the
OWNER may, in its discretion, employ including the
termination of this Contract, or replacement of the
CONTRACTOR.

2.4 Furthermore, the CONTRACTOR agrees not to request any
extension of time due to any delay in the procurement
of materials needed in the construction other than due
to circumstances of “Force Majeure”. Force Majeure is
hereby defined as any war, civil commotion and
disturbance, acts of God or any other cause beyond the
CONTRACTOR’s control and without any contributing
fault on the part of the CONTRACTOR.

2.5 Contractor shall arrange, schedule and carry on the work so
as not to interfere with the delivery and erection of the
work of others. To facilitate the erection of such other
work, the CONTRACTOR shall cease or resume work at
any point or stage of the Project, when so directed by
the OWNER or his duly authorized representative.
[Emphasis supplied]

Paragraph 2.3 of the Building Contract clearly provides a stipulation for the payment
of liquidated damages in case of delay in the construction of the project. Such is in the nature of
a penalty clause fixed by the contracting parties as a compensation or substitute for damages in
case of breach of the obligation.[34] The contractor is bound to pay the stipulated amount
without need for proof of the existence and the measures of damages caused by the
breach.[35]

Article 2226 of the Civil Code allows the parties to a contract to stipulate on
liquidated damages to be paid in case of breach. It is attached to an obligation in order to insure
performance and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in the
event of breach.[36] As a general rule, contracts constitute the law between the parties, and
they are bound by its stipulations.[37] For as long as they are not contrary to law, morals, good
customs, public order, or public policy, the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient.[38]

In the case at bench, the performance bond issued by PCIC specifically provides that:

KNOW ALL MEN BY THESE PRESENTS:

That we, N.C. FRANCIA CONSTRUCTION CORPORATION of
Merryland Corporate Offices, 3250 Gracia St., cor. Edsa, Brgy.
Pinagkaisahan, Makati City, as Principal and PHILIPPINE CHARTER
INSURANCE CORPORATION, a corporation duly organized and existing
under and by virtue of the laws of the Philippines, as Surety, are held and
firmly bound unto PETROLEUM DISTRIBUTORS & SERVICES CORPORATION,
as obligee in the sum of PESOS SIX MILLION EIGHT HUNDRED TWENTY
EIGHT THOUSAND THREE HUNDRED TWENTY NINE & 66/100 ONLY
(₱6,828,329.66) Philippine Currency for the payment of which sum well
and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors, and assigns, jointly and severally, firmly by
these presents.

THE CONDITION OF THIS OBLIGATION ARE AS FOLLOWS:

WHEREAS, the above bounden principal, on the ____ day of
________ 19___ entered into an ________________ with ___________,
to fully and faithfully guarantee that the above-‐named Principal shall
furnish, deliver, place and complete any and all necessary materials,
labor, plant, tools appliances and equipment, supplies, utilities
transportation, superintendence, supervision and all other facilities in
connection with the construction of a 4-‐storey commercial/parking
complex situated at MIA Road cor. Domestic Road, Pasay City as per
attached Building Contract dated January 27, 1999.

Provided, however, that the liability of the Surety Company
under this bond shall in no case exceed the face value hereof.

WHEREAS, said oblige requires said principal to give a good and
sufficient bond in the above stated sum to secure the full and faithful
performance on its part of said undertaking.

NOW THEREFORE, if the principal shall well and truly perform
and fulfill all the undertakings, covenants, terms conditions and
agreements stipulated in said undertakings then this obligation shall be
null and void; otherwise it shall remain in full force and effect. [Emphasis
Supplied]

By the language of the performance bond issued by PCIC, it guaranteed the full and
faithful compliance by FCC of its obligations in the construction of the Park ‘N Fly. In fact, the
primary purpose for the acquisition of the performance bond was to guarantee to PDSC that the
project would proceed in accordance with the terms and conditions of the contract and to
ensure the payment of a sum of money in case the contractor would fail in the full performance
of the contract.[39] This guaranty made by PCIC gave PDSC the right to proceed against it (PCIC)
following FCC’s non-‐compliance with its obligation.

A contract of suretyship is an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of another party, called the obligee.[40] Although the contract of a surety is
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of
another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom.[41] This was explained in the case of Stronghold Insurance
Company, Inc. v. Republic-‐Asahi Glass Corporation,[42] where it was written:

The surety’s obligation is not an original and direct one for the
performance of his own act, but merely accessory or collateral to the
obligation contracted by the principal. Nevertheless, although the contract
of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct,
primary and absolute; in other words, he is directly and equally bound with
the principal.

Corollary, when PDSC communicated to FCC that it was terminating the contract,
PCIC’s liability, as surety, arose. The claim of PDSC against PCIC occurred from the failure of FCC
to perform its obligation under the building contract. As mandated by Article 2047 of the Civil
Code, to wit:

Article 2047. By guaranty, a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In
such case, the contract is called a suretyship.

Thus, suretyship arises upon the solidary binding of a person deemed the surety with
the principal debtor for the purpose of fulfilling an obligation.[43] A surety is considered in law
as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable.[44]
Therefore, as surety, PCIC becomes liable for the debt or duty of FCC although it possesses no
direct or personal interest over the obligations of the latter, nor does it receive any benefit
therefrom.[45]

The Court also found untenable the contention of PCIC that the principal contract was
novated when PDSC and FCC executed the September 10, 1999 MOA, without informing the
surety, which, in effect, extinguished its obligation.

A surety agreement has two types of relationship: (1) the principal relationship
between the obligee and the obligor; and (2) the accessory surety relationship between the
principal and the surety. The obligee accepts the surety’s solidary undertaking to pay if the
obligor does not pay. Such acceptance, however, does not change in any material way the
obligee’s relationship with the principal obligor. Neither does it make the surety an active party
in the principal obligor-‐obligee relationship. It follows, therefore, that the acceptance does not
give the surety the right to intervene in the principal contract. The surety’s role arises only upon
the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a
solidary obligor.[46]

Furthermore, in order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old
and new obligation be in every point incompatible with each other.[47] Novation of a contract is
never presumed. In the absence of an express agreement, novation takes place only when the
old and the new obligations are incompatible on every point.[48]

Undoubtedly, a surety is released from its obligation when there is a material
alteration of the principal contract in connection with which the bond is given, such as a change
which imposes a new obligation on the promising party, or which takes away some obligation
already imposed, or one which changes the legal effect of the original contract and not merely
its form.[49] In this case, however, no new contract was concluded and perfected between PDSC
and FCC. A reading of the September 10, 1999 MOA reveals that only the revision of the work
schedule originally agreed upon was the subject thereof. The parties saw the need to adjust the
work schedule because of the various subcontracting made by PDSC. In fact, it was specifically
stated in the MOA that “all other terms and conditions of the Building Contract of 27 January
1999 not inconsistent herewith shall remain in full force and effect.”[50] There was no new
contract/agreement which could be considered to have substituted the Building Contract. As
correctly ruled by the CA, thus:

At first blush, it would seem that the parties agreed on a revised
timetable for the construction of Park ‘N Fly. But then, nowhere in the
voluminous records of this case could We find the Annex “A” mentioned in
the above-‐quoted agreement which could have shed light to the question
of whether a new period was indeed fixed by the parties. The testimony of
appellant Emmanuel Francia, Sr., President and Chief Executive Officer of
appellant N.C, Francia, candidly disclosed what truly happened to Annex
“A”, as he admitted that no new PERT/CPM was actually attached to the
Memorandum of Agreement.

Accordingly, We find no compelling reason to declare that
novation ensued under the prevailing circumstances. The execution of the
Building Contract dated 27 January 1999 does not constitute a novation of
the Memorandum of Agreement dated 10 September 1999. There lies no
incompatibility between the two contracts as their principal object and
conditions remained the same. While there is really no hard and fast rule
to determine what might constitute to be a sufficient change that can
bring about novation, the touchtone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new
obligations.[51]

It must likewise be emphasized that pursuant to the September 10, 1999 MOA, PCIC
extended the coverage of the performance bond until March 2, 2000.[52]
Finally, as pointed out by PCIC, the receivable in the amount of ₱2,793,000.00
acquired by PDSC from Caltex and the proceeds from the auction sale in the sum of ₱662,836.50
should be deducted from the award of ₱3,882,725.13. There is no quibble on this point. The
ruling of the CA on the matter is very clear. It reads:

With these points firmly in mind, We proceed to the next
question raised by appellants – whether the value of the securities given as
well as the proceeds of the sale of chattels should be deducted from the
claim of liquidated damages.

We answer in the affirmative.

There is no quibble that appellant N.C Francia assigned a
portion of its receivables from Caltex Philippines, Inc. in the amount of
₱2,793,000.00 pursuant to the Deed of Assignment dated 10 September
1999. Upon transfer of said receivables, appellee Petroleum Distributors
automatically stepped into the shoes of its transferor. It is in keeping with
the demands of justice and equity that the amount of these receivables be
deducted from the claim for liquidated damages.

So too, vehicles and equipment owned by appellant N.C. Francia
were sold at public auction at ₱1,070,000.00. After deducting storage fees,
the amount of ₱662,836.50 was deposited before the court a quo. The
latter amount accrues in favor of appellee Petroleum Distributors as partial
payment of its claim for liquidated damages.

WHEREFORE, the petition is DENIED. The July 31, 2007 Decision and December 28, 2007
Resolution of the Court of Appeals (CA) in CA-‐G.R. CV No. 82417 are AFFIRMED. The receivable
in the amount of ₱2,793,000.00 acquired by PDSC from Caltex and the proceeds from the
auction sale in the sum of ₱662,836.50 should be deducted from the award of ₱3,882,725.13.

SO ORDERED.

JOSE CATRAL MENDOZA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson

DIOSDADO M. PERALTA ROBERTO A. ABAD

ESTELA M. PERLAS-‐BERNABE
Associate Justice


I attest that the conclusions in the above Decision had been reached in consultation

PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division


Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Supreme Court
Manila

THIRD DIVISION

G.R. No. 171231

Present:
PNCC SKYWAY TRAFFIC MANAGEMENT AND SECURITY DIVISION

WORKERS ORGANIZATION (PSTMSDWO), represented by its

President, RENE SORIANO,
CORONA, J., Chairperson,
Petitioner,
VELASCO, JR.,

NACHURA,
PERALTA, and
MENDOZA, JJ.
-‐ versus -‐

Promulgated:

PNCC SKYWAY CORPORATION,
February 17, 2010
Respondent.
x -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ x

D E C I S I O N

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision[1] and the Resolution[2] of the Court of Appeals (CA) in CA-‐G.R.
SP. No. 87069, which annulled and set aside the Decision and Order of the Voluntary Arbitrator
dated July 12, 2004 and August 11, 2004, respectively.

The factual antecedents are as follows:
Petitioner PNCC Skyway Corporation Traffic Management and Security Division Workers'
Organization (PSTMSDWO) is a labor union duly registered with the Department of Labor and
Employment (DOLE). Respondent PNCC Skyway Corporation is a corporation duly organized and
operating under and by virtue of the laws of the Philippines.

On November 15, 2002, petitioner and respondent entered into a Collective Bargaining
Agreement (CBA) incorporating the terms and conditions of their agreement which included
vacation leave and expenses for security license provisions.

The pertinent provisions of the CBA relative to vacation leave and sick leave are as follows:
ARTICLE VIII
VACATION LEAVE AND SICK LEAVE

Section 1. Vacation Leave.

[a] Regular Employees covered by the bargaining unit who have completed
at least one [1] year of continuous service shall be entitled to vacation leave
with pay depending on the length of service as follows:

1-‐9 years of service -‐ 15 working days
26 and above years of service -‐ 19 working days.

[b] The company shall schedule the vacation leave of employees during the
year taking into consideration the request of preference of
the employees.(emphasis supplied)

[c] Any unused vacation leave shall be converted to cash and shall be
paid to the employees on the first week of December each year.”
ARTICLE XXI

Section 6. Security License – All covered employees must
possess a valid License [Security Guard License] issued by the Chief,
Philippine National Police or his duly authorized representative, to perform
his duties as security guard. All expenses of security guard in
securing/renewing their licenses shall be for their personal account.
Guards, securing/renewing their license must apply for a leave of absence
and/or a change of schedule. Any guard who fails to renew his security
guard license should be placed on forced leave until such time that he can
present a renewed security license.

In a Memorandum dated December 29, 2003,[3] respondent's Head of the Traffic
Management and Security Department (TMSD) published the scheduled vacation leave of its
TMSD personnel for the year 2004. Thereafter, the Head of the TMSD issued a Memorandum[4]
dated January 9, 2004 to all TMSD personnel. In the said memorandum, it was provided that:
SCHEDULED VACATION LEAVE WITH PAY.

The 17 days (15 days SVL plus 2-‐day-‐off) scheduled vacation
leave (SVL) with pay for the year 2004 had been published for everyone
to take a vacation with pay which will be our opportunity to enjoy quality
time with our families and perform our other activities requiring our
personal attention and supervision. Swapping of SVL schedule is allowed
on a one-‐on-‐one basis by submitting a written request at least 30 days
before the actual schedule of SVL duly signed by the concerned parties.
However, the undersigned may consider the re-‐scheduling of the SVL
upon the written request of concerned TMSD personnel at least 30 days
before the scheduled SVL. Re-‐scheduling will be evaluated taking into
consideration the TMSDs operational requirement.

Petitioner objected to the implementation of the said memorandum. It insisted that the
individual members of the union have the right to schedule their vacation leave. It opined that
the unilateral scheduling of the employees' vacation leave was done to avoid the monetization
of their vacation leave in December 2004. This was allegedly apparent in the memorandum
issued by the Head HRD,[5] addressed to all department heads, which provides:
FOR : All Dept. Heads

FROM : Head, HRD
SUBJECT : Leave Balances as of January 01, 2004
DATE : January 9, 2004
We are furnishing all the departments the leave balances of
their respective staff as of January 01, 2004, so as to have them monitor
and program the schedule of such leave.

Please consider the leave credit they earned each month [1-‐2-‐
0], one day and two hours in anticipation of the later schedule. As we are
targeting the zero conversion comes December 2004, it is suggested that
the leave balances as of to date be given preferential scheduling.

x x x.

Petitioner also demanded that the expenses for the required in-‐service training of its
member security guards, as a requirement for the renewal of their license, be shouldered by the
respondent. However, the respondent did not accede to petitioner's demands and stood firm
on its decision to schedule all the vacation leave of petitioner's members.

Due to the disagreement between the parties, petitioner elevated the matter to the DOLE-‐
NCMB for preventive mediation. For failure to settle the issue amicably, the parties agreed to
submit the issue before the voluntary arbitrator.

The voluntary arbitrator issued a Decision dated July 12, 2004, the dispositive portion of
which reads:

WHEREFORE, premises all considered, declaring that:

a) The scheduling of all vacation leaves under Article VIII, Section 6,
thereof, shall be under the discretion of the union members entitled
thereto, and the management to convert them into cash all the leaves
which the management compelled them to use.

b) To pay the expenses for the in-‐service-‐training of the company security
guards, as a requirement for renewal of licenses, shall not be their
personal account but that of the company.

All other claims are dismissed for lack of merit.

SO ORDERED.[6]

Respondent filed a motion for reconsideration, which the voluntary arbitrator denied in
the Order[7] dated August 11, 2004.

Aggrieved, on October 22, 2004, respondent filed a Petition for Certiorari with Prayer for
Temporary Restraining Order and/or Writ of Preliminary Injunction with the CA, and the CA
rendered a Decision dated October 4, 2005,[8] annulling and setting aside the decision and
order of the voluntary arbitrator. The CA ruled that since the provisions of the CBA were clear,
the voluntary arbitrator has no authority to interpret the same beyond what was expressly
written.

Petitioner filed a motion for reconsideration, which the CA denied through a Resolution
dated January 23, 2006.[9] Hence, the instant petition assigning the following errors:

I
WITH ALL DUE RESPECT, THE HONORABLE PUBLIC RESPONDENT COURT OF

APPEALS [THIRTEENTH DIVISION] ERRED IN HOLDING THAT:
A) THE MANAGEMENT HAS THE SOLE DISCRETION TO SCHEDULE THE

VACATION LEAVE OF HEREIN PETITIONER.
B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-‐SERVICE-‐TRAINING OF

THE SECURITY GUARDS.

II
THE HONORABLE PUBLIC RESPONDENT ERRED IN OVERSEEING THE

CONVERSION ASPECT OF THE UNUSED LEAVE.

Before considering the merits of the petition, We shall first address the objection based on
technicality raised by respondent.
Respondent alleged that the petition was fatally defective due to the lack of authority of
its union president, Rene Soriano, to sign the certification and verification against forum
shopping on petitioner's behalf. It alleged that the authority of Rene Soriano to represent the
union was only conferred on June 30, 2006 by virtue of a board resolution,[10] while the
Petition for Review had long been filed on February 27, 2006. Thus, Rene Soriano did not
possess the required authority at the time the petition was filed on February 27, 2006.

The petitioner countered that the Board Resolution[11] dated June 30, 2006 merely
reiterated the authority given to the union president to represent the union, which was
conferred as early as October 2005. The resolution provides in part that:

WHEREAS, in a meeting duly called for October 2005, the Union
decided to file a Motion for Reconsideration and if the said motion be
denied, to file a petition before the Supreme Court. (Emphasis supplied)

Thus, the union president, representing the union, was clothed with authority to file the petition
on February 27, 2006.

The purpose of requiring verification is to secure an assurance that the allegations in the
petition have been made in good faith; or are true and correct, not merely speculative. This
requirement is simply a condition affecting the form of pleadings, and non-‐compliance
therewith does not necessarily render it fatally defective. Truly, verification is only a formal, not
a jurisdictional, requirement.

With respect to the certification of non-‐forum shopping, it has been held that the
certification requirement is rooted in the principle that a party-‐litigant shall not be allowed to
pursue simultaneous remedies in different fora, as this practice is detrimental to an orderly
judicial procedure. However, this Court has relaxed, under justifiable circumstances, the rule
requiring the submission of such certification considering that, although it is obligatory, it is not
jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial
compliance.[12]

In Cagayan Valley Drug Corporation v. Commissioner of Internal Revenue,[13] We said
that:

In a slew of cases, however, we have recognized the authority of
some corporate officers to sign the verification and certification against
forum shopping. In Mactan-‐Cebu International Airport Authority v. CA, we
recognized the authority of a general manager or acting general manager
to sign the verification and certificate against forum shopping; in Pfizer v.
Galan, we upheld the validity of a verification signed by an “employment
specialist” who had not even presented any proof of her authority to
represent the company; in Novelty Philippines, Inc., v. CA, we ruled that a
personnel officer who signed the petition but did not attach the authority
from the company is authorized to sign the verification and non-‐forum
shopping certificate; and in Lepanto Consolidated Mining Company v. WMC
Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson
of the Board and President of the Company can sign the verification and
certificate against non-‐forum shopping even without the submission of the
board’s authorization.

In sum, we have held that the following officials or employees of
the company can sign the verification and certification without need of a
board resolution: (1) the Chairperson of the Board of Directors, (2) the
President of a corporation, (3) the General Manager or Acting General
Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor
case.

While the above cases do not provide a complete listing of
authorized signatories to the verification and certification required by the
rules, the determination of the sufficiency of the authority was done on a
case to case basis. The rationale applied in the foregoing cases is to justify
the authority of corporate officers or representatives of the corporation to
sign the verification or certificate against forum shopping, being “in a
position to verify the truthfulness and correctness of the allegations in the
petition.”
In the case at bar, We rule that Rene Soriano has sufficient authority to sign the
verification and certification against forum shopping for the following reasons: First, the
resolution dated June 30, 2006 was merely a reiteration of the authority given to the Union
President to file a case before this Court assailing the CBA violations committed by the
management, which was previously conferred during a meeting held on October 5, 2005. Thus,
it can be inferred that even prior to the filing of the petition before Us on February 27, 2006, the
president of the union was duly authorized to represent the union and to file a case on its
behalf. Second, being the president of the union, Rene Soriano is in a position to verify the
truthfulness and correctness of the allegations in the petition. Third, assuming that Mr. Soriano
has no authority to file the petition on February 27, 2006, the passing on June 30, 2006 of a
Board Resolution authorizing him to represent the union is deemed a ratification of his prior
execution, on February 27, 2006, of the verification and certificate of non-‐forum shopping, thus
curing any defects thereof. Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority.[14]

We now go to the merits of the case.

Petitioner insisted that their union members have the preference in scheduling their
vacation leave. On the other hand, respondent argued that Article VIII, Section 1 (b) gives the
management the final say regarding the vacation leave schedule of its employees. Respondent
may take into consideration the employees' preferred schedule, but the same is not controlling.
Petitioner also requested the respondent to provide and/or shoulder the expenses for the
in-‐service training of their members as a requirement for the renewal of the security guards'
license. Respondent did not accede to the union's request invoking the CBA provision which
states that all expenses of security guards in securing /renewing their license shall be for their
personal account. The petitioner further argued that any doubts or ambiguity in the
interpretation of the CBA should be resolved in favor of the laborer.

As to the issue on vacation leaves, the same has no merit.

The rule is that where the language of a contract is plain and unambiguous, its meaning
should be determined without reference to extrinsic facts or aids. The intention of the parties
must be gathered from that language, and from that language alone. Stated differently, where
the language of a written contract is clear and unambiguous, the contract must be taken to
mean that which, on its face, it purports to mean, unless some good reason can be assigned to
show that the words used should be understood in a different sense.[15]

In the case at bar, the contested provision of the CBA is clear and unequivocal. Article
VIII, Section 1 (b) of the CBA categorically provides that the scheduling of vacation leave shall be
under the option of the employer. The preference requested by the employees is not controlling
because respondent retains its power and prerogative to consider or to ignore said request.

Thus, if the terms of a CBA are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall prevail.[16] In fine, the CBA must
be strictly adhered to and respected if its ends have to be achieved, being the law between the
parties. In Faculty Association of Mapua Institute of Technology (FAMIT) v. Court of Appeals,[17]
this Court held that the CBA during its lifetime binds all the parties. The provisions of the CBA
must be respected since its terms and conditions constitute the law between the parties. The
parties cannot be allowed to change the terms they agreed upon on the ground that the same
are not favorable to them.

As correctly found by the CA:

The words of the CBA were unequivocal when it provided that
“The company shall schedule the vacation leave of employees during the
year taking into consideration the request of preference of the
employees.” The word shall in this instance connotes an imperative
command, there being nothing to show a different intention. The only
concession given under the subject clause was that the company should
take into consideration the preferences of the employees in scheduling the
vacations; but certainly, the concession never diminished the positive right
of management to schedule the vacation leaves in accordance with what
had been agreed and stipulated upon in the CBA.
There is, thus, no basis for the Voluntary Arbitrator to interpret
the subject provision relating to the schedule of vacation leaves as being
subject to the discretion of the union members. There is simply nothing in
the CBA which grants the union members this right.
It must be noted the grant to management of the right to
schedule vacation leaves is not without good reason. Indeed, if union
members were given the unilateral discretion to schedule their vacation
leaves, the same may result in significantly crippling the number of key
employees of the petitioner manning the toll ways on holidays and other
peak seasons, where union members may wittingly or unwittingly choose
to have a vacation. Put another way, the grant to management of the right
to schedule vacation leaves ensures that there would always be enough
people manning and servicing the toll ways, which in turn assures the
public plying the same orderly and efficient toll way service.

Indeed, the multitude or scarcity of personnel manning the tollways should not rest upon
the option of the employees, as the public using the skyway system should be assured of its
safety, security and convenience.
Although the preferred vacation leave schedule of petitioner's members should be given
priority, they cannot demand, as a matter of right, that their request be automatically granted
by the respondent. If the petitioners were given the exclusive right to schedule their vacation
leave then said right should have been incorporated in the CBA. In the absence of such right and
in view of the mandatory provision in the CBA giving respondent the right to schedule the
vacation leave of its employees, compliance therewith is mandated by law.

In the grant of vacation leave privileges to an employee, the employer is given the leeway
to impose conditions on the entitlement to and commutation of the same, as the grant of
vacation leave is not a standard of law, but a prerogative of management.[18] It is a mere
concession or act of grace of the employer and not a matter of right on the part of the
employee.[19] Thus, it is well within the power and authority of an employer to impose certain
conditions, as it deems fit, on the grant of vacation leaves, such as having the option to schedule
the same.

Along that line, since the grant of vacation leave is a prerogative of the employer, the
latter can compel its employees to exhaust all their vacation leave credits. Of course, any
vacation leave credits left unscheduled by the employer, or any scheduled vacation leave that
was not enjoyed by the employee upon the employer's directive, due to exigencies of the
service, must be converted to cash, as provided in the CBA. However, it is incorrect to award
payment of the cash equivalent of vacation leaves that were already used and enjoyed by the
employees. By directing the conversion to cash of all utilized and paid vacation leaves, the
voluntary arbitrator has licensed unjust enrichment in favor of the petitioner and caused undue
financial burden on the respondent. Evidently, the Court cannot tolerate this.

It would seem that petitioner's goal in relentlessly arguing that its members preferred
vacation leave schedule should be given preference is not allowed to them to avail themselves
of their respective vacation leave credits at all but, instead, to convert these into cash.

In Cuajo v. Chua Lo Tan,[20] We said that the purpose of a vacation leave is to afford a
laborer a chance to get a much-‐needed rest to replenish his worn-‐out energy and acquire a new
vitality to enable him to efficiently perform his duties, and not merely to give him additional
salary and bounty.

This purpose is manifest in the Memorandum dated January 9, 2004[21] addressed to all
TMSD Personnel which provides that:

SCHEDULED VACATION LEAVE WITH PAY

The 17 days (15 days SVL plus 2-‐Day-‐Off) scheduled vacation
leave (SVL) with pay for the year 2004 had been published for everyone to
take a vacation with pay which will be our opportunity to enjoy quality
time with our families and perform our other activities requiring our
personal attention and supervision.(Emphasis ours.)

Accordingly, the vacation leave privilege was not intended to serve as additional salary,
but as a non-‐monetary benefit. To give the employees the option not to consume it with the aim
of converting it to cash at the end of the year would defeat the very purpose of vacation leave.
Petitioner's contention that labor contracts should be construed in favor of the laborer is
without basis and, therefore, inapplicable to the present case. This rule of construction does not
benefit petitioners because, as stated, there is here no room for interpretation. Since the CBA is
clear and unambiguous, its terms should be implemented as they are written.

This brings Us to the issue of who is accountable for the in-‐service training of the security
guards. On this point, We find the petition meritorious.

Although it is a rule that a contract freely entered into between the parties should be
respected, since a contract is the law between the parties, there are, however, certain
exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:

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.

Moreover, the relations between capital and labor are not merely contractual. “They are
so impressed with public interest that labor contracts must yield to the common good x x x.”[22]
The supremacy of the law over contracts is explained by the fact that labor contracts are not
ordinary contracts; they are imbued with public interest and therefore are subject to the police
power of the state.[23] However, it should not be taken to mean that provisions agreed upon in
the CBA are absolutely beyond the ambit of judicial review and nullification. If the provisions in
the CBA run contrary to law, public morals, or public policy, such provisions may very well be
voided.
In the present case, Article XXI, Section 6 of the CBA provides that “All expenses of security
guards in securing /renewing their licenses shall be for their personal account.” A reading of the
provision would reveal that it encompasses all possible expenses a security guard would pay or
incur in order to secure or renew his license. In-‐service training is a requirement for the renewal
of a security guard’s license.[24] Hence, following the aforementioned CBA provision, the
expenses for the same must be on the personal account of the employee. However, the 1994
Revised Rules and Regulations Implementing Republic Act No. 5487 provides the following:

Section 17. Responsibility for Training and Progressive
Development. It is the primary responsibility of all operators private
security agency and company security forces to maintain and upgrade the
standards of efficiency, discipline, performance and competence of their
personnel. To attain this end, each duly licensed private security agency
and company security force shall establish a staff position for training and
appoint a training officer whose primary functions are to determine the
training needs of the agency/guards in relation to the needs of the client/
market/ industry, and to supervise and conduct appropriate training
requirements. All private security personnel shall be re-‐trained at least
once very two years.

Section 12. In service training. -‐ a. To maintain and/or upgrade
the standard of efficiency, discipline and competence of security guards
and detectives, company security force and private security agencies upon
prior authority shall conduct-‐in-‐service training at least two (2) weeks
duration for their organic members by increments of at least two percent
(2%) of their total strength. Where the quality of training is better served
by centralization, the CSFD Directors may activate a training staff from
local talents to assist. The cost of training shall be pro-‐rated among the
participating agencies/private companies. All security officer must
undergo in-‐service training at least once every two (2) years preferably two
months before his or her birth month.

Since it is the primary responsibility of operators of company security forces to maintain
and upgrade the standards of efficiency, discipline, performance and competence of their
personnel, it follows that the expenses to be incurred therein shall be for the personal account
of the company. Further, the intent of the law to impose upon the employer the obligation to
pay for the cost of its employees’ training is manifested in the aforementioned law’s provision
that Where the quality of training is better served by centralization, the CFSD Directors may
activate a training staff from local talents to assist. The cost of training shall be pro-‐rated among
the participating agencies/private companies. It can be gleaned from the said provision that
cost of training shall be pro-‐rated among participating agencies and companies if the training is
best served by centralization. The law mandates pro-‐rating of expenses because it would be
impracticable and unfair to impose the burden of expenses suffered by all participants on only
one participating agency or company. Thus, it follows that if there is no centralization, there can
be no pro-‐rating, and the company that has its own security forces shall shoulder the entire cost
for such training. If the intent of the law were to impose upon individual employees the cost of
training, the provision on the pro-‐rating of expenses would not have found print in the law.

Further, petitioner alleged that prior to the inking of the CBA, it was the respondent
company providing for the in-‐service training of the guards.[25] Respondent never controverted
the said allegation and is thus deemed to have admitted the same.[26] Implicit from
respondent's actuations was its acknowledgment of its legally mandated responsibility to
shoulder the expenses for in-‐service training.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision and Resolution of the
Court of Appeals, dated October 4, 2005 and January 23, 2006, respectively, in CA-‐G.R. SP. No.
87069 is MODIFIED. The cost of in-‐service training of the respondent company's security guards
shall be at the expense of the respondent company. This case is remanded to the voluntary
arbitrator for the computation of the expenses incurred by the security guards for their in-‐
service training, and respondent company is directed to reimburse its security guards for the
expenses incurred.
SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

RENATO C. CORONA
Associate Justice
Chairperson

PRESBITERO J. VELASCO, JR. AN
Associate Justice

JOSE CATRAL MENDOZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation

RENATO C. CORONA
Associate Justice
Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

THIRD DIVISION

VICENTE ONG LIM SING, JR., G.R. No. 168115
Petitioner,
Present:

YNARES-‐SANTIAGO, J.,
-‐ versus -‐ Chairperson,
AUSTRIA-‐MARTINEZ,
CHICO-‐NAZARIO, and
NACHURA, JJ.

FEB LEASING & FINANCE CORPORATION, Promulgated:
Respondent.
June 8, 2007

x-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐x

D E C I S I O N

NACHURA, J.:

This is a petition for review on certiorari assailing the Decision[1] dated March 15, 2005
and the Resolution[2] dated May 23, 2005 of the Court of Appeals (CA) in CA-‐G.R. CV No. 77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease[3] of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim
Sing, Jr. (Lim) executed an Individual Guaranty Agreement[4] with FEB to guarantee the prompt
and faithful performance of the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and Acceptance Certificates[5] over the
equipment and motor vehicles formed part of the agreement. Under the contract, JVL was
obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand Four
Hundred Ninety-‐Four Pesos (P170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in
arrears, including penalty charges and insurance premiums, amounted to Three Million Four
Hundred Fourteen Thousand Four Hundred Sixty-‐Eight and 75/100 Pesos (P3,414,468.75). On
August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However, JVL
failed to pay.[6]

On December 6, 2000, FEB filed a Complaint[7] with the Regional Trial Court of
Manila, docketed as Civil Case No. 00-‐99451, for sum of money, damages, and replevin against
JVL, Lim, and John Doe.

In the Amended Answer,[8] JVL and Lim admitted the existence of the lease
agreement but asserted that it is in reality a sale of equipment on installment basis, with FEB
acting as the financier. JVL and Lim claimed that this intention was apparent from the fact that
they were made to believe that when full payment was effected, a Deed of Sale will be executed
by FEB as vendor in favor of JVL and Lim as vendees.[9] FEB purportedly assured them that
documenting the transaction as a lease agreement is just an industry practice and that the
proper documentation would be effected as soon as full payment for every item was
made. They also contended that the lease agreement is a contract of adhesion and should,
therefore, be construed against the party who prepared it, i.e., FEB.

In upholding JVL and Lim’s stance, the trial court stressed the contradictory terms it
found in the lease agreement. The pertinent portions of the Decision dated November 22, 2002
read:

A profound scrutiny of the provisions of the contract which is a
contract of adhesion at once exposed the use of several contradictory
terms. To name a few, in Section 9 of the said contract – disclaiming
warranty, it is stated that the lessor is not the manufacturer nor the
latter’s agent and therefore does not guarantee any feature or aspect of
the object of the contract as to its merchantability. Merchantability is a
term applied in a contract of sale of goods where conditions and
warranties are made to apply. Article 1547 of the Civil Code provides that
unless a contrary intention appears an implied warranty on the part of the
seller that he has the right to sell and to pass ownership of the object is
furnished by law together with an implied warranty that the thing shall be
free from hidden faults or defects or any charge or encumbrance not
known to the buyer.

In an adhesion contract which is drafted and printed in advance and
parties are not given a real arms’ length opportunity to transact, the
Courts treat this kind of contract strictly against their architects for the
reason that the party entering into this kind of contract has no choice but
to accept the terms and conditions found therein even if he is not in
accord therewith and for that matter may not have understood all the
terms and stipulations prescribed thereat. Contracts of
this character are prepared unilaterally by the stronger party with the
best legal talents at its disposal. It is upon that thought that the Courts
are called upon to analyze closely said contracts so that the weaker party
could be fully protected.

Another instance is when the alleged lessee was required to insure
the thing against loss, damage or destruction.

In property insurance against loss or other accidental causes, the
assured must have an insurable interest, 32 Corpus Juris 1059.

x x x x

It has also been held that the test of insurable interest in property is
whether the assured has a right, title or interest therein that he will be
benefited by its preservation and continued existence or suffer a direct
pecuniary loss from its destruction or injury by the peril insured against. If
the defendants were to be regarded as only a lessee, logically the lessor
who asserts ownership will be the one directly benefited or injured and
therefore the lessee is not supposed to be the assured as he has no
insurable interest.

There is also an observation from the records that the actual value
of each object of the contract would be the result after computing the
monthly rentals by multiplying the said rentals by the number of months
specified when the rentals ought to be paid.

Still another observation is the existence in the records of a Deed of
Absolute Sale by and between the same parties, plaintiff and defendants
which was an exhibit of the defendant where the plaintiff sold to the same
defendants one unit 1995 Mitsubishi L-‐200 STRADA DC PICK UP and in said
Deed, The Court noticed that the same terms as in the alleged lease were
used in respect to warranty, as well as liability in case of loss and other
conditions. This action of the plaintiff unequivocally exhibited their real
intention to execute the corresponding Deed after the defendants have
paid in full and as heretofore discussed and for the sake of emphasis the
obscurity in the written contract cannot favor the party who caused the
obscurity.

Based on substantive Rules on Interpretation, if the terms are clear
and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. If the words appear to be
contrary to the evident intention of the parties, their contemporaneous
and subsequent acts shall be principally considered. If the doubts are cast
upon the principal object of the contract in such a way that it cannot be
known what may have been the intention or will of the parties, the
contract shall be null and void.[10]

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there
is no chattel mortgage on the thing sold, but it appears amongst the
Complaint’s prayer, that the plaintiff elected to exact fulfillment of the
obligation.

For the vehicles returned, the plaintiff can only recover the unpaid
balance of the price because of the previous payments made by the
defendants for the reasonable use of the units, specially so, as it appears,
these returned vehicles were sold at auction and that the plaintiff can
apply the proceeds to the balance. However, with respect to the
unreturned units and machineries still in the possession of the defendants,
it is this Court’s view and so hold that the defendants are liable therefore
and accordingly are ordered jointly and severally to pay the price thereof
to the plaintiff together with attorney’s fee and the costs of suit in the sum
of Php25,000.00.

SO ORDERED.[11]

On December 27, 2002, FEB filed its Notice of Appeal.[12] Accordingly, on January 17,
2003, the court issued an Order[13] elevating the entire records of the case to the CA. FEB
averred that the trial court erred:

A. When it ruled that the agreement between the Parties-‐Litigants is
one of sale of personal properties on installment and not of lease;

B. When it ruled that the applicable law on the case is Article 1484 (of
the Civil Code) and not R.A. No. 8556;

C. When it ruled that the Plaintiff-‐Appellant can no longer recover
the unpaid balance of the price because of the previous payments made
by the defendants for the reasonable use of the units;

D. When it failed to make a ruling or judgment on the Joint and
Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-‐Appellant.[14]

On March 15, 2005, the CA issued its Decision[15] declaring the transaction between
the parties as a financial lease agreement under Republic Act (R.A.) No. 8556.[16] The fallo of
the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed
Decision dated 22 November 2002 rendered by the Regional Trial Court of
Manila, Branch 49 in Civil Case No. 00-‐99451 is REVERSED and SET ASIDE,
and a new judgment is hereby ENTERED ordering appellees JVL Food
Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing
and Finance Corporation the amount of Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty Eight Pesos and 75/100
(Php3,414,468.75), with interest at the rate of twelve percent (12%) per
annum starting from the date of judicial demand on 06 December 2000,
until full payment thereof. Costs against appellees.

SO ORDERED.[17]

Lim filed the instant Petition for Review on Certiorari under Rule 45
contending that:

I

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO CONSIDER THAT THE UNDATED COMPLAINT WAS FILED BY
SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM
RESPONDENT’S BOARD OF DIRECTORS AND/OR SECRETARY’S CERTIFICATE.

II

THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED
TO STRICTLY APPLY SECTION 7, RULE 18 OF THE 1997 RULES OF CIVIL
PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-‐1-‐09 SC (JUNE 8,
2004).

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING
THE APPEAL FOR FAILURE OF THE RESPONDENT TO FILE ON TIME ITS
APPELLANT’S BRIEF AND TO SEPARATELY RULE ON THE PETITIONER’S
MOTION TO DISMISS.

IV

THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE
CONTRACT BETWEEN THE PARTIES IS ONE OF A FINANCIAL LEASE AND
NOT OF A CONTRACT OF SALE.

V

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
PAYMENTS PAID BY THE PETITIONER TO THE RESPONDENT ARE “RENTALS”
AND NOT INSTALLMENTS PAID FOR THE PURCHASE PRICE OF THE SUBJECT
MOTOR VEHICLES, HEAVY MACHINES AND EQUIPMENT.

VI

PREVIOUS CONTRACT OF SALE INVOLVING THE PICK-‐UP VEHICLE IS OF NO
CONSEQUENCE.

VII

THE HONORABLE COURT OF APPEALS FAILED TO TAKE
INTO CONSIDERATION THAT THE CONTRACT OF LEASE, A CONTRACT
OF ADHESION, CONCEALED THE TRUE INTENTION OF THE PARTIES, WHICH
IS A CONTRACT OF SALE.

VIII

PETITIONER IS A LESSEE WITH INSURABLE INTEREST OVER THE SUBJECT
PERSONAL PROPERTIES.

IX

THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE
INTENTIONS OF THE COURT A QUO IN ITS USAGE OF THE TERM
MERCHANTABILITY.[18]

We affirm the ruling of the appellate court.

First, Lim can no longer question Galang’s authority as FEB’s authorized
representative in filing the suit against Lim. Galang was the representative of FEB in the
proceedings before the trial court up to the appellate court. Petitioner never placed in issue the
validity of Galang’s representation before the trial and appellate courts. Issues raised for the
first time on appeal are barred by estoppel. Arguments not raised in the original proceedings
cannot be considered on review; otherwise, it would violate basic principles of fair play.[19]

Second, there is no legal basis for Lim to question the authority of the CA to go
beyond the matters agreed upon during the pre-‐trial conference, or in not dismissing the
appeal for failure of FEB to file its brief on time, or in not ruling separately on the petitioner’s
motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory
character, mindful of the duty to reconcile both the need to speedily put an end to
litigation and the parties’ right to due process. In numerous cases, this Court
has allowed liberal construction of the rules when to do so would serve the demands of
substantial justice and equity.[20] In Aguam v. Court of Appeals, the Court explained:

The court has the discretion to dismiss or not to dismiss an appellant's
appeal. It is a power conferred on the court, not a duty. The "discretion
must be a sound one, to be exercised in accordance with the tenets of
justice and fair play, having in mind the circumstances obtaining in each
case." Technicalities, however, must be avoided. The law abhors
technicalities that impede the cause of justice. The court's primary duty is
to render or dispense justice. "A litigation is not a game of
technicalities." "Lawsuits unlike duels are not to be won by a rapier's
thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant
consideration from courts." Litigations must be decided on their merits
and not on technicality. Every party litigant must be afforded the amplest
opportunity for the proper and just determination of his cause, free from
the unacceptable plea of technicalities. Thus, dismissal of appeals purely
on technical grounds is frowned upon where the policy of the court is to
encourage hearings of appeals on their merits and the rules of procedure
ought not to be applied in a very rigid, technical sense; rules of procedure
are used only to help secure, not override substantial justice. It is a far
better and more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on appeal to
attain the ends of justice rather than dispose of the case on technicality
and cause a grave injustice to the parties, giving a false impression of
speedy disposal of cases while actually resulting in more delay, if not a
miscarriage of justice.[21]

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a
contract is not void per se. It is as binding as any ordinary contract. A party who enters into an
adhesion contract is free to reject the stipulations entirely.[22] If the terms thereof are accepted
without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument constitute the
entire agreement between them, and that no representations have been
made other than as set forth herein. This Agreement shall not be amended
or altered in any manner, unless such amendment be made in writing and
signed by the parties hereto.

Petitioner’s claim that the real intention of the parties was a contract of sale of personal
property on installment basis is more likely a mere afterthought in order to defeat the rights of
the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3(d)
thereof defines “financial leasing” as:

[A] mode of extending credit through a non-‐cancelable lease contract
under which the lessor purchases or acquires, at the instance of the lessee,
machinery, equipment, motor vehicles, appliances, business
and office machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed amount of
money sufficient to amortize at least seventy (70%) of the purchase price
or acquisition cost, including any incidental expenses and a margin of
profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property with the
right to expense the lease rentals paid to the lessor and bears the cost of
repairs, maintenance, insurance and preservation thereof, but with no
obligation or option on his part to purchase the leased property from the
owner-‐lessor at the end of the lease contract.

FEB leased the subject equipment and motor vehicles to JVL in consideration of a
monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to
amortize at least 70% of the purchase price or acquisition cost of the said movables in
accordance with the Lease Schedules with Delivery and Acceptance Certificates. “The
basic purpose of a financial leasing transaction is to enable the prospective buyer of
equipment, who is unable to pay for such equipment in cash in one lump sum, to lease such
equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of
the acquisition cost (including the expenses and a margin of profit for the financial lessor) with
the expectation that at the end of the lease period the buyer/financial lessee will be able to pay
any remaining balance of the purchase price.”[23]

The allegation of petitioner that the rent for the use of each movable constitutes the
value of the vehicle or equipment leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make the transaction between the parties
a sale of personal property on installment. In fact, the value of the lease, usually constituting
the value or amount of the property involved, is a benefit allowed by law to the lessor for the
use of the property by the lessee for the duration of the lease. It is recognized that the value
of these movables depreciates through wear and tear upon use by the lessee. In Beltran v. PAIC
Finance Corporation,[24] we stated that:

Generally speaking, a financing company is not a buyer or seller of goods;
it is not a trading company. Neither is it an ordinary leasing company; it
does not make its profit by buying equipment and repeatedly leasing
out such equipment to different users thereof. But a financial lease
must be preceded by a purchase and sale contract covering the equipment
which becomes the subject matter of the financial lease. The financial
lessor takes the role of the buyer of the equipment leased. And so the
formal or documentary tie between the seller and the real buyer of the
equipment, i.e., the financial lessee, is apparently severed. In economic
reality, however, that relationship remains. The sale of the
equipment by the supplier thereof to the financial lessor and the
latter's legal ownership thereof are intended to secure the repayment over
time of the purchase price of the equipment, plus financing charges,
through the payment of lease rentals; that legal title is the upfront security
held by the financial lessor, a security probably superior in some instances
to a chattel mortgagee's lien.[25]

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL
entered into the lease contract with full knowledge of its terms and conditions. The contract
was in force for more than four years. Since its inception on March 9, 1995, JVL and Lim never
questioned its provisions. They only attacked the validity of the contract after they were
judicially made to answer for their default in the payment of the agreed rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and
conditions as they may want to include in a contract. As long as such agreements are not
contrary to law, morals, good customs, public policy, or public order, they shall have the force of
law between the parties.[26] Contracting parties may stipulate on terms and conditions as they
may see fit and these have the force of law between them.[27]

The stipulation in Section 14[28] of the lease contract, that the equipment shall be
insured at the cost and expense of the lessee against loss, damage, or destruction from fire,
theft, accident, or other insurable risk for the full term of the lease, is a binding and valid
stipulation. Petitioner, as a lessee, has an insurable interest in the equipment and motor
vehicles leased. Section 17 of the Insurance Code provides that the measure of an insurable
interest in property is the extent to which the insured might be damnified by loss or injury
thereof. It cannot be denied that JVL will be directly damnified in case of loss, damage, or
destruction of any of the properties leased.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not
warrant the merchantability of the equipment is a valid stipulation. Section 9.1 of the lease
contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS
NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR THE
AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE
HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND
THE SUPPLIER
THEREOF AND THAT THERE ARE NO WARRANTIES,
CONDITIONS, TERMS, REPRESENTATION OR INDUCEMENTS, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE
LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART
THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT
WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR SPECIFIC
MACHINERY OR APPARATUS OR SPECIAL METHODS.[29]

In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, in case of defect
of any kind that will be found by the lessee in any of the equipment, recourse should be made to
the manufacturer. “The financial lessor, being a financing company, i.e., an extender of credit
rather than an ordinary equipment rental company, does not extend a warranty of the fitness of
the equipment for any particular use. Thus, the financial lessee was precisely in a position to
enforce such warranty directly against the supplier of the equipment and not against the
financial lessor. We find nothing contra legem or contrary to public policy in such a contractual
arrangement.”[30]

Fifth, petitioner further proffers the view that the real intention of the parties was to
enter into a contract of sale on installment in the same manner that a previous transaction
between the parties over a 1995 Mitsubishi L-‐200 Strada DC-‐Pick-‐Up was initially covered by an
agreement denominated as a lease and eventually became the subject of a Deed of Absolute
Sale.

We join the CA in rejecting this view because to allow the transaction involving the
pick-‐up to be read into the terms of the lease agreement would expand the coverage of the
agreement, in violation of Article 1372 of the New Civil Code. [31] The lease contract subject of
the complaint speaks only of a lease. Any agreement between the parties after the lease
contract has ended is a different transaction altogether and should not be included as part of
the lease. Furthermore, it is a cardinal rule in the interpretation of contracts that if the terms of
a contract are clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to
determine the parties' intent.[32]

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of
the CA in CA-‐G.R. CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are
AFFIRMED. Costs against petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA
Associate Justice

WE CONCUR:

CONSUELO YNARES-‐SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-‐MARTINEZ MINITA V. CHICO-‐NAZARIO


I attest that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-‐SANTIAGO
Associate Justice


Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's
Attestation, it is hereby certified that the conclusions in the above decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court.

LEONARDO A. QUISUMBING
Acting Chief Justice

Supreme Court
Manila

SECOND DIVISION

F.F. CRUZ & CO., INC., G.R. No. 187521
Petitioner,
Present:

CARPIO, J.,
Chairperson,
BRION,
-‐ versus -‐ PEREZ,
SERENO, and
REYES, JJ.

Promulgated:
HR CONSTRUCTION CORP.,
Respondent. March 14, 2012

x-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐-‐x

DECISION

REYES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing the Decision[1] dated February 6, 2009 and
Resolution[2] dated April 13, 2009 issued by the Court of Appeals (CA) in CA-‐G.R. SP No. 91860.

The Antecedent Facts

Sometime in 2004, FFCCI entered into a contract with the Department of Public
Works and Highways (DPWH) for the construction of the Magsaysay Viaduct, known as the
Lower Agusan Development Project. On August 9, 2004, FFCCI, in turn, entered into a
Subcontract Agreement[3] with HR Construction Corporation (HRCC) for the supply of materials,
labor, equipment, tools and supervision for the construction of a portion of the said project
called the East Bank Levee and Cut-‐Off Channel in accordance with the specifications of the
main contract.

The subcontract price agreed upon by the parties amounted to P31,293,532.72.
Pursuant to the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress billing
which the latter would then pay, subject to stipulated deductions, within 30 days from receipt
thereof.

The parties agreed that the requests of HRCC for payment should include progress
accomplishment of its completed works as approved by FFCCI. Additionally, they agreed to
conduct a joint measurement of the completed works of HRCC together with the representative
of DPWH and consultants to arrive at a common quantity.

Thereafter, HRCC commenced the construction of the works pursuant to the
Subcontract Agreement.

On September 17, 2004, HRCC submitted to FFCCI its first progress billing in the
amount of P2,029,081.59 covering the construction works it completed from August 16 to
September 15, 2004.[4] However, FFCCI asserted that the DPWH was then able to evaluate the
completed works of HRCC only until July 25, 2004. Thus, FFCCI only approved the gross amount
of P423,502.88 for payment. Pursuant to the Subcontract Agreement, FFCCI deducted from the
said gross amount P42,350.29 for retention and P7,700.05 for expanded withholding tax leaving
a net payment in the amount of P373,452.54. This amount was paid by FFCCI to HRCC on
December 3, 2004.[5]

FFCCI and the DPWH then jointly evaluated the completed works of HRCC for the
period of July 26 to September 25, 2004. FFCCI claimed that the gross amount due for the
completed works during the said period was P2,008,837.52. From the said gross amount due,
FFCCI deducted therefrom P200,883.75 for retention and P36,524.07 for expanded withholding
tax leaving amount of P1,771,429.45 as the approved net payment for the said period. FFCCI
paid this amount on December 21, 2004.[6]

On October 29, 2004, HRCC submitted to FFCCI its second progress billing in the
amount of P1,587,760.23 covering its completed works from September 18 to 25, 2004.[7] FFCCI
did not pay the amount stated in the second progress billing, claiming that it had already paid
HRCC for the completed works for the period stated therein.

On even date, HRCC submitted its third progress billing in the amount of
P2,569,543.57 for its completed works from September 26 to October 25, 2004.[8] FFCCI did not
immediately pay the amount stated in the third progress billing, claiming that it still had to
evaluate the works accomplished by HRCC.

On November 25, 2004, HRCC submitted to FFCCI its fourth progress billing in the
amount of P1,527,112.95 for the works it had completed from October 26 to November 25,
2004.

Subsequently, FFCCI, after it had evaluated the completed works of HRCC from
September 26 to November 25, 2004, approved the payment of the gross amount of
P1,505,570.99 to HRCC. FFCCI deducted therefrom P150,557.10 for retention and P27,374.02
for expanded withholding tax leaving a net payment of P1,327,639.87, which amount was paid
to HRCC on March 11, 2005.[9]

Meanwhile, HRCC sent FFCCI a letter[10] dated December 13, 2004 demanding the
payment of its progress billings in the total amount of P7,340,046.09, plus interests, within three
days from receipt thereof. Subsequently, HRCC completely halted the construction of the
subcontracted project after taking its Christmas break on December 18, 2004.

On March 7, 2005, HRCC, pursuant to the arbitration clause in the Subcontract
Agreement, filed with the Construction Industry Arbitration Commission (CIAC) a Complaint[11]
against FFCCI praying for the payment of the following: (1) overdue obligation in the reduced
amount of P4,096,656.53 as of December 15, 2004 plus legal interest; (2) P1,500,000.00 as
attorney’s fees; (3) P80,000.00 as acceptance fee and representation expenses; and (4) costs of
litigation.

In its Answer,[12] FFCCI claimed that it no longer has any liability on the Subcontract
Agreement as the three payments it made to HRCC, which amounted to P3,472,521.86, already
represented the amount due to the latter in view of the works actually completed by HRCC as
shown by the survey it conducted jointly with the DPWH. FFCCI further asserted that the delay
in the payment processing was primarily attributable to HRCC inasmuch as it presented
unverified work accomplishments contrary to the stipulation in the Subcontract Agreement
regarding requests for payment.

Likewise, FFCCI maintained that HRCC failed to comply with the condition stated
under the Subcontract Agreement for the payment of the latter’s progress billings, i.e. joint
measurement of the completed works, and, hence, it was justified in not paying the amount
stated in HRCC’s progress billings.

On June 16, 2005, an Arbitral Tribunal was created composed of Engineer Ricardo B.
San Juan, Joven B. Joaquin and Attorney Alfredo F. Tadiar, with the latter being appointed as the
Chairman.

In a Preliminary Conference held on July 5, 2005, the parties defined the issues to be
resolved in the proceedings before the CIAC as follows:

1. What is the correct amount of [HRCC’s] unpaid progress billing?

2. Did [HRCC] comply with the conditions set forth in subparagraph 4.3
of the Subcontract Agreement for the submission,
evaluation/processing and release of payment of its progress billings?

3. Did [HRCC] stop work on the project?

3.1 If so, is the work stoppage justified?

3.2 If so, what was the percentage and value of [HRCC’s] work
accomplishment at the time it stopped work on the
project?

4. Who between the parties should bear the cost of arbitration or in
what proportion should it be shared by the parties?[13]

Likewise, during the said Preliminary Conference, HRCC further reduced the amount
of overdue obligation it claimed from FFCCI to P2,768,916.66. During the course of the
proceedings before the CIAC, HRCC further reduced the said amount to P2,635,397.77 – the
exact difference between the total amount of HRCC’s progress billings (P6,107,919.63) and
FFCCI’s total payments in favor of the latter (P3,472,521.86).

The CIAC Decision

On September 6, 2005, after due proceedings, the CIAC rendered a Decision[14] in
favor of HRCC, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the
Claimant HR CONSTRUCTION CORPORATION and AWARD made on its
monetary claim against Respondent F.F. CRUZ & CO., INC., as follows:

[P]2,239,452.63 as the balance of its unpaid billings and

101,161.57 as reimbursement of the arbitration costs.

[P]2,340,614.20 Total due the Claimant

Interest on the foregoing amount [P]2,239,452.63 shall be paid
at the rate of 6% per annum from the date of this Decision. After finality of
this Decision, interest at the rate of 12% per annum shall be paid thereon
until full payment of the awarded amount shall have been made x x x.

SO ORDERED.[15]

The CIAC held that the payment method adopted by FFCCI is actually what is known
as the “back-‐to-‐back payment scheme” which was not agreed upon under the Subcontract
Agreement. As such, the CIAC ruled that FFCCI could not impose upon HRCC its valuation of the
works completed by the latter. The CIAC gave credence to HRCC’s valuation of its completed
works as stated in its progress billings. Thus:

During the trial, [FFCCI’s] Aganon admitted that [HRCC’s]
accomplishments are included in its own billings to the DPWH together
with a substantial mark-‐up to cover overhead costs and profit. He further
admitted that it is only when DPWH approves its (Respondent’s) billings
covering [HRCC’s] scope of work and pays for them, that [FFCCI] will in turn
pay [HRCC] for its billings on the sub-‐contracted works.

On clarificatory questioning by the Tribunal, [FFCCI] admitted
that there is no “back-‐to-‐back” provision in the sub-‐contract as basis for
this sequential payment arrangement and, therefore, [FFCCI’s] imposition
thereof by withholding payment to [HRCC] until it is first paid by the
project owner on the Main Contract, clearly violates said sub-‐contract. It
[is] this unauthorized implementation of a back-‐to-‐back payment scheme
that is seen to be the reason for [FFCCI’s] non-‐payment of the third
progress billings.

It is accordingly the holding of this Arbitral Tribunal that [FFCCI]
is not justified in withholding payment of [HRCC’s] third progress billing for
this scheme that [HRCC] has not agreed to in the sub-‐contract agreement x
x x.

x x x

The total retention money deducted by [FFCCI] from [HRCC’s]
three progress billings, amounts to [P]395,945.14 x x x. The retention
money is part of [HRCC’s] progress billings and must, therefore, be
credited to this account. The two amounts (deductions and net payments)
total [P]3,868,467.00 x x x. This represents the total gross payments that
should be credited and deducted from the total gross billings to arrive at
what has not been paid to the [HRCC]. This results in the amount of
[P]2,239,452.63 ([P]6,107,919.63 -‐ [P]3,868,467.00) as the correct balance
of [HRCC’s] unpaid billings.[16]

Further, the CIAC ruled that FFCCI had already waived its right under the Subcontract
Agreement to require a joint measurement of HRCC’s completed works as a condition precedent
to the payment of the latter’s progress billings. Hence:

[FFCCI] admits that in all three instances where it paid [HRCC]
for its progress billings, it never required compliance with the aforequoted
contractual provision of a prior joint quantification. Such repeated
omission may reasonably be construed as a waiver by [FFCCI] of its
contractual right to require compliance of said condition and it is now too
late in the day to so impose it. Article 6 of the Civil Code expressly provides
that “rights may be waived unless the waiver is contrary to law, public
order, public policy, morals or good customs”. The tribunal cannot see any
such violation in this case.

x x x

[FFCCI’s] omission to enforce the contractually required
condition of payment, has led [HRCC] to believe it to be true that indeed
[FFCCI] has waived the condition of joint quantification and, therefore,
[FFCCI] may not be permitted to falsify such resulting position.[17]

Likewise, the CIAC held that FFCCI’s non-‐payment of the progress billings submitted
by HRCC gave the latter the right to rescind the Subcontract Agreement and, accordingly,
HRCC’s work stoppage was justified. It further opined that, in effect, FFCCI had ratified the right
of HRCC to stop the construction works as it did not file any counterclaim against HRCC for
liquidated damages arising therefrom.

FFCCI then filed a petition for review with CA assailing the foregoing disposition by
the CIAC.

The CA Decision

On February 6, 2009, the CA rendered the herein assailed Decision[18] denying the
petition for review filed by FFCCI. The CA agreed with the CIAC that FFCCI had waived its right
under the Subcontract Agreement to require a joint quantification of HRCC’s completed works.

The CA further held that the amount due to HRCC as claimed by FFCCI could not be
given credence since the same was based on a survey of the completed works conducted
without the participation of HRCC. Likewise, being the main contractor, it ruled that it was the
responsibility of FFCCI to include HRCC in the joint measurement of the completed works.
Furthermore, the CA held that HRCC was justified in stopping its construction works on the
project as the failure of FFCCI to pay its progress billings gave the former the right to rescind the

FFCCI sought a reconsideration[19] of the said February 6, 2009 Decision but it was
denied by the CA in its Resolution[20] dated April 13, 2009.

Issues

In the instant petition, FFCCI submits the following issues for this Court’s resolution:

[I.]

x x x First, [d]oes the act of [FFCCI] in conducting a verification
survey of [HRCC’s] billings in the latter’s presence amount to a waiver of
the right of [FFCCI] to verify and approve said billings? What, if any, is the
legal significance of said act?

[II.]

x x x Second, [d]oes the payment of [FFCCI] to [HRCC] based on
the results of the above mentioned verification survey result in the former
being obliged to accept whatever accomplishment was reported by the
latter?

[III.]

x x x Third, [d]oes the mere comparison of the payments made
by [FFCCI] with the contested progress billings of [HRCC] amount to an
adjudication of the controversy between the parties?

[IV.]

x x x Fourth, [d]oes the failure of [FFCCI] to interpose a
counterclaim against [HRCC] for liquidated damages due to the latter’s
work stoppage, amount to a ratification of such work stoppage?

[V.]

x x x Fifth, [d]id the [CA] disregard or overlook significant and
material facts which would affect the result of the litigation?[21]

In sum, the crucial issues for this Court’s resolution are: first, what is the effect of
FFCCI’s non-‐compliance with the stipulation in the Subcontract Agreement requiring a joint
quantification of the works completed by HRCC on the payment of the progress billings
submitted by the latter; and second, whether there was a valid rescission of the Subcontract
Agreement by HRCC.

The Court’s Ruling

The petition is not meritorious.

Procedural Issue:
Finality and Conclusiveness of the CIAC’s Factual Findings

Before we delve into the substantial issues raised by FFCCI, we shall first address the
procedural issue raised by HRCC. According to HRCC, the instant petition merely assails the
factual findings of the CIAC as affirmed by the CA and, accordingly, not proper subjects of an
appeal under Rule 45 of the Rules of Court. It likewise pointed out that factual findings of the
CIAC, when affirmed by the CA, are final and conclusive upon this Court.

Generally, the arbitral award
of CIAC is final and may not be
appealed except on questions
of law.

Executive Order (E.O.) No. 1008[22] vests upon the CIAC original and exclusive jurisdiction
over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines. Under Section 19 of E.O. No. 1008, the arbitral award of CIAC
"shall be final and inappealable except on questions of law which shall be appealable to the
Supreme Court."[23]

In Hi-‐Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc.,[24] we explained raison d’
etre for the rule on finality of the CIAC’s arbitral award in this wise:

Voluntary arbitration involves the reference of a dispute to an
impartial body, the members of which are chosen by the parties
themselves, which parties freely consent in advance to abide by the
arbitral award issued after proceedings where both parties had the
opportunity to be heard. The basic objective is to provide a speedy and
inexpensive method of settling disputes by allowing the parties to avoid
the formalities, delay, expense and aggravation which commonly
accompany ordinary litigation, especially litigation which goes through the
entire hierarchy of courts. Executive Order No. 1008 created an arbitration
facility to which the construction industry in the Philippines can have
recourse. The Executive Order was enacted to encourage the early and
expeditious settlement of disputes in the construction industry, a public
policy the implementation of which is necessary and important for the
realization of national development goals.

Aware of the objective of voluntary arbitration in the labor field,
in the construction industry, and in any other area for that matter, the
Court will not assist one or the other or even both parties in any effort to
subvert or defeat that objective for their private purposes. The Court will
not review the factual findings of an arbitral tribunal upon the artful
allegation that such body had "misapprehended the facts" and will not
pass upon issues which are, at bottom, issues of fact, no matter how
cleverly disguised they might be as "legal questions." The parties here had
recourse to arbitration and chose the arbitrators themselves; they must
have had confidence in such arbitrators. x x x[25] (Citation omitted)

Thus, in cases assailing the arbitral award rendered by the CIAC, this Court may only
pass upon questions of law. Factual findings of construction arbitrators are final and conclusive
and not reviewable by this Court on appeal. This rule, however, admits of certain exceptions.

In Spouses David v. Construction Industry and Arbitration Commission,[26] we laid down
the instances when this Court may pass upon the factual findings of the CIAC, thus:

We reiterate the rule that factual findings of construction arbitrators are
final and conclusive and not reviewable by this Court on appeal, except
when the petitioner proves affirmatively that: (1) the award was procured
by corruption, fraud or other undue means; (2) there was evident partiality
or corruption of the arbitrators or of any of them; (3) the arbitrators were
guilty of misconduct in refusing to postpone the hearing upon sufficient
cause shown, or in refusing to hear evidence pertinent and material to the
controversy; (4) one or more of the arbitrators were disqualified to act as
such under section nine of Republic Act No. 876 and willfully refrained
from disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; or (5) the
arbitrators exceeded their powers, or so imperfectly executed them, that a
mutual, final and definite award upon the subject matter submitted to
them was not made. x x x[27] (Citation omitted)

Issues on the proper
interpretation of the terms of
the Subcontract Agreement
involve questions of law.

A question of law arises when there is doubt as to what the law is on a certain state of
facts, while there is a question of fact when the doubt arises as to the truth or falsity of the
alleged facts. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is one of
fact.[28]

On the surface, the instant petition appears to merely raise factual questions as it
mainly puts in issue the appropriate amount that is due to HRCC. However, a more thorough
analysis of the issues raised by FFCCI would show that it actually asserts questions of law.

FFCCI primarily seeks from this Court a determination of whether amount claimed by
HRCC in its progress billing may be enforced against it in the absence of a joint measurement of
the former’s completed works. Otherwise stated, the main question advanced by FFCCI is this: in
the absence of the joint measurement agreed upon in the Subcontract Agreement, how will the
completed works of HRCC be verified and the amount due thereon be computed?

The determination of the foregoing question entails an interpretation of the terms of
the Subcontract Agreement vis-‐à-‐vis the respective rights of the parties herein. On this point, it
should be stressed that where an interpretation of the true agreement between the parties is
involved in an appeal, the appeal is in effect an inquiry of the law between the parties, its
interpretation necessarily involves a question of law.[29]

Moreover, we are not called upon to examine the probative value of the evidence
presented before the CIAC. Rather, what is actually sought from this Court is an interpretation of
the terms of the Subcontract Agreement as it relates to the dispute between the parties.

First Substantive Issue: Effect of Non-‐compliance with the Joint Quantification Requirement
on the Progress Billings of HRCC

Basically, the instant issue calls for a determination as to which of the parties’ respective
valuation of accomplished works should be given credence. FFCCI claims that its valuation
should be upheld since the same was the result of a measurement of the completed works
conducted by it and the DPWH. On the other hand, HRCC maintains that its valuation should be
upheld on account of FFCCI’s failure to observe the joint measurement requirement in
ascertaining the extent of its completed works.

The terms of the Subcontract
Agreement should prevail.

In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the
primordial consideration should be the terms of the Subcontract Agreement. It is basic that if
the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.[30]

In Abad v. Goldloop Properties, Inc.,[31] we stressed that:

A court’s purpose in examining a contract is to interpret the intent of the
contracting parties, as objectively manifested by them. The process of
interpreting a contract requires the court to make a preliminary inquiry as
to whether the contract before it is ambiguous. A contract provision is
ambiguous if it is susceptible of two reasonable alternative interpretations.
Where the written terms of the contract are not ambiguous and can only
be read one way, the court will interpret the contract as a matter of
law. If the contract is determined to be ambiguous, then the interpretation
of the contract is left to the court, to resolve the ambiguity in the light of
the intrinsic evidence.[32] (Emphasis supplied and citation omitted)

Article 4 of the Subcontract Agreement, in part, contained the following stipulations:

ARTICLE 4

SUBCONTRACT PRICE

4.1 The total SUBCONTRACT Price shall be THIRTY ONE MILLION
TWO HUNDRED NINETY THREE THOUSAND FIVE HUNDRED THIRTY
TWO PESOS & 72/100 ONLY ([P]31,293,532.72) inclusive of Value
Added Tax x x x.

x x x

4.3 Terms of Payment

FFCCI shall pay [HRCC] within thirty (30) days upon receipt of the
[HRCC’s] Monthly Progress Billings subject to deductions due to
ten percent (10%) retention, and any other sums that may be due
and recoverable by FFCCI from [HRCC] under this SUBCONTRACT.
In all cases, however, two percent (2%) expanded withholding tax
on the [HRCC’s] income will be deducted from the monthly
payments.

Requests for the payment by the [HRCC] shall include progress
accomplishment of completed works (unit of work accomplished x
unit cost) as approved by [FFCCI]. Cut-‐off date of monthly billings
shall be every 25th of the month and joint measurement shall be
conducted with the DPWH’s representative, Consultants, FFCCI
and [HRCC] to arrive at a common/agreed quantity.[33]
(Emphasis supplied)

Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to
pay the monthly progress billings of HRCC within 30 days from receipt of the same. Additionally,
the monthly progress billings of HRCC should indicate the extent of the works completed by it,
the same being essential to the valuation of the amount that FFCCI would pay to HRCC.

The parties further agreed that the extent of HRCC’s completed works that would be
indicated in the monthly progress billings should be determined through a joint measurement
conducted by FFCCI and HRCC together with the representative of DPWH and the consultants.

It is the responsibility of FFCCI
to call for the joint
measurement of HRCC’s
completed works.

It bears stressing that the joint measurement contemplated under the Subcontract
Agreement should be conducted by the parties herein together with the representative of the
DPWH and the consultants. Indubitably, FFCCI, being the main contractor of DPWH, has the
responsibility to request the representative of DPWH to conduct the said joint measurement.

On this score, the testimony of Engineer Antonio M. Aganon, Jr., project manager of
FFCCI, during the reception of evidence before the CIAC is telling, thus:

MR. J. B. JOAQUIN:

Engr. Aganon, earlier there was a stipulation that in all the four
billings, there never was a joint quantification.

PROF. A. F. TADIAR:

He admitted that earlier. Pinabasa ko sa kanya.

ENGR. R. B. SAN JUAN:

The joint quantification was done only between them and DPWH.

x x x x

ENGR. AGANON:

Puwede ko po bang i-‐explain sandali lang po regarding lang po doon
sa quantification na iyon? Basically po as main contractor of DPWH, we
are the ones who [are] requesting for joint survey quantification with the
owner, DPWH. Ngayon po, although wala sa papel na nag-‐witness and
[HRCC] still the same po, nandoon din po sila during that time, kaya lang
ho . . .

MR. J. B. JOAQUIN:

Hindi pumirma?

ENGR. AGANON:

Hindi sila puwede pumirma kasi ho kami po ang contractor ng
DPWH hindi sila.[34] (Emphasis supplied)

FFCCI had waived its right to
demand for a joint
measurement of HRCC’s
completed works under the

The CIAC held that FFCCI, on account of its failure to demand the joint measurement of
HRCC’s completed works, had effectively waived its right to ask for the conduct of the same as a
condition sine qua non to HRCC’s submission of its monthly progress billings.

We agree.

In People of the Philippines v. Donato,[35] this Court explained the doctrine of waiver in
this wise:

Waiver is defined as "a voluntary and intentional
relinquishment or abandonment of a known existing legal right,
advantage, benefit, claim or privilege, which except for such waiver the
party would have enjoyed; the voluntary abandonment or surrender, by a
capable person, of a right known by him to exist, with the intent that such
right shall be surrendered and such person forever deprived of its benefit;
or such conduct as warrants an inference of the relinquishment of such
right; or the intentional doing of an act inconsistent with claiming it."

As to what rights and privileges may be waived, the authority is
settled:

x x x the doctrine of waiver extends to rights and
privileges of any character, and, since the word
‘waiver’ covers every conceivable right, it is the
general rule that a person may waive any matter
which affects his property, and any alienable right
or privilege of which he is the owner or which
belongs to him or to which he is legally entitled,
whether secured by contract, conferred with statute,
or guaranteed by constitution, provided such rights
and privileges rest in the individual, are intended for
his sole benefit, do not infringe on the rights of
others, and further provided the waiver of the right
or privilege is not forbidden by law, and does not
contravene public policy; and the principle is
recognized that everyone has a right to waive, and
agree to waive, the advantage of a law or rule made
solely for the benefit and protection of the individual
in his private capacity, if it can be dispensed with and
relinquished without infringing on any public right,
and without detriment to the community at large. x x
x[36] (Emphasis supplied and citations omitted)

Here, it is undisputed that the joint measurement of HRCC’s completed works
contemplated by the parties in the Subcontract Agreement never materialized. Indeed, HRCC,
on separate occasions, submitted its monthly progress billings indicating the extent of the works
it had completed sans prior joint measurement. Thus:

Progress Billing Period Covered Amo
st
1 Progress Billing dated September 17,
August 16 to September 15, 2004 P2,029,
2004[37]
2nd Progress Billing dated October 29, 2004[38] September 18 to 25, 2004 P1,587,
rd
3 Progress Billing dated October 29, 2004[39] September 26 to October 25, 2004 P2,569,
4th Progress Billing dated November 25, 2004 October 26 to November 25, 2004 P1,527,

FFCCI did not contest the said progress billings submitted by HRCC despite the lack of a
joint measurement of the latter’s completed works as required under the Subcontract
Agreement. Instead, FFCCI proceeded to conduct its own verification of the works actually
completed by HRCC and, on separate dates, made the following payments to HRCC:

Date of Payment Period Covered Amoun
December 3, 2004[40] April 2 to July 25, 2004 P373,452
December 21, 2004[41] July 26 to September 25, 2004 P1,771,429
March 11, 2005[42] September 26 to November 25, 2004 P1,327,639

FFCCI’s voluntary payment in favor of HRCC, albeit in amounts substantially different from
those claimed by the latter, is a glaring indication that it had effectively waived its right to
demand for the joint measurement of the completed works. FFCCI’s failure to demand a joint
measurement of HRCC’s completed works reasonably justified the inference that it had already
relinquished its right to do so. Indeed, not once did FFCCI insist on the conduct of a joint
measurement to verify the extent of HRCC’s completed works despite its receipt of the four
monthly progress billings submitted by the latter.

FFCCI is already barred from
contesting HRCC’s valuation of
the completed works having
waived its right to demand the
joint measurement
requirement.

In view of FFCCI’s waiver of the joint measurement requirement, the CA, essentially
echoing the CIAC’s disposition, found that FFCCI is obliged to pay the amount claimed by HRCC
in its monthly progress billings. The CA reasoned thus:

Verily, the joint measurement that [FFCCI] claims it conducted
without the participation of [HRCC], to which [FFCCI] anchors its claim of
full payment of its obligations to [HRCC], cannot be applied, nor imposed,
on [HRCC]. In other words, [HRCC] cannot be made to accept a
quantification of its works when the said quantification was made without
its participation. As a consequence, [FFCCI’s] claim of full payment cannot
be upheld as this is a result of a quantification that was made contrary to
the express provisions of the Subcontract Agreement.

The Court is aware that by ruling so, [FFCCI] would seem to be
placed at a disadvantage because it would result in [FFCCI] having to pay
exactly what [HRCC] was billing the former. If, on the other hand, the Court
were to rule otherwise[,] then [HRCC] would be the one at a disadvantage
because it would be made to accept payment that is less than what it was
billing.

Circumstances considered, however, the Court deems it proper
to rule in favor of [HRCC] because of the explicit provision of the
Subcontract Agreement that requires the participation of the latter in the
joint measurement. If the Court were to rule otherwise, then the Court
would, in effect, be disregarding the explicit agreement of the parties in
their contract.[43]

Essentially, the question that should be resolved is this: In view of FFCCI’s waiver of its
right to demand a joint measurement of HRCC’s completed works, is FFCCI now barred from
disputing the claim of HRCC in its monthly progress billings?

We rule in the affirmative.

As intimated earlier, the joint measurement requirement is a mechanism essentially
granting FFCCI the opportunity to verify and, if necessary, contest HRCC’s valuation of its
completed works prior to the submission of the latter’s monthly progress billings.

In the final analysis, the joint measurement requirement seeks to limit the dispute
between the parties with regard to the valuation of HRCC’s completed works. Accordingly, any
issue which FFCCI may have with regard to HRCC’s valuation of the works it had completed
should be raised and resolved during the said joint measurement instead of raising the same
after HRCC had submitted its monthly progress billings. Thus, having relinquished its right to ask
for a joint measurement of HRCC’s completed works, FFCCI had necessarily waived its right to
dispute HRCC’s valuation of the works it had accomplished.

Second Substantive Issue:
Validity of HRCC’s Rescission of the Subcontract Agreement

Both the CA and the CIAC held that the work stoppage of HRCC was justified as the same is
but an exercise of its right to rescind the Subcontract Agreement in view of FFCCI’s failure to pay
the former’s monthly progress billings. Further, the CIAC stated that FFCCI could no longer assail
the work stoppage of HRCC as it failed to file any counterclaim against HRCC pursuant to the
terms of the Subcontract Agreement.

For its part, FFCCI asserted that the work stoppage of HRCC was not justified and, in
any case, its failure to raise a counterclaim against HRCC for liquidated damages before the CIAC
does not amount to a ratification of the latter’s work stoppage.

The determination of the validity of HRCC’s work stoppage depends on a determination of
the following: first, whether HRCC has the right to extrajudicially rescind the Subcontract
Agreement; and second, whether FFCCI is already barred from disputing the work stoppage of
HRCC.

HRCC had waived its right to
rescind the Subcontract
Agreement.

The right of rescission is statutorily recognized in reciprocal obligations. Article 1191
of the Civil Code pertinently reads:

Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the
latter should become impossible.

The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles 1385 and
1388 and the Mortgage Law.

The rescission referred to in this article, more appropriately referred to as resolution is on
the breach of faith by the defendant which is violative of the reciprocity between the
parties.[44] The right to rescind, however, may be waived, expressly or impliedly.[45]

While the right to rescind reciprocal obligations is implied, that is, that such right need not
be expressly provided in the contract, nevertheless the contracting parties may waive the
same.[46]

Contrary to the respective dispositions of the CIAC and the CA, we find that HRCC had no
right to rescind the Subcontract Agreement in the guise of a work stoppage, the latter having
waived such right. Apropos is Article 11.2 of the Subcontract Agreement, which reads:

11.2 Effects of Disputes and Continuing Obligations

Notwithstanding any dispute, controversy, differences or
arbitration proceedings relating directly or indirectly to this
SUBCONTRACT Agreement and without prejudice to the
eventual outcome thereof, [HRCC] shall at all times proceed
with the prompt performance of the Works in accordance with
the directives of FFCCI and this SUBCONTRACT Agreement.[47]
(Emphasis supplied)

Hence, in spite of the existence of dispute or controversy between the parties during
the course of the Subcontract Agreement, HRCC had agreed to continue the performance of its
obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract
Agreement quoted above, HRCC is deemed to have effectively waived its right to effect
extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of rescinding
the Subcontract Agreement, was not justified in implementing a work stoppage.

The costs of arbitration should
be shared by the parties
equally.

Section 1, Rule 142 of the Rules of Court provides:

Section 1. Costs ordinarily follow results of suit. –
Unless otherwise provided in these rules, costs shall be allowed to the
prevailing party as a matter of course, but the court shall have power, for
special reasons, to adjudge that either party shall pay the costs of an
action, or that the same be divided, as may be equitable. No costs shall be
allowed against the Republic of the Philippines unless otherwise provided
by law. (Emphasis supplied)

Although, generally, costs are adjudged against the losing party, courts nevertheless
have discretion, for special reasons, to decree otherwise.

Here, considering that the work stoppage of HRCC is not justified, it is only fitting that
both parties should share in the burden of the cost of arbitration equally. HRCC had a valid
reason to institute the complaint against FFCCI in view of the latter’s failure to pay the full
amount of its monthly progress billings. However, we disagree with the CIAC and the CA that
only FFCCI should shoulder the arbitration costs. The arbitration costs should be shared equally
by FFCCI and HRCC in view of the latter’s unjustified work stoppage.

WHEREFORE, in consideration of the foregoing disquisitions, the Decision dated
February 6, 2009 and Resolution dated April 13, 2009 of the Court of Appeals in CA-‐G.R. SP No.
91860 are hereby AFFIRMED with MODIFICATION that the arbitration costs shall be shared
equally by the parties herein.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

ARTURO D. BRION JOSE PORTUGAL PEREZ

ANTONIO T. CARPIO
Associate Justice

Republic of the Philippines SUPREME COURT Manila
SECOND DIVISION
G.R. No. 179382 January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, Petitioners, vs. THE BOY SCOUT
OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO PEÑA,* AND VICENTE GADDI,
Respondents.
D E C I S I O N
PERLAS-‐BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision1 and August 16,
2007 Resolution2 of the Court of Appeals (CA) in CA-‐G.R. CV No. 75978. The dispositive portion
of the said Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002
rendered by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the effect that
only defendants AIB Security Agency, Inc., Cesario Peña and Vicente Gaddi are held jointly and
severally liable to pay plaintiffs-‐appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril
the amount of Two Hundred Thousand Pesos (P200,000.00) representing the cost of the lost
vehicle, and to pay the cost of suit. The other monetary awards are DELETED for lack of merit
and/or basis.
Defendant-‐Appellant Boy Scout of the Philippines is absolved from any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators since
1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound located at 181 Concepcion Street, Malate, Manila for a fee of
P300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all these vehicles
were parked inside the BSP compound. The following morning, however, one of the vehicles
with Plate No. DCG 392 was missing and was never recovered.4 According to the security guards
Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc. (AIB) with whom BSP
had contracted5 for its security and protection, a male person who looked familiar to them took
the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for damages before the Regional Trial
Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and Gaddi. In support thereof, Sps.
Mamaril averred that the loss of the subject vehicle was due to the gross negligence of the
above-‐named security guards on-‐duty who allowed the subject vehicle to be driven out by a
stranger despite their agreement that only authorized drivers duly endorsed by the owners
could do so. Peña and Gaddi even admitted their negligence during the ensuing investigation.
Notwithstanding, BSP and AIB did not heed Sps. Mamaril's demands for a conference to settle
the matter. They therefore prayed that Peña and Gaddi, together with AIB and BSP, be held
liable for: (a) the value of the subject vehicle and its accessories in the aggregate amount of
P300,000.00; (b) P275.00 representing daily loss of income/boundary reckoned from the day the
vehicle was lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees; and (f) cost of
suit.
In its Answer,7 BSP denied any liability contending that not only did Sps. Mamaril directly deal
with AIB with respect to the manner by which the parked vehicles would be handled, but the
parking ticket8 itself expressly stated that the "Management shall not be responsible for loss of
vehicle or any of its accessories or article left therein." It also claimed that Sps. Mamaril
erroneously relied on the Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers, and employees.
In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the
selection, training and supervision of its security guards while Peña and Gaddi claimed that the
person who drove out the lost vehicle from the BSP compound represented himself as the
owners' authorized driver and had with him a key to the subject vehicle. Thus, they contended
that Sps. Mamaril have no cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision9 dated November 28, 2001 in favor of Sps.
Mamaril. The dispositive portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the Philippines
and AIB Security Agency, with security guards Cesario Pena and Vicente Gaddi: -‐
1. To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus
accessories of P50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss of the income/boundary of the said
jeepney to be reckoned fromits loss up to the final adjudication of the case, which is P275.00 a
day;
3. To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary damages in the amount of P50,000.00;
5. To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court the
amount of P1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Peña and Gaddi in allowing the entry of an unidentified person
and letting him drive out the subject vehicle in violation of their internal agreement with Sps.
Mamaril constituted gross negligence, rendering AIB and its security guards liable for the
former's loss. BSP was also adjudged liable because the Guard Service Contract it entered into
with AIB offered protection to all properties inside the BSP premises, which necessarily included
Sps. Mamaril's vehicles. Moreover, the said contract stipulated AIB's obligation to indemnify BSP
for all losses or damages that may be caused by any act or negligence of its security guards.
Accordingly, the BSP, AIB, and security guards Peña and Gaddi were held jointly and severally
liable for the loss suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle from
P250,000.00 to P200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence on the part of security guards
Peña and Gaddi. However, it absolved BSP from any liability, holding that the Guard Service
Contract is purely between BSP and AIB and that there was nothing therein that would indicate
any obligation and/or liability on the part of BSP in favor of third persons, such as Sps. Mamaril.
Nor was there evidence sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP was substantially a contract
of lease whereby the former paid parking fees to the latter for the lease of parking slots. As
such, the lessor, BSP, was not an insurer nor bound to take care and/or protect the lessees'
vehicles.
On the matter of damages, the CA deleted the award of P50,000.00 representing the value of
the accessories inside the lost vehicle and the P275.00 a day for loss of income in the absence of
proof to support them. It also deleted the award of moral and exemplary damages and
attorney's fees for lack of factual and legal bases.
Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007
Resolution.13
Issues Before the Court
Hence, the instant petition based on the following assignment of errors, to wit:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING RESPONDENT BOY

SCOUT OF THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE WHEN IT RULED THAT
THE GUARD SERVICE CONTRACT IS PURELY BETWEEN BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND IN HOLDING THAT THERE IS ABSOLUTELY
NOTHING IN THE SAID CONTRACT THAT WOULD INDICATE ANY OBLIGATION AND/OR LIABILITY
ON THE PART OF THE PARTIES THEREIN IN FAVOR OF THIRD PERSONS, SUCH AS PETITIONERS
HEREIN.
III.
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE INTERPRETATION OF
LAW WHEN IT CONSIDERED THE AGREEMENT BETWEEN BOY SCOUT OF THE PHILIPPINES AND
PETITIONERS A CONTRACT OF LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO
PROTECT OR TAKE CARE OF PETITIONERS' VEHICLES.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT PETITIONERS
ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their vehicle
based on the Guard Service Contract and the parking ticket it issued; and (2) the CA erred in
deleting the RTC awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or
negligently causes damage to another, shall indemnify the latter for the same. Similarly, Article
2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
preexisting contractual relation between the parties, is called a quasi-‐delict and is governed by
the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle was
the negligent act of security guards Peña and Gaddi in allowing an unidentified person to drive
out the subject vehicle. Proximate cause has been defined as that cause, which, in natural and
continuous sequence, unbroken by any efficient intervening cause, produces the injury or loss,
and without which the result would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's contention16 that they readily
admitted being at fault during the investigation that ensued.
On the other hand, the records are bereft of any finding of negligence on the part of BSP. Hence,
no reversible error was committed by the CA in absolving it from any liability for the loss of the
subject vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article 218017 of the Civil Code apply in
this case. It is uncontested that Peña and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no employer-‐employee relationship
existed between BSP and the security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed to AIB, the true employer of
Peña and Gaddi.18
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
It is settled that where the security agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of such guards and watchmen. Liability
for illegal or harmful acts committed by the security guards attaches to the employer agency,
and not to the clients or customers of such agency. As a general rule, a client or customer of a
security agency has no hand in selecting who among the pool of security guards or watchmen
employed by the agency shall be assigned to it; the duty to observe the diligence of a good
father of a family in the selection of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are protected by the security guards. The
fact that a client company may give instructions or directions to the security guards assigned to
it, does not, by itself, render the client responsible as an employer of the security guards
concerned and liable for their wrongful acts or omissions. Those instructions or directions are
ordinarily no more than requests commonly envisaged in the contract for services entered into
with the security agency.20
Nor can it be said that a principal-‐agent relationship existed between BSP and the security
guards Peña and Gaddi as to make the former liable for the latter's complained act. Article 1868
of the Civil Code states that "by the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent or
authority of the latter." The basis for agency therefore is representation,21 which element is
absent in the instant case. Records show that BSP merely hired the services of AIB, which, in
turn, assigned security guards, solely for the protection of its properties and premises. Nowhere
can it be inferred in the Guard Service Contract that AIB was appointed as an agent of BSP.
Instead, what the parties intended was a pure principal-‐client relationship whereby for a
consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss on
the basis of the Guard Service Contract that the latter entered into with AIB and their parking
agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
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.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person.
Thus, in order that a third person benefited by the second paragraph of Article 1311, referred to
as a stipulation pour autrui, may demand its fulfillment, the following requisites must concur: (1)
There is a stipulation in favor of a third person; (2) The stipulation is a part, not the whole, of the
contract; (3) The contracting parties clearly and deliberately conferred a favor to the third
person -‐ the favor is not merely incidental; (4) The favor is unconditional and uncompensated;
(5) The third person communicated his or her acceptance of the favor before its revocation; and
(6) The contracting parties do not represent, or are not authorized, by the third party.22
However, none of the foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract.1âwphi1 Neither
did the subject agreement contain any stipulation pour autrui. And even if there was, Sps.
Mamaril did not convey any acceptance thereof. Thus, under the principle of relativity of
contracts, they cannot validly claim any rights or favor under the said agreement.23 As correctly
found by the CA:
First, the Guard Service Contract between defendant-‐appellant BSP and defendant AIB Security
Agency is purely between the parties therein. It may be observed that although the whereas
clause of the said agreement provides that defendant-‐appellant desires security and protection
for its compound and all properties therein, as well as for its officers and employees, while
inside the premises, the same should be correlated with paragraph 3(a) thereof which provides
that the security agency shall indemnify defendant-‐appellant for all losses and damages suffered
by it attributable to any act or negligence of the former's guards.
Otherwise stated, defendant-‐appellant sought the services of defendant AIB Security Agency for
the purpose of the security and protection of its properties, as well as that of its officers and
employees, so much so that in case of loss of [sic] damage suffered by it as a result of any act or
negligence of the guards, the security agency would then be held responsible therefor. There is
absolutely nothing in the said contract that would indicate any obligation and/or liability on the
part of the parties therein in favor of third persons such as herein plaintiffs-‐appellees.24
Moreover, the Court concurs with the finding of the CA that the contract between the parties
herein was one of lease25 as defined under Article 164326 of the Civil Code. It has been held that
the act of parking a vehicle in a garage, upon payment of a fixed amount, is a lease.27 Even in a
majority of American cases, it has been ruled that where a customer simply pays a fee, parks his
car in any available space in the lot, locks the car and takes the key with him, the possession and
control of the car, necessary elements in bailment, do not pass to the parking lot operator,
hence, the contractual relationship between the parties is one of lease.28
In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP compound
for a monthly fee of P300.00 for each unit and took the keys home with them. Hence, a lessor-‐
lessee relationship indubitably existed between them and BSP. On this score, Article 1654 of the
Civil Code provides that "the lessor (BSP) is obliged: (1) to deliver the thing which is the object of
the contract in such a condition as to render it fit for the use intended; (2) to make on the same
during the lease all the necessary repairs in order to keep it suitable for the use to which it has
been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration of the contract." In
relation thereto, Article 1664 of the same Code states that "the lessor is not obliged to answer
for a mere act of trespass which a third person may cause on the use of the thing leased; but the
lessee shall have a direct action against the intruder." Here, BSP was not remiss in its obligation
to provide Sps. Mamaril a suitable parking space for their jeepneys as it even hired security
guards to secure the premises; hence, it should not be held liable for the loss suffered by Sps.
Mamaril.
It bears to reiterate that the subject loss was caused by the negligence of the security guards in
allowing a stranger to drive out plaintiffs-‐appellants' vehicle despite the latter's instructions that
only their authorized drivers may do so. Moreover, the agreement with respect to the ingress
and egress of Sps. Mamaril's vehicles were coordinated only with AIB and its security guards,29
without the knowledge and consent of BSP. Accordingly, the mishandling of the parked vehicles
that resulted in herein complained loss should be recovered only from the tort feasors (Peña
and Gaddi) and their employer, AIB; and not against the lessor, BSP.30
Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be responsible
for loss of vehicle or any of its accessories or article left therein"31 contained in the BSP issued
parking ticket was void for being a contract of adhesion and against public policy, suffice it to
state that contracts of adhesion are not void per se. It is binding as any other ordinary contract
and a party who enters into it is free to reject the stipulations in its entirety. If the terms thereof
are accepted without objection, as in this case, where plaintiffs-‐appellants have been leasing
BSP's parking space for more or less 20 years,32 then the contract serves as the law between
them.33 Besides, the parking fee of P300.00 per month or P10.00 a day for each unit is too
minimal an amount to even create an inference that BSP undertook to be an insurer of the
safety of plaintiffs-‐appellants' vehicles.
On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the
subject vehicle had accessories worth around !J50,000.00, she failed to present any receipt to
substantiate her claim.34 Neither did she submit any record or journal that would have
established the purported P275.0035 daily earnings of their jeepney. It is axiomatic that actual
damages must be proved with reasonable degree of certainty and a party is entitled only to such
compensation for the pecuniary loss that was duly proven. Thus, absent any competent proof of
the amount of damages sustained, the CA properly deleted the said awards.36
Similarly, the awards of moral and exemplary damages and attorney's fees were properly
disallowed by the CA for lack of factual and legal bases. While the RTC granted these awards in
the dispositive portion of its November 28, 2001 decision, it failed to provide sufficient
justification therefor.37
WHEREFORE premises considered, the instant petition is DENIED. The May 31, 2007 Decision
and August 16, 2007 Resolution of the Court of Appeals in CA-‐G.R. CV No. 75978 are
AFFIRMFED.
SO ORDERED.
ESTELA M. PERLAS-‐BERNABE Associate Justice
WE CONCUR:
ANTONIO T. CARPIO Associate Justice Chairperson
ARTURO D. BRION MARIANO C. DEL CAST

JOSE PORTUGAL PEREZ Associate Justice
I attest that the conclusions in the above Decision had been reached in consultation before the
case wets assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO Associate Justice Chairperson, Second Division

Supreme Court
Manila

SECOND DIVISION

Heirs of Mario Pacres vs. Heirs of Cecilia Ygoña -‐ G.R. No. 174719 May 5, 2010x -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐
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D E C I S I O N

DEL CASTILLO, J.:

While contracts are generally obligatory in whatever form they may have been entered into, it remains
imperative for a party that seeks the performance thereof to prove the existence and the terms of the
contract by a preponderance of evidence. Bare assertions are not the quantum of proof contemplated by
law.

This Petition for Review[2] assails the Decision[3] dated October 28, 2005 of the Court of Appeals (CA),
as well as its Resolution[4] dated August 31, 2006. The dispositive portion of the assailed Decision reads:
WHEREFORE, with the foregoing, the Decision of the Regional Trial Court, 7th
Judicial Region, Branch 13, Cebu City dated March 15, 2000 in Civil Case No. 18819 for
Specific Performance, Damages and Attorney’s Fees is hereby SET ASIDE and a new
one entered DISMISSING said case for failure to establish the causes of action with
the required quantum of proof.

No pronouncement as to cost.

SO ORDERED.[5]

Factual Antecedents

Lot No. 9 is a 1,007 square meter parcel of land located at Kinasang-‐an, Pardo, Cebu City and fronting
the Cebu provincial highway. The lot originally belonged to Pastor Pacres (Pastor) who left it intestate to his
heirs[6] Margarita, Simplicia, Rodrigo, Francisco, Mario (petitioners’ predecessor-‐in-‐interest) and Veñaranda
(herein petitioner). Petitioners admitted that at the time of Pastor’s death in 1962, his heirs were already
occupying definite portions of Lot No. 9. The front portion along the provincial highway was occupied by the
co-‐owned Pacres ancestral home,[7] and beside it stood Rodrigo’s hut (also fronting the provincial
highway). Mario’s house stood at the back of the ancestral house.[8] This is how the property stood in 1968,
as confirmed by petitioner Valentina’s testimony.

On the same year, the heirs leased[9] the ground floor of the [ancestral home] together with a
lot area of 300 square meters including the area occupied by the house” to respondent Hilario Ramirez
(Ramirez), who immediately took possession thereof. Subsequently in 1974, four of the Pacres siblings[10]
(namely, Rodrigo, Francisco, Simplicia and Margarita) sold their shares in the ancestral home and the lot on
which it stood to Ramirez. The deeds of sale described the subjects thereof as “part and portion of the 300
square meters actually in possession and enjoyment by vendee and her spouse, Hilario Ramirez, by virtue of a
contract of lease in their favor.”[11] The Deed of Sale of Right in a House executed by Rodrigo and Francisco
was more detailed, to wit:

x x x do hereby sell, cede, transfer and convey, forever and in absolute manner, our
shares interests and participation in a house of mixed materials under roof of nipa
which is constructed inside Lot No. 5506[12] of the Cadastral Survey of Cebu, the lot
on which the house is constructed has already been sold to and bought by the herein
vendee from our brothers and sisters; that this sale pertains only to our rights and
interests and participation in the house which we inherited from our late father
Pastor Pacres.[13]

With the sale, respondent Ramirez’s possession as lessee turned into a co-‐ownership with petitioners Mario
and Veñaranda, who did not sell their shares in the house and lot.

On various dates in 1971, Rodrigo,[14] Francisco,[15] and Simplicia[16] sold their remaining shares in Lot
No. 9 to respondent Cecilia Ygoña (Ygoña). In 1983, Margarita[17] also sold her share to Ygoña. The total area
sold to Ygoña was 493 square meters.
In 1984, Ygoña filed a petition to survey and segregate[18] the portions she bought from Lot No.
9. Mario objected on the ground that he wanted to exercise his right as co-‐owner to redeem his siblings’
shares. Vendee Rodrigo also opposed on the ground that he wanted to annul the sale for failure of
consideration. On the other hand, Margarita and the widow of Francisco both manifested their assent to
Ygoña’s petition. By virtue of such manifestation, the court issued a writ of possession[19] respecting
Margarita’s and Francisco’s shares in favor of Ygoña. It is by authority of this writ that Ygoña built her house on
a portion of Lot No. 9. Considering, however, the objections of the two other Pacres siblings, the trial court
subsequently dismissed the petition so that the two issues could be threshed out in the proper
proceeding. Mario filed the intended action while Rodrigo no longer pursued his objection.

The complaint for legal redemption,[20] filed by Mario and Veñaranda, was dismissed on the ground of
improper exercise of the right. The decision was affirmed by the appellate court[21] and attained finality in
the Supreme Court[22] on December 28, 1992. The CA held that the complaint was filed beyond the 30-‐day
period provided in Article 1623 of the New Civil Code and failed to comply with the requirement of
consignation. It was further held that Ygoña built her house on Lot No. 9 in good faith and it would be unjust
to require her to remove her house thereon.

On June 18, 1993, the Republic of the Philippines, through the Department of Public Works and
Highways (DPWH), expropriated the front portion of Lot No. 9 for the expansion of the Cebu south road. The
petition for expropriation was filed in Branch 9 of the Regional Trial Court of Cebu City and docketed as Civil
Case No. CEB-‐14150.[23] As occupant of the expropriated portion, Ygoña moved to withdraw her
corresponding share in the expropriation payment. Petitioners opposed the said motion.[24] The parties did
not supply the Court with the pleadings in the expropriation case; hence, we are unaware of the parties
involved and the issues presented therein. However, from all indications, the said motion of Ygoña remains
unresolved.

On July 20, 1993, the Pacres siblings (Margarita and Francisco were already deceased at that time and
were only represented by their heirs) executed a Confirmation of Oral Partition/Settlement of Estate[25] of
Pastor Pacres. The relevant statements in the affidavit read:

1. That our father the late Pastor Pacres died instestate at Kinasang-‐an, Pardo,
Cebu City on January 2, 1962;

2. That he left some real properties, one of which is a parcel of land (Lot No. 9,
PCS 07-‐01-‐000006, Cebu Cad., located at Kinasang-‐an, Pardo, Cebu City);

3. That after the death of Pastor Pacres, the above-‐named children declared
themselves extra-‐judicially as heirs of Pastor Pacres and they likewise
adjudicated unto themselves the above described lot and forthwith MADE AN
ORAL PARTITION;

4. That in that ORAL PARTITION, the shares or portion to be allotted to Mario
Pacres and Veñaranda Pacres Vda. de Ababa shall be fronting the national
highway, while the shares of the rest shall be located at the rear;

5. That recently, the said heirs had the said lot surveyed to determine
specifically their respective locations in accordance with the oral partition made
after the death of Pastor Pacres;

6. That a sketch of the subdivision plan is hereto attached, duly labeled,
indicating the respective locations of the shares of each and every heir.

On September 30, 1994, Mario, petitioners’ predecessor-‐in-‐interest, filed an ejectment suit against
Ramirez’ successor-‐in-‐interest Vicentuan. Mario claimed sole ownership of the lot occupied by
Ramirez/Vicentuan by virtue of the oral partition. He argued that Ramirez/Vicentuan should pay rentals to
him for occupying the front lot and should transfer to the rear of Lot No. 9 where the lots of Ramirez’s vendors
are located.

The court dismissed Mario’s assertion that his siblings sold the rear lots to Ramirez. It held that
the deeds of sale in favor of Ramirez clearly described the object of the sale as the ancestral house and
lot.[26] Thus, Ramirez has a right to continue occupying the property he bought. The court further held that
since Mario did not sell his pro-‐indiviso shares in the house and lot, at the very least, the parties are co-‐owners
thereof. Co-‐owners are entitled to occupy the co-‐owned property.[27]

The Complaint for Specific Performance

On June 3, 1996, Veñaranda and the heirs of Mario filed the instant complaint for specific
performance[28] against Ygoña and Ramirez. Contrary to Mario’s allegations of co-‐ownership over Lot No. 9
in the legal redemption case, Mario’s heirs insist in the action for specific performance that the heirs agreed on
a partition prior to the sale. They seek compliance with such agreement from their siblings’ vendees, Ygoña
and Ramirez, on the basis that the two were privy to these agreements, hence bound to comply therewith. In
compliance with such partition, Ygoña and Ramirez should desist from claiming any portion of the
expropriation payment for the front lots.

Their other cause of action is directed solely at Ygoña, whom they insist agreed to additional,
albeit unwritten, obligations other than the payment of the purchase price of the shares in Lot No.
9. Veñaranda and Mario’s heirs insist that Ygoña contracted with her vendors to assume all obligations
regarding the payment of past and present estate taxes, survey Lot No. 9 in accordance with the oral partition,
and obtain separate titles for each portion. While these obligations were not written into the deeds of sale,
petitioners insist it is not subject to the Statute of Frauds since these obligations were allegedly partly complied
with by Ygoña. They cite as evidence of Ygoña’s compliance the survey of her purchased lots and payment of
realty taxes.

Respondents denied privity with the heirs’ oral partition. They further maintained that no such partition
took place and that the portions sold to and occupied by them were located in front of Lot No. 9; hence they
are the ones entitled to the expropriation payment.[29] They sought damages from the unfounded suit
leveled against them. To discredit petitioners’ assertion of an oral partition, respondents presented Exhibit No.
1, which petitioner Valentina herself executed during her testimony. Exhibit No. 1 demonstrated Valentina’s
recollection of the actual occupation of the Pacres siblings, their heirs and vendees. The sketch undermined
petitioners’ allegation that the heirs partitioned the property and immediately took possession of their allotted
lots/shares. Ygoña also denied ever agreeing to the additional obligations being imputed against her.

Ruling of the Regional Trial Court

The trial court ruled in favor of respondents.[30] It held that petitioners failed to prove partition of the
lot in accordance with petitioners’ version. Instead, the trial court held that the parties’ actual occupation of
their portions in Lot No. 9, as evidenced by petitioner Valentina’s sketch, is the real agreement to which the
parties are bound. Apparently unsatisfied with the parties’ state of affairs, the trial court further ordered that
a survey of the lot according to the parties’ actual occupation thereof be conducted.

Petitioners’ motion for reconsideration was denied.[31] Unsatisfied with the adverse decision,
petitioners appealed to the CA questioning the factual findings of the trial court and its reliance on Exhibit
1. They maintained that Valentina was incompetent and barely literate; hence, her sketch should not be given
weight.

Ruling of the Court of Appeals

The appellate court sustained the ruling of the trial court insofar as it dismissed petitioners’ complaint
for lack of evidence. It held that the oral partition was not valid because the heirs did not ratify it by taking
possession of their shares in accordance with their oral agreement. Moreover, the CA ruled that Ygoña’s sole
undertaking under the deeds of sale was the payment of the purchase price. Since petitioners did not
question the validity of the deeds and did not assail its terms as failing to express the true intent of the parties,
the written document stands superior over the allegations of an oral agreement.

It, however, reversed the trial court on the latter’s order to survey the lot in accordance with Valentina’s
sketch. The appellate court explained that while it was conclusive that Ygoña and Ramirez bought portions of
the property from some of the Pacres siblings, the issue of the actual area and location of the portions sold to
them remains unresolved. The CA narrated all the unresolved matters that prevented a finding that
definitively settles the partition of Lot No. 9. The CA emphasized that the question regarding ownership of the
front lots and the expropriation payment should be threshed out in the proper proceeding.

The CA likewise found no basis for the award of damages to either party.

Petitioners’ Motion for Reconsideration[32] was denied,[33] hence this petition.

Issues

Petitioners formulated the following issues:[34]

1. Whether or not this complaint for specific performance, damages and
attorney’s fee [sic] with a prayer for the issuance of a restraining order and later
on issuance of a writ of permanent injunction is tenable.

2. Whether or not the area purchased and owned by respondents in Lot No. 9
is located along or fronting the national highway.

3. Whether or not the lower court committed grave abuse of discretion by
rendering a decision not in accord with laws and applicable decisions of the
Supreme Court, resulting to the unrest of this case.

4. Whether or not it is lawful for the respondents to claim ownership of the
P220,000.00 which the government set aside for the payment of the
expropriated area in Lot No. 9, fronting the highway, covered by the road
widening.

Consolidated and simplified, the issues to be resolved are:

I
Whether petitioners were able to prove the existence of the alleged oral agreements
such as the partition and the additional obligations of surveying and titling

II
Whether the issue of ownership regarding the front portion of Lot No. 9 and
entitlement to the expropriation payment may be resolved in this action

Our Ruling

Whether petitioners were able to
prove the existence of the alleged
oral agreements such as the
partition and the additional
obligations of surveying and titling

Both the trial and appellate courts dismissed petitioners’ complaint on the ground that they had
failed to prove the existence of an oral partition. Petitioners now insist that the two courts overlooked facts
and circumstances that are allegedly of much weight and will alter the decision if properly considered.[35]

Petitioners would have the Court review the evidence presented by the parties, despite the CA’s
finding that the trial court committed no error in appreciating the evidence presented during the trial. This
goes against the rule that this Court is not a trier of facts. “Such questions as whether certain items of
evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not
the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue,
are without doubt questions of fact.”[36] Questions like these are not reviewable by this Court which, as a
rule, confines its review of cases decided by the CA only to questions of law, which may be resolved without
having to re-‐examine the probative value of the evidence presented.[37]

We find no compelling reason to deviate from the foregoing rule and disturb the trial and appellate
courts’ factual finding that the existence of an oral partition was not proven. Our examination of the records
indicates that, contrary to petitioners’ contention, the lower courts’ conclusion was justified.

Petitioners’ only piece of evidence to prove the alleged oral partition was the joint affidavit
(entitled “Confirmation of Oral Partition/Settlement of Estate”) supposedly executed by some of the Pacres
siblings and their heirs in 1993, to the effect that such an oral partition had previously been agreed
upon. Petitioners did not adequately explain why the affidavit was executed only in 1993, several years after
respondents Ygoña and Ramirez took possession of the front portions of Lot No. 9.[38] If there had been an
oral partition allotting the front portions to petitioners since Pastor’s death in 1962, they should have
immediately objected to respondents’ occupation. Instead, they only asserted their ownership over the front
lots beginning in 1993 (with the execution of their joint affidavit) when expropriation became imminent and
was later filed in court.

Petitioners’ assertion of partition of Lot No. 9 is further belied by their predecessor-‐in-‐interest’s
previous assertion of co-‐ownership over the same lot in the legal redemption case filed 10 years
before.[39] The allegations therein, sworn to as truth by Mario and Veñaranda, described Lot No. 9 as a parcel
of land that is co-‐owned by the Pacres siblings pro indiviso. It was further alleged that Ygoña bought the
undivided shares of Rodrigo, Francisco, Margarita, and Simplicia.

The statements in the legal redemption case are extrajudicial admissions,[40] which were not
disputed by petitioners. These admissions may be given in evidence against them.[41] At the very least, the
polarity of their previous admissions and their present theory makes the latter highly suspect.

Moreover, petitioners failed to show that the Pacres siblings took possession of their allotted
shares after they had supposedly agreed on the oral partition. Actual possession and exercise of dominion
over definite portions of the property in accordance with the alleged partition would have been strong proof
of an oral partition.[42] In this case, however, petitioners failed to present any evidence that the petitioners
took actual possession of their respective allotted shares according to the supposed partition. In fact, the
evidence of the parties point to the contrary. Petitioner Valentina herself drew a sketch[43] showing the
location of the actual occupants of Lot No. 9, but the actual occupation shown in her sketch is not in
accordance with the terms of the alleged oral partition.[44] According to the terms of the alleged oral
partition, the front portions of Lot No. 9 were supposed to have been occupied by petitioners, but Valentina’s
sketch indicates that the actual occupants of the said portions are respondents.

In fine, we rule that the records contain ample support for the trial and appellate courts’ factual
findings that petitioners failed to prove their allegation of oral partition. While petitioners claim that the trial
and appellate courts did not appreciate their evidence regarding the existence of the alleged oral partition, the
reality is that their evidence is utterly unconvincing.

With respect to the alleged additional obligations which petitioners seek to be enforced against
respondent Ygoña, we likewise find that the trial and appellate courts did not err in rejecting them. Petitioners
allege that when Ygoña bought portions of Lot No. 9 from petitioners’ four siblings, aside from paying the
purchase price, she also bound herself to survey Lot No. 9 including the shares of the petitioners (the non-‐
selling siblings); to deliver to petitioners, free of cost, the titles corresponding to their definite shares in Lot No.
9; and to pay for all their past and present estate and realty taxes.[45] According to petitioners, Ygoña agreed
to these undertakings as additional consideration for the sale, even though they were not written in the
Deeds of Sale.

Like the trial and appellate courts, we find that these assertions by petitioners have not been sufficiently
established.

In the first place, under Article 1311 of the Civil Code, contracts take effect only between the
parties, their assigns and heirs (subject to exceptions not applicable here). Thus, only a party to the contract
can maintain an action to enforce the obligations arising under said contract.[46] Consequently, petitioners,
not being parties to the contracts of sale between Ygoña and the petitioners’ siblings, cannot sue for the
enforcement of the supposed obligations arising from said contracts.

It is true that third parties may seek enforcement of a contract under the second paragraph of
Article 1311, which provides that “if a contract should contain some stipulation in favor of a third person, he
may demand its fulfillment.” This refers to stipulations pour autrui, or stipulations for the benefit of third
parties. However, the written contracts of sale in this case contain no such stipulation in favor of the
petitioners. While petitioners claim that there was an oral stipulation, it cannot be proven under the Parol
Evidence Rule. Under this Rule, “[w]hen the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the written
agreement.”[47] While the Rule admits of exception, no such exception was pleaded, much less proved, by
petitioners.

The Parol Evidence Rule applies to “the parties and their successors in interest.” Conversely, it has
no application to a stranger to a contract. For purposes of the Parol Evidence Rule, a person who claims to be
the beneficiary of an alleged stipulation pour autrui in a contract (such as petitioners) may be considered a
party to that contract. It has been held that a third party who avails himself of a stipulation pour autrui under
a contract becomes a party to that contract.[48] This is why under Article 1311, a beneficiary of a stipulation
pour autrui is required to communicate his acceptance to the obligor before its revocation.

Moreover, to preclude the application of Parol Evidence Rule, it must be shown that “at least one
of the parties to the suit is not party or a privy of a party to the written instrument in question and does not
base a claim on the instrument or assert a right originating in the instrument or the relation established
thereby.”[49] A beneficiary of a stipulation pour autrui obviously bases his claim on the contract. He
therefore cannot claim to be a stranger to the contract and resist the application of the Parol Evidence Rule.

Thus, even assuming that the alleged oral undertakings invoked by petitioners may be deemed
stipulations pour autrui, still petitioners’ claim cannot prosper, because they are barred from proving them by
oral evidence under the Parol Evidence Rule.

Whether the issue of ownership
regarding the front portion of Lot
No. 9 and entitlement to the
expropriation payment may be
resolved in this action

Petitioners characterize respondents’ claim over the expropriation payment as unlawful on the
ground that the expropriated portion belongs to petitioners per the alleged oral partition. They also maintain
that Ygoña is barred by laches from claiming the front portion because she waited 13 years from the time of
the sale to claim her share via petition for subdivision and survey.
On the other hand, respondents charge petitioners with forum-‐shopping on the ground that the issue of
ownership had already been submitted to the expropriation court. The trial court affirmed this argument
stating that petitioners resorted to forum-‐shopping, while the appellate court ruled that it could not
determine the existence of forum-‐shopping considering that it was not provided with the pleadings in the
expropriation case.

We agree with the CA on this score. The parties did not provide the Court with the pleadings filed in the
expropriation case, which makes it impossible to know the extent of the issues already submitted by the
parties in the expropriation case and thereby assess whether there was forum-‐shopping.

Nonetheless, while we cannot rule on the existence of forum-‐shopping for insufficiency of evidence, it is
correct that the issue of ownership should be litigated in the expropriation court.[50] The court hearing the
expropriation case is empowered to entertain the conflicting claims of ownership of the condemned property
and adjudge the rightful owner thereof, in the same expropriation case.[51] This is due to the intimate
relationship of the issue of ownership with the claim for the expropriation payment. Petitioners’ objection
regarding respondents’ claim over the expropriation payment should have been brought up in the
expropriation court as opposition to respondent’s motion. While we do not know if such objection was
already made,[52] the point is that the proper venue for such issue is the expropriation court, and not here
where a different cause of action (specific performance) is being litigated.

We also cannot agree with the trial court’s order to partition the lot in accordance with Exhibit No. 1 or
the sketch prepared by petitioner Valentina. To do so would resolve the issue of ownership over portions of
Lot No. 9 and effectively preempt the expropriation court, based solely on actual occupation (which was the
only thing which Exhibit No. 1 could have possibly proved). It will be remembered that Exhibit No. 1 is simply a
sketch demonstrating the portions of Lot No. 9 actually occupied by the parties. It was offered simply to
impeach petitioners’ assertion of actual occupation in accordance with the terms of the alleged oral partition.

Let it be made clear that our ruling, just like those of the trial court and the appellate court, is
limited to resolving petitioners’ action for specific performance. Given the finding that petitioners failed to
prove the existence of the alleged oral partition and the alleged additional consideration for the sale, they
cannot compel respondents to comply with these inexistent obligations. In this connection, there is no basis
for petitioners’ claim that the CA Decision was incomplete by not definitively ruling on the ownership over the
front lots. The CA decision is complete. It ruled that petitioners failed to prove the alleged obligations and are
therefore not entitled to specific performance thereof.

WHEREFORE, the petition is DENIED. The assailed October 28, 2005 Decision of the Court of Appeals in
CA-‐G.R. No. 174719, as well as its August 31, 2006 Resolution, are AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION ROBERTO A. ABAD

JOSE PORTUGAL PEREZ
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice


Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Republic of the Philippines SUPREME COURT Manila
FIRST DIVISION
G.R. No. 168396 June 22, 2006
MARCELINA V. ESPINO, For Herself And In Representation of Her Deceased Mother,
EMERENCIANA V. ESPINO, and Spouses FELIPE DE LOS SANTOS and MARISSA DE LOS SANTOS,
Petitioners, vs. Spouses RICARDO VICENTE and EMMA M. VICENTE, Respondents.
D E C I S I O N
YNARES-‐SANTIAGO, J.:
This petition for review assails the Decision1 dated October 25, 2004 of the Court of Appeals in
CA-‐G.R. CV No. 67640 which set aside the October 25, 1999 Decision2 of the Regional Trial Court
of Malolos, Bulacan, Branch 19, in Civil Case No. 431-‐M-‐97, as well as the Resolution3 dated May
27, 2005 denying petitioners’ motion for reconsideration.
The antecedent facts are as follows:
Emerenciana and Doroteo Espino, the parents of herein petitioner, Marcelina V. Espino, were
the owners of two untitled parcels of land denominated as Lots 1475 and 1476, situated in
Bambang, Bulacan and covered by Tax Declaration Nos. 96-‐05003-‐00447 and 96-‐05003-‐00449,
respectively, with a total area of 134 square meters. On March 31, 1995, Emerenciana sold to
Marissa Delos Santos a 20-‐square meter undivided portion of Lot 1475 for P20,000.00.4
The crux of the controversy in this case arose from the execution by Emerenciana and Marcelina
on January 9, 1997 of a document, denominated as "Pagkakaloob,"5 purportedly donating Lots
1475 and 1476 to respondent Emma Vicente, the wife of Ricardo Vicente, nephew of
Emerenciana.
It appears that sometime in December 1996, Emma convinced Marcelina and Emerenciana that
she could facilitate the registration and titling in their name of the house and lot where they are
staying. Emma allegedly asked Emerenciana and Marcelina who are both illliterate to sign a
document to be used in titling the property in their name.
Subsequently, Emerenciana and Marcelina learned that the document they signed was a Deed
of Donation or a "Pagkakaloob," of the house and lot in favor of Emma, including the 20 square-‐
meter portion that was earlier sold to Marissa. As a consequence, when Emma filed an
application for free patent with the DENR-‐PENRO Office of Malolos, Bulacan on January 13,
1997, Marissa filed an opposition with the DENR-‐PENRO and the Register of Deeds. On the other
hand, Emerenciana and Marcelina executed a Deed of Revocation of Donation or "Kasulatan ng
Pagpapawalang Bisa sa Kasulatan ng Pagkakaloob"6 dated April 14, 1997.
Petitioners then filed a petition7 for annulment of patent/title and reconveyance of real
property with damages with the Regional Trial Court of Malolos, Bulacan which was docketed as
Civil Case No. 431-‐M-‐97 and raffled to Branch 19.
After due proceedings, the trial court rendered its decision, the dispositive portion of which
provides:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants
as follows:
1. The "Pagkakaloob" Exhibit "E" of plaintiffs and Exhibit "1" of defendants is ordered ANNULLED
and VOIDED by reason of fraud;
2. Free Patent No. 031405-‐97-‐10063 issued by the DENR-‐PENRO of Malolos, Bulacan is declared
by VOID AB INITIO;
3. Tax Declarations Nos. 96-‐05003-‐03502 & 03503 and 96-‐05003-‐03506 dated January 15, 1997
and January 21, 1997, respectively, are declared VOID AB INITIO;
4. Ordering the defendants TO PAY PLAINTIFFS the sum of TEN THOUSAND (P10,000.00) PESOS
as and by way of attorney’s fees; and
5. Costs of suit.
All other claims of plaintiffs and defendants’ counterclaim are DENIED for lack of legal and
factual basis.
SO ORDERED.8
Respondents appealed to the Court of Appeals which reversed the decision of the trial court and
resolved the appeal as follows:
WHEREFORE, the decision appealed from is SET ASIDE and the complaint is DISMISSED. The
Register of Deeds for the Province of Bulacan is directed to proceed with the registration of the
property in the names of Marissa Delos Santos, as to an undivided 20 square-‐meter portion of
lot 1475, and of the Spouses Emma and Ricardo Vicente, as to the remainder of lots 1475 and
1476.
SO ORDERED.9
Hence the present petition.
The sole issue for resolution is whether the Court of Appeals erred in reversing the lower court’s
decision and concluding that the assailed deed of donation enjoys the legal presumption of due
execution and validity.
Petitioners contend that the Court of Appeals overlooked or disregarded certain factual findings
of the trial court and that it failed to accord due evidentiary weight upon certain undisputed
facts.10
Petitioners would want us to rule on questions of fact in resolving the issue they raised before
us, contrary to the settled rule that only questions of law may be raised in a petition for review.
Prefatorily, we restate the time honored principle that in petitions for review under Rule 45 of
the Rules of Court, only questions of law may be raised. It is not our function to analyze or weigh
all over again evidence already considered in the proceedings below, our jurisdiction being
limited to reviewing only errors of law that may have been committed by the lower court. The
resolution of factual issues is the function of the lower courts, whose findings on these matters
are received with respect. A question of law which we may pass upon must not involve an
examination of the probative value of the evidence presented by the litigants.11
However, this rule is not iron-‐clad. We have consistently recognized several exceptional
circumstances where we disregarded the aforesaid tenet and proceeded to review the findings
of facts of the lower court such as: (1) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (2) when the inference is manifestly absurd, mistaken or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the
judgment is premised on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when the Court of Appeals in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant and appellee; (7) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (8) when the findings of
fact of the Court of Appeals are contrary to those of the trial court or are mere conclusions
without citation of specific evidence, or where the facts set forth by the petitioner are not
disputed by the respondent, or where the findings of fact of the Court of Appeals are premised
on absence of evidence but are contradicted by the evidence on record.12
Considering the conflict in the factual findings of the Regional Trial Court and of the Court of
Appeals, we rule on the factual issues as an exception to the general rule.
The petition is impressed with merit.
A donation is an act of liberality whereby a person disposes gratuitously a thing or right in favor
of another, who accepts it.13 Like any other contract, an agreement of the parties is essential.
Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an
exact notion of the matter to which it refers; (2) it should be free, and (3) it should be
spontaneous.14 The parties’ intention must be clear and the attendance of a vice of consent, like
any contract, renders the donation voidable.15
For the petitioners, the vice of consent which attended the execution of the Pagkakaloob or the
deed of donation came in the form of the fraud allegedly perpetrated by Emma in securing the
signatures of Emerenciana and Marcelina. During her direct examination, Marcelina
categorically testified that her signature and that of her deceased mother, Emerenciana, were
procured by Emma through fraud and misrepresentation, thus:
Atty. Cruz:
Q: Going Back to January, 1997 when you said defendant Emma Vicente came to your house and
told you and your mother that she will assist you in transferring and registering that property in
question, do you remember if there was a document or kasulatan that she requested you to
sign?
Marcelina Espino:
There is, sir.
Court: What was your agreement with this Emma Vicente when she went to your house on (sic)
January, 1997?
A: According to her, she will help in the transferring of the property under my name, Your
Honor.
Q: Why, what is the status of this property? Was is not yet titled?
A: Not yet, Your Honor.
Atty. Cruz:
When Emma Vicente told you that she will help and you said she requested you to sign, do you
know what document that she requested you to sign?
A: That sheet sir. She said she is going to transfer that property under my name.
Q: Was the document that you signed, the contents of that document, was it explained to you
before you signed?
A: Yes, sir.
Q: How was it explained to you, if you know?
Atty. Tansinsin, Jr.:
No, because. . .
Court: Answer.
A: According to her, I should trust her because she will not fool me, Your Honor.
Atty. Cruz:
Do you know how to read?
A: No, sir.
Atty. Cruz:
What was your educational attainment?
A: Grade VI, sir.
Court: But surely you must know how to read Tagalog?
A: No, Your Honor.
Court: Until now?
A: No, your honor.
Atty. Cruz:
The explanation made to you by Emma Vicente about the document that you were requested to
sign is that it will be used to transfer the property in your name?
Atty. Tansinsin, Jr.:
There is no document yet, Your Honor.
Atty. Cruz:
That is why I laid the basis, Your Honor.
Court: Answer.
A: Yes, Your Honor.16
It becomes evident from the foregoing that Marcelina and Emerenciana, contrary to the
allegations of the respondents, never intended to donate the subject property. Thus, the
liberality that necessarily attends every gratuitous disposition is absent in this case. In addition,
the act of Marcelina and Emerenciana of executing the Kasulatan ng Pagwawalang Bisa sa
Kasulatan ng Pagkakaloob17 after discovering that the respondents have sought the issuance of
a free patent over the subject property supports the allegation that the intent to donate the
subject property was never present as far as Marcelina and Emerenciana are concerned.
It is also evident that fraud attended the act of respondent Emma when she procured the
signatures of Marcelina and Emerenciana. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.18 Moreover, when one of the parties is
unable to read, as in this case, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof
have been fully explained to the former.19 We have scoured the records of this case and we
found no proof that the respondents discharged their legal duty of explaining to Marcelina, who
testified that she and her mother were illiterate, the terms of the instrument.
The fraud perpetrated upon Marcelina and Emerenciana having been clearly established, the
lower court was correct in annulling and voiding the Pagkakaloob. As the trial court
ratiocinated:
Pitted against Marcelina’s categorical denial and clear repudiation of the "Pagkakaloob",
defendants could only offer the testimony of their son Emerick Vicente who was not even
present during the execution of the questioned document, Exh. "A" of the plaintiffs. The central
figure of the controversy Emma Vicente deliberately chose to waive her presence much less did
she testify in Court to rebut the testimony of Marcelina. Her failure to testify is evidence against
the defendants. Neither did the defendants present the witnesses to the "Pagkakaloob" nor the
Notary Public, Atty. Cresenciano Santiago, so they could have controverted and refuted the
repudiation made by Marcelina Espino. This failure is evidence against the defendants. x x x.20
The Court of Appeals anchored its assailed pronouncements on the fact that the Pagkakaloob
was notarized. While it is true that deeds which have been notarized are presumed to have been
duly executed, this presumption of regularity can be rebutted by clear and convincing evidence
as in this case. As earlier stated, the due execution of the Pagkakaloob suffered from infirmities
which derogate from the presumption of regularity that notarization attaches to it. Further,
Marcelina testified that she never appeared before Cresenciano C. Santiago who allegedly
notarized the Pagkakaloob.
Anent the weight accorded by the Court of Appeals to the tax declarations in the names of the
respondents and the realty tax receipts, we hold that while it is true that tax declarations and
tax receipts are good indicia of possession in the concept of an owner, the same must be
accompanied by possession for a period sufficient for prescription. By themselves, tax
declarations and tax receipts do not conclusively prove ownership.21 We have reviewed the
records of this case and we find that even at the time of the filing of the application by
respondent Emma Vicente for the issuance of a free patent over the subject property, the
person occupying the same was Emerenciana Espino. Ireneo Guballa, a Public Land
Inspector/Investigator of the CENRO, and a disinterested third party, testified that Emerenciana
and Marcelina were the occupants of the property prior to and at the time that he conducted
the ocular inspection on the premises.22
WHEREFORE, the petition is GRANTED. The assailed Decision dated October 25, 2004 and the
May 27, 2005 Resolution of the Court of Appeals in CA-‐G.R. CV No. 67640 are ANNULED and SET
ASIDE. The October 25, 1999 Decision of the Regional Trial Court of Malolos, Bulacan, Branch 19
in Civil Case No. 431-‐M-‐97 ordering the annulment of the "Pagkakaloob" for being null and void,
declaring Tax Declaration Nos. 96-‐05003-‐03502 and 03503 and 96-‐05003-‐03506 void ab initio,
declaring Free Patent No. 031405-‐97-‐10063 void ab initio and ordering herein respondent to pay
P10,000.00 to the petitioners as attorney’s fees, is REINSTATED.
SO ORDERED.

NGEI Multi-‐Purpose Cooperative, Inc. and Hernancito Ronquillo vs. Filipinas Palmoil Plantation
Inc. and Dennis Villareal
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 184950 � � � � � � � October 11, 2012
NGEI MULTI-‐PURPOSE COOPERATIVE INC. AND HERNANCITO RONQUILLO, Petitioners,
vs.
FILIPINAS PALMOIL PLANTATION INC. AND DENNIS VILLAREAL, Respondents.
D E C I S I O N
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the May 9,
2008 Decision1 of the Court of Appeals (CA) in CA-‐G.R. SP No. 99552 and its October 3, 2008
Resolution2 denying the motion for reconsideration thereof.
The Facts
On December 2, 1988, the petitioner NGEI Multi-‐Purpose Cooperative Inc. (NGEI Coop), a duly-‐
registered agrarian reform workers’ cooperative, was awarded by the Department of Agrarian
Reform (DAR) 3,996.6940 hectares of agricultural land for palm oil plantations located in Rosario
and San Francisco, Agusan del Sur.
On March 7, 1990, NGEI Coop entered into a lease agreement with respondent Filipinas Palmoil
Plantation, Inc. (FPPI), formerly known as NDC Gutrie Plantation, Inc., over the subject property
commencing on September 27, 1988 and ending on December 31, 2007. Under the lease
agreement, FPPI (as lessee) shall pay NGEI Coop (as lessor) a yearly fixed rental of ₱635.00 per
hectare plus a variable component equivalent to 1% of net sales from 1988 to 1996, and ½%
from 1997 to 2007.3
On January 29, 1998, the parties executed an Addendum to the Lease Agreement (Addendum)
which provided for the extension of the lease contract for another 25 years from January 1,
2008 to December 2032. The Addendum was signed by Antonio Dayday, Chairman of the NGEI
Coop, and respondent Dennis Villareal (Villareal), the President of FPPI, and witnessed by DAR
Undersecretary Artemio Adasa. The annual lease rental remained at ₱635.00 per hectare, but
the package of economic benefits for the bona fide members of NGEI Coop was amended and
increased, as follows:Years CoveredAmount (Per Hectare)1998 – 2002P1,865.002003 –
2006P2,365.002007 – 2011P2,865.002012 – 2016P3,365.002017 – 2021P3,865.002022 – 2026
P4,365.002027 – 2031P4,865.002032P5,365.004
On June 20, 2002, NGEI Coop and petitioner Hernancito Ronquillo (Ronquillo) filed a complaint
for the Nullification of the Lease Agreement and the Addendum to the Lease Agreement before
the Department of Agrarian Reform Adjudication Board (DARAB) Regional Adjudicator of San
Francisco, Agusan del Sur (Regional Adjudicator). The case was docketed as DARAB Case No. XIII
(03)–176. The petitioners alleged, among others, that the Addendum was null and void because
Antonio Dayday had no authority to enter into the agreement; that said Addendum was
approved neither by the farm worker-‐beneficiaries nor by the Presidential Agrarian Reform
Council (PARC) Executive Committee, as required by DAR Administrative Order (A.O.) No. 5,
Series of 1997; that the annual rental and the package of economic benefits were onerous and
unjust to them; and that the lease agreement and the Addendum unjustly deprived them of
their right to till their own land for an exceedingly long period of time, contrary to the intent of
Republic Act (R.A.) No. 6657, as amended by R.A. No. 7905.
In its Decision,5 dated February 3, 2004, the Regional Adjudicator declared the Addendum as
null and void for having been entered into by Antonio Dayday without the express authority of
NGEI Coop, and for having been executed in violation of the Rules under A.O. No. 5, Series of
1997.
FPPI filed a motion for reconsideration. The Regional Adjudicator, finding merit in the said
motion, reversed his earlier decision in an Order, dated March 22, 2004. He dismissed the
complaint for the nullification of the Addendum on the grounds of prescription and lack of cause
of action. The Regional Adjudicator further opined that the Addendum was valid and binding on
both the NGEI Coop and FPPI and, the petitioners having enjoyed the benefits under the
Addendum for more than four (4) years before filing the complaint, were considered to have
waived their rights to assail the agreement.
The petitioners moved for a reconsideration of the said order but the Regional Adjudicator
denied it in the Order dated April 28, 2004.
On appeal, the DARAB Central Office rendered the October 9, 2006 Decision.6 It found no
reversible error on the findings of fact and law by the Regional Adjudicator and disposed the
case as follows:
WHEREFORE, premises considered, the instant Appeal is DENIED for lack of merit and the
assailed Order dated March 22, 2004 is hereby affirmed.
SO ORDERED.7
After their motion for reconsideration was denied, the petitioners appealed to the CA via a
petition for review under Rule 43 of the Rules of Court.
On May 9, 2008, the CA rendered the assailed decision upholding the validity and binding effect
of the Addendum as it was freely and voluntarily executed between the parties, devoid of any
vices of consent. The CA sustained its validity on the basis of the civil law principle of mutuality
of contracts that the parties were bound by the terms and conditions unequivocally expressed in
the addendum which was the law between them.
In dismissing the petition, the CA ratiocinated that the findings of fact of the Regional
Adjudicator and the DARAB were supported by substantial evidence. Citing the case of Sps.
Joson v. Mendoza,8 the CA held that such findings of the agrarian court being supported by
substantial evidence were conclusive and binding on it.
The petitioners filed a motion for reconsideration of the said decision on the grounds, among
others, that the findings of fact of the Regional Adjudicator were in conflict with those of the
DARAB and were not supported by the evidence on record; and that the conclusions of law were
not in accordance with applicable law and existing jurisprudence. The motion, however, was
denied for lack of merit by the CA in its Resolution, dated October 3, 2008.
Hence, NGEI Coop and Ronquillo interpose the present petition before this Court anchored on
the following GROUNDS
(I)
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSAILED
ADDENDUM IS VOID AB-‐INITIO, THE SAME HAVING BEEN EXECUTED WITHOUT THE CONSENT OF
ONE OF THE PARTIES THERETO (Petitioner NGEI-‐MPC), BY REASON OF THE ABSENCE OF
AUTHORITY TO EXECUTE THE SAME GIVEN BY SAID PARTY TO THE SUBSCRIBING INDIVIDUAL
(Dayday) AND THE FACT THAT THE ADDENDUM WAS NEVER RATIFIED BY THE GENERAL
MEMBERSHIP OF NGEI-‐MPC.
(II)
THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ADDENDUM TO LEASE
AGREEMENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS, GOOD CUSTOMS,
AND PUBLIC POLICY.
(III)
THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION, SERIOUSLY ERRED IN HOLDING THAT THE DECISION OF THE
DARAB IS SUPPORTED BY SUBSTANTIAL EVIDENCE.
(IV)
WHETHER OR NOT PETITIONERS’ CAUSE OF ACTION HAS PRESCRIBED.9

The sole issue for the Court’s resolution is whether the CA committed reversible error of law
when it affirmed the decision of the DARAB which upheld the order of the Regional Adjudicator
dismissing the petitioners’ complaint for the nullification of the Addendum.
The Court finds the petition bereft of merit.
The petitioners contend that the CA gravely erred in upholding the validity of the Addendum.
They allege that the yearly lease rental of P635.00 per hectare stipulated in the Addendum was
unconscionable because it violated the prescribed minimum rental rates under DAR A.O. No. 5,
Series of 1997 and R.A. No. 3844 which mandate that the lease rental should not be less than
the yearly amortization and taxes. They also argue that it constitutes an infringement on the
policy of the State to promote social justice for the welfare and dignity of farmers and farm
workers.
Relying on the same A.O. No. 5, the petitioners further argue that the Addendum with another
25 years of extension period was invalid for lack of approval by the PARC Executive Committee;
that Antonio Dayday had no authority to enter into the Addendum on behalf of NGEI Coop; that
the authority given, if any, was merely for a review of the lease agreement and to negotiate with
FPPI on the specific issue of land lease rental through a negotiating panel or committee, to
which Dayday was a member; that Dayday’s act of signing for, and in behalf of, NGEI Coop being
ultra vires was null and void; that it was Vicente Flora who was authorized to sign the
Addendum as shown in Resolution No. 1, Series of 1998; that the Addendum was not ratified
through the use of attendance sheets for meal and transportation allowance; that neither did
NGEI Coop and its members ratify the Addendum by their receipt of its so-‐called economic
benefits; and that their acceptance of the benefits under the agreement was not an indication
of waiver of their right to pursue their claims against FPPI considering their consistent actions to
contest the subject Addendum.
The respondents, on the other hand, posit in their Comment10 and reiterated in their
Memorandum11 that by raising factual issues, the petitioners were seeking a review of the
factual findings of the Regional Adjudicator and the DARAB which is proscribed in a petition for
review under Rule 45 of the Rules of Court. They add that the findings of the said administrative
agencies, having been sustained by the CA in the assailed decision and supported by substantial
evidence, should be respected.
The respondents further state that the CA correctly ruled that the Addendum was a valid and
binding contract. They claim that the package of economic benefits under the Addendum was
not unconscionable or contrary to public policy.
Indeed, the issues raised in this petition are mainly factual in nature. Factual issues are not
proper subjects of the Court’s power of judicial review. Well-‐settled is the rule that only
questions of law can be raised in a petition for review under Rule 45 of the Rules of Civil
Procedure.12 It is, thus, beyond the Court’s jurisdiction to review the factual findings of the
Regional Adjudicator, the DARAB and the CA as regards the validity and the binding effect of the
Addendum. Whether or not the person who signed the Addendum on behalf of the NGEI Coop
was authorized to do so; whether or not the NGEI Coop members ratified the Addendum;
whether or not the rental rates prescribed in the Addendum were unconscionably low so as to
be illegal, and whether or not the NGEI Coop had consistently assailed the validity of the
Addendum even prior to the filing of the complaint with the Regional Adjudicator, are issues of
fact which cannot be passed upon by the Court for the simple reason that the Court is not a trier
of facts.
As held in the recent case of Carpio v. Sebastian,13 thus:
x x x It bears stressing that in a petition for review on certiorari, the scope of this Court’s judicial
review of decisions of the Court of Appeals is generally confined only to errors of law, and
questions of fact are not entertained. We elucidated on our fidelity to this rule, and we said:
Thus, only questions of law may be brought by the parties and passed upon by this Court in the
exercise of its power to review. Also, judicial review by this Court does not extend to a
reevaluation of the sufficiency of the evidence upon which the proper x x x tribunal has based its
determination.
It is aphoristic that a re-‐examination of factual findings cannot be done through a petition for
review on certiorari under Rule 45 of the Rules of Court because as earlier stated, this Court is
not a trier of facts; it reviews only questions of law. The Supreme Court is not duty-‐bound to
analyze and weigh again the evidence considered in the proceedings below.14
In the present case, the Court finds no cogent reason to depart from the aforementioned settled
rule. The DARAB made the following findings, viz:
This Board finds that the said "Addendum to the Lease Agreement" is valid and binding to both
parties. While the complainant impugns the validity of the "Addendum" based on the ground
that Chairman Dayday was not authorized by the Cooperative to enter into the Agreement,
based on the records, a series of Resolution was made authorizing the Chairman to enter into
the said "Addendum." Granting en arguendo that Chairman Dayday was not authorized to enter
into the said Agreement, the fact remains that the terms and stipulations in the Addendum had
been observed and enforced by the parties for several years. Both parties have benefited from
the said contract. If indeed Chairman Dayday was not authorized to enter into said Agreement,
why does the Cooperative have to wait for four (4) years to impugn the validity of the Contract.
Thus, the Adjudicator a quo is correct in his findings that:
As already discussed in the assailed Order, whatever procedural defects that may have attended
the final execution of the addendum, these are considered waived and/or impliedly accepted or
consented to by Complainants when its General assembly ratified its execution and lived with
for the next four (4) years.
Further the Adjudicator a quo is correct in his findings that:
It has to be impressed once more, that the Complaint is really one for the cancellation of the
Addendum to the original lease agreement. The negotiations that led to its execution is in fact a
re-‐negotiation of the old lease contract, and not a negotiated original lease requiring the
approval of the PARC Executive Committee. The re-‐negotiation that culminated in the execution
of the addendum requires only the recommendation of the PARCCOM and the DAR, (AO No. 5,
S-‐1997). It cannot be gainsaid, therefore, that both PARCCOM and the DAR after a long and
tedious re-‐negotiation had no knowledge of such re-‐negotiation, but for reasons unknown, both
have kept their peace, thus, allowing the addendum to be ratified, enforced and implemented.
On the other hand, the arguments, that said addendum being void ab initio may be assailed at
anytime cannot be conceded. First, because said addendum has not been officially or legally
declared as a nullity. It is not nullified just because a subsequent resolution of the
Coop Board abrogated the Addendum. To annul a Contract cannot be done unilaterally, in fact
the reason why this case was filed. On the contrary, having been forged in 1998, complainants
waited until 2002 to assail its validity, and in the meantime, their action to do so had prescribed
pursuant to Section 28 of RA 3844, the law governing leasehold. The other assigned alleged
errors having been fully discussed in the assailed Order of March 22, 2004, the same need no
longer be traversed.
Finding no reversible error on the finding of facts and law made by the Adjudicator a quo this
Board hereby affirms the Order dated March 22, 2004.15
It is well to emphasize that the above-‐quoted factual findings and conclusions of the DARAB
affirming those of the Regional Adjudicator were sustained by the CA in the assailed decision.
The Court is in accord with the CA when it wrote:
In appeals in agrarian cases, the only function of this Court is to determine whether the findings
of fact of the Department of Agrarian Reform Adjudication Board (DARAB) are supported by
substantial evidence – it cannot make its own findings of fact and substitute the same for the
findings of the DARAB. And substantial evidence has been defined to be such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion and its absence is not
shown by stressing that there is contrary evidence on record, direct or circumstantial; and
where the findings of the agrarian court are supported by substantial evidence, such findings are
conclusive and binding on the appellate court.16
Considering that the findings of the Regional Adjudicator and the DARAB are uniform in all
material respects, these findings should not be disturbed. More so in this case where such
findings were sustained by the CA for being supported by substantial evidence and in accord
with law and jurisprudence.
Verily, the factual findings of administrative officials and agencies that have acquired expertise
in the performance of their official duties and the exercise of their primary jurisdiction are
generally accorded not only respect but, at times, even finality if such findings are supported by
substantial evidence.17 The factual findings of these quasi-‐judicial agencies, especially when
affirmed by the CA, are binding on the Court. The recognized exceptions to this rule are: (1)
when there is grave abuse of discretion; (2) when the findings are grounded on speculation; (3)
when the inference made is manifestly mistaken; (4) when the judgment of the Court of Appeals
is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6) when
the Court of Appeals went beyond the issues of the case and its findings are contrary to the
admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if
properly considered, would justify a different conclusion; (8) when the facts set forth by the
petitioner are not disputed by the respondent; and (9) when the findings of the Court of Appeals
are premised on the absence of evidence and are contradicted by the evidence on record.18
None of these circumstances is obtaining in this case.
The Court understands the predicament of these farmer-‐beneficiaries of NGEI Coop. Under the
prevailing circumstances, however, it cannot save them from the consequences of the binding
lease agreement, the Addendum. The petitioners, having freely and willingly entered into the
Addendum with FPPI, cannot and should not now be permitted to renege on their compliance
under it, based on the supposition that its terms are unconscionable. The contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them.19
It is basic that a contract is the law between the parties. Obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.
Unless the stipulations in a contract are contrary to law, morals, good customs, public order or
public policy, the same are binding as between the parties.20 The Court quotes with approval
the ruling of the CA on this matter, to wit:
Indeed, the terms and conditions between the parties unequivocally expressed in the
Addendum must govern their contractual relations for these serve as the terms of the
agreement, which are binding and conclusive on them.
Consequently, petitioners cannot unilaterally change the tenor of the terms and conditions of
the Addendum or cancel it altogether after having gone through the solemnities and formalities
for its perfection. In fact, the Addendum had been consummated upon performance by the
parties of the prestations and after they had already reaped the mutual benefits arising from the
contract. Mutuality is one of the characteristics of a contract, and its validity or performance or
compliance cannot be left to the will of only one of the parties. It is a long established doctrine
that the law does not relieve a party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with full awareness of what he was
doing.21 (Underscoring supplied)
It must be stressed that the Addendum was found to be a valid and binding contract. The
petitioners failed to show that the Addendum’s stipulated rental rates and economic benefits
violated any law or public policy. The Addendum should, therefore, be given full force and
effect, without prejudice to a renegotiation of the terms of the leasehold agreement in
accordance with the provisions of Administrative Order No. 5, Series of 1997, governing their
Addendum, as regards the contracting procedures and fixing of lease rental in lands planted to
palm oil trees, specifically:
IV. POLICIES AND GOVERNING PRINCIPLES
xxx
D. Renegotiation of the amount of lease rental shall be undertaken by the parties every five (5)
years, subject to the recommendation of the PARCCOM and review by the DAR.
Lease rental on the leased lands may be renegotiated by the contracting parties even prior to
the termination of the contract on the following grounds: (a) domestic inflation rate of seven
percent (7%) or more; (b) drop in the world prices of the commodity by at least twenty percent
(20%); and (c) other valid reasons.
E. Any conflict that may arise from the implementation of the lease contract shall be referred to
the PARCCOM by any of the contracting parties for mediation and resolution. In the event of
failure to resolve the issue, any of the parties may file an action with the Department of
Agrarian Reform Adjudication Board (DARAB) for adjudication pursuant to Section 50 of R.A. No.
6657.
Anent the issue of prescription, Section 38 of R.A. No. 3844 (The Agricultural Land Reform
Code), the applicable law to agricultural leasehold relations, provides:
Section 38. Statute of Limitations -‐ An action to enforce any cause of action under this Code
shall be barred if not commenced within three years after such cause of action accrued.
(Underscoring supplied)
On the basis of the aforequoted provision, the petitioners' cause of action to have the
Addendum, an agricultural leasehold arrangement between NGEI Coop and FPPI, declared null
and void has already prescribed. To recall, the Addendum was executed on January 29, 1998
and the petitioners tiled their complaint with the Regional Adjudicator on June 20, 2002, or
more than four years after the cause of action accrued. Evidently, prescription has already set
in. Inasmuch as the validity of the Addendum was sustained by the CA as devoid of any vice or
defect, Article 1410 of the Civil Code on imprescriptibility of actions for declaration of
inexistence of contracts, relied upon by the petitioners, is not applicable.1âwphi1
On a final note, the petitioners faulted the CA for failure to re-‐assess the facts of the case
despite the conflicting findings of the Regional Adjudicator and the DARAB. Such imputation of
error deserves no merit because, in truth and in fact, no such conflict exists. Contrary to the
petitioners' claim, both tribunals declared the validity of the Addendum being in existence for
several years and on the basis that the petitioners had enjoyed the benefits accorded under it,
and both raised the ground of prescription of the petitioners' cause of action pursuant to
Section 38, R.A. No. 3844.
All told, the Court, after a careful review of the records, finds no reversible error in the assailed
decision of the CA .
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA

FIRST DIVISION
[G.R. No. 160533. January 12, 2005]
FIRST FIL-‐SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent.
D E C I S I O N
YNARES-‐SANTIAGO, J.:
Before us is a petition for review under Rule 45 of the Rules of Court, seeking a reversal of
the Court of Appeals’ decision in CA-‐G.R. CV No. 75183[1] dated October 16, 2003, which
reversed and set aside the decision of the Regional Trial Court of Manila, Branch 21 in Civil Case
No. 00-‐96235.
On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from
petitioner First Fil-‐Sin Lending Corp. On September 7, 1997, respondent obtained another
P500,000.00 loan from petitioner. In both instances, respondent executed a promissory note
and disclosure statement.[2]
For the first loan, respondent made 13 monthly interest payments of P22,500.00 each
before she settled the P500,000.00 outstanding principal obligation on February 2, 1999. As
regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each
before paying the principal loan of P500,000.00 on February 2, 1999.[3] In sum, respondent
paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan.
On January 27, 2000, respondent filed an action for sum of money against herein
petitioner before the Regional Trial Court of Manila. Alleging that she only agreed to pay
interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5%
and 5% per month, respondent sought to recover the amounts she allegedly paid in excess of
her actual obligations.
On October 12, 2001,[4] the trial court dismissed respondent’s complaint, and on the
counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3,
1999 until fully paid plus 10% of the amount due as attorney’s fees and costs of the suit.[5] The
trial court ruled that by issuing checks representing interest payments at 4.5% and 5% monthly
interest rates, respondent is now estopped from questioning the provisions of the promissory
notes.
On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a
quo, the dispositive portion of which reads:
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET ASIDE and a new
one entered: (1) ordering First Fil-‐Sin Lending Corporation to return the amount of P114,000.00
to Gloria D. Padillo, and (2) deleting the award of attorney’s fees in favor of appellee. Other
claims and counterclaims are dismissed for lack of sufficient causes. No pronouncement as to
cost.
SO ORDERED.[6]
The appellate court ruled that, based on the disclosure statements executed by
respondent, the interest rates should be imposed on a monthly basis but only for the 3-‐month
term of the loan. Thereafter, the legal interest rate will apply. The CA also found the penalty
charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per
annum. Thus, it was reduced to 1% per month or 12% per annum.
Hence, the instant petition on the following assignment of errors:
I
THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE INTEREST

SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM
DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE
RATE.
II
THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT THE

RATE OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR
AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE.
III
THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEY’S FEES AWARDED
BY THE REGIONAL TRIAL COURT.[7]
Petitioner maintains that the trial court and the CA are correct in ruling that the interest
rates are to be imposed on a monthly and not on a per annum basis. However, it insists that the
4.5% and 5% monthly interest shall be imposed until the outstanding obligations have been fully
paid.
As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by
the CA in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate
terms and conditions as they may deem proper.
Petitioner finally contends that the CA erred in deleting the trial court’s award of
attorney’s fees arguing that the same is anchored on sound and legal ground.
Respondent, on the other hand, avers that the interest on the loans is per annum as
expressly stated in the promissory notes and disclosure statements. The provision as to annual
interest rate is clear and requires no room for interpretation. Respondent asserts that any
ambiguity in the promissory notes and disclosure statements should not favor petitioner since
the loan documents were prepared by the latter.
We agree with respondent.
Perusal of the promissory notes and the disclosure statements pertinent to the July 22,
1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide
for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated
that the interest rates shall be applied on a monthly basis.
Thus, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.[8] It is only in instances when the
language of a contract is ambiguous or obscure that courts ought to apply certain established
rules of construction in order to ascertain the supposed intent of the parties. However, these
rules will not be used to make a new contract for the parties or to rewrite the old one, even if
the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and
ambiguities within the framework of the agreement.[9]
The lower court and the CA mistook the Loan Transactions Summary for the Disclosure
Statement. The former was prepared exclusively by petitioner and merely summarizes the
payments made by respondent and the income earned by petitioner. There was no mention of
any interest rates and having been prepared exclusively by petitioner, the same is self
serving. On the contrary, the Disclosure Statements were signed by both parties and
categorically stated that interest rates were to be imposed annually, not monthly.
As such, since the terms and conditions contained in the promissory notes and disclosure
statements are clear and unambiguous, the same must be given full force and effect. The
expressed intention of the parties as laid down on the loan documents controls.
Also, reformation cannot be resorted to as the documents have not been assailed on the
ground of mutual mistake. When a party sues on a written contract and no attempt is made to
show any vice therein, he cannot be allowed to lay claim for more than what its clear
stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own
notions of justice or equity may dictate.[10]
Notably, petitioner even admitted that it was solely responsible for the preparation of the
loan documents, and that it failed to correct the pro forma note “p.a.” to “per month”.[11] Since
the mistake is exclusively attributed to petitioner, the same should be charged against it. This
unilateral mistake cannot be taken against respondent who merely affixed her signature on the
pro forma loan agreements. As between two parties to a written agreement, the party who
gave rise to the mistake or error in the provisions of the same is estopped from asserting a
contrary intention to that contained therein. The checks issued by respondent do not clearly
and convincingly prove that the real intent of the parties is to apply the interest rates on a
monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure
statements remain the best evidence to ascertain the real intent of the parties.
The same promissory note provides that “x x x any and all remaining amount due on the
principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity
until fully paid.” The CA thus properly imposed the legal interest of 12% per annum from the
time the loans matured until the same has been fully paid on February 2, 1999. As decreed in
Eastern Shipping Lines, Inc. v. Court of Appeals,[12] “in the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default.”
As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day
of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with, or
if it is iniquitous or unconscionable.
With regard to the attorney’s fees, the CA correctly deleted the award in favor of
petitioner since the trial court’s decision does not reveal any explicit basis for such an
award. Attorney’s fees are not automatically awarded to every winning litigant. It must be
shown that any of the instances enumerated under Art. 2208[13] of the Civil Code exists to
justify the award thereof.[14] Not one of such instances exists here. Besides, by filing the
complaint, respondent was merely asserting her rights which, after due deliberations, proved to
be lawful, proper and valid.
WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of
Appeals in CA-‐G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on
the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from
petitioner First Fil-‐Sin Lending Corporation be imposed and computed on a per annum basis,
and upon their respective maturities, the interest rate of 12% per annum shall be imposed until
full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the
outstanding obligations from date of default until full payment.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.

[1] Penned by Associate Justice Conrado M. Vasquez, Jr. and concurred in by Associate Justices
Bienvenido L. Reyes and Regalado E. Maambong.
[2] Rollo, p. 34.
[3] Id.
[4] Penned by Judge Amor A. Reyes.
[5] Rollo, p. 33.
[6] Id. at 40.
[7] Id. at 16.
[8] Azarraga v. Rodriguez, 9 Phil. 637 (1908).
[9] Corley, R.N. and W.J. Robert, Principles of Business Law (9th Ed., 1971), p. 115.
[10] A. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines Vol. 4
(1986 Ed.), pp. 554-‐555, citing Jardenil v. Solas, 73 Phil. 626 (1942).
[11] Rollo, p. 19.
[12] G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95.
[13] In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(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;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) When the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.
In all cases, the attorney’s fees and expenses of litigation must be reasonable.
[14] Insular Life Assurance Company, Ltd., et al. v. Robert Young, et al., G.R. Nos. 140964 &
142267, 16 January 2002, 373 SCRA 626, 642.

FIRST DIVISION

CORAZON CATALAN, G.R. No. 159567
LIBRADA CATALAN-‐LIM,
EULOGIO CATALAN,
MILA CATALAN-‐MILAN,
ZENAIDA CATALAN, Present:
ALEX CATALAN, DAISY
CATALAN, FLORIDA PUNO, C.J., Chairperson,
CATALAN and GEMMA SANDOVAL-‐GUTIERREZ,
CATALAN, Heirs of the late CORONA,
FELICIANO CATALAN, AZCUNA, and
Petitioners, GARCIA, JJ.

-‐ versus -‐
Promulgated:

JOSE BASA, MANUEL BASA,
LAURETA BASA, DELIA BASA,
JESUS BASA and ROSALINDA
BASA, Heirs of the late MERCEDES
CATALAN,
Respondents. July 31, 2007
x -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ -‐ x

D E C I S I O N

PUNO, C.J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
of the Court of Appeals decision in CA-‐G.R. CV No. 66073, which affirmed the judgment of the
Regional Trial Court, Branch 69, Lingayen, Pangasinan, in Civil Case No. 17666, dismissing the
Complaint for Declaration of Nullity of Documents, Recovery of Possession and Ownership, and
damages.
The facts, which are undisputed by the parties, follow:
On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from active
military service. The Board of Medical Officers of the Department of Veteran Affairs found that
he was unfit to render military service due to his “schizophrenic reaction, catatonic type, which
incapacitates him because of flattening of mood and affect, preoccupation with worries,
withdrawal, and sparce (sic) and pointless speech.”[1]
On September 28, 1949, Feliciano married Corazon Cerezo.[2]
On June 16, 1951, a document was executed, titled “Absolute Deed of Donation,”[3]
wherein Feliciano allegedly donated to his sister MERCEDES CATALAN(Mercedes) one-‐half of the
real property described, viz:
A parcel of land located at Barangay Basing, Binmaley,
Pangasinan. Bounded on the North by heirs of Felipe Basa; on the South
by Barrio Road; On the East by heirs of Segundo Catalan; and on the West
by Roman Basa. Containing an area of Eight Hundred One (801) square
meters, more or less.

The donation was registered with the Register of Deeds. The Bureau of Internal
Revenue then cancelled Tax Declaration No. 2876, and, in lieu thereof, issued Tax Declaration
No. 18080[4] to Mercedes for the 400.50 square meters donated to her. The remaining half of
the property remained in Feliciano’s name under Tax Declaration No. 18081.[5]
On December 11, 1953, People’s Bank and Trust Company filed Special Proceedings
No. 4563[6] before the Court of First Instance of Pangasinan to declare Feliciano
incompetent. On December 22, 1953, the trial court issued its Order for Adjudication of
Incompetency for Appointing Guardian for the Estate and Fixing Allowance[7] of Feliciano. The
following day, the trial court appointed People’s Bank and Trust Company as Feliciano’s
guardian.[8] People’s Bank and Trust Company has been subsequently renamed, and is
presently known as the Bank of the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of their
property, registered under Original Certificate of Title (OCT) No. 18920, to their son Eulogio
Catalan.[9]
On March 26, 1979, Mercedes sold the property in issue in favor of her children Delia
and Jesus Basa.[10] The Deed of Absolute Sale was registered with the Register of Deeds of
Pangasinan on February 20, 1992, and Tax Declaration No. 12911 was issued in the name of
respondents.[11]
On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of the aforementioned
property registered under OCT No. 18920 to their children Alex Catalan, Librada Catalan and
Zenaida Catalan. On February 14, 1983, Feliciano and Corazon Cerezo donated Lot 4 (Plan Psu-‐
215956) of the same OCT No. 18920 to Eulogio and Florida Catalan.[12]
On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a case for Declaration of
Nullity of Documents, Recovery of Possession and Ownership,[13] as well as damages against
the herein respondents. BPI alleged that the Deed of Absolute Donation to Mercedes was void
ab initio, as Feliciano never donated the property to Mercedes. In addition, BPI averred that
even if Feliciano had truly intended to give the property to her, the donation would still be void,
as he was not of sound mind and was therefore incapable of giving valid consent. Thus, it
claimed that if the Deed of Absolute Donation was void ab initio, the subsequent Deed of
Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes Catalan had no
right to sell the property to anyone. BPI raised doubts about the authenticity of the deed of
sale, saying that its registration long after the death of Mercedes Catalan indicated fraud. Thus,
BPI sought remuneration for incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint was amended to
substitute his heirs in lieu of BPI as complainants in Civil Case No. 17666.
On December 7, 1999, the trial court found that the evidence presented by the
complainants was insufficient to overcome the presumption that Feliciano was sane and
competent at the time he executed the deed of donation in favor of Mercedes Catalan. Thus,
the court declared, the presumption of sanity or competency not having been duly impugned,
the presumption of due execution of the donation in question must be upheld.[14] It rendered
judgment, viz:
WHEREFORE, in view of the foregoing considerations, judgment
is hereby rendered:
1. Dismissing plaintiff’s complaint;
2. Declaring the defendants Jesus Basa and Delia Basa the
lawful owners of the land in question which is now
declared in their names under Tax Declaration No. 12911
(Exhibit 4);
3. Ordering the plaintiff to pay the defendants Attorney’s
fees of P10,000.00, and to pay the Costs.(sic)
SO ORDERED.[15]

Petitioners challenged the trial court’s decision before the Court of Appeals via a
Notice of Appeal pursuant to Rule 41 of the Revised Rules of Court.[16] The appellate court
affirmed the decision of the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible
error in disposing that plaintiff-‐appellants failed to prove the insanity or
mental incapacity of late (sic) Feliciano Catalan at the precise moment
when the property in dispute was donated.
Thus, all the elements for validity of contracts having been
present in the 1951 donation coupled with compliance with certain
solemnities required by the Civil Code in donation inter vivos of real
property under Article 749, which provides:
x x x
Mercedes Catalan acquired valid title of ownership over the
property in dispute. By virtue of her ownership, the property is completely
subjected to her will in everything not prohibited by law of the
concurrence with the rights of others (Art. 428, NCC).
The validity of the subsequent sale dated 26 March 1979
(Exhibit 3, appellees’ Folder of Exhibits) of the property by Mercedes
Catalan to defendant-‐appellees Jesus Basa and Delia Basa must be
upheld. Nothing of the infirmities which allegedly flawed its authenticity is
evident much less apparent in the deed itself or from the evidence
adduced. As correctly stated by the RTC, the fact that the Deed of
Absolute Sale was registered only in 1992, after the death of Mercedes
Catalan does not make the sale void ab initio. Moreover, as a notarized
document, the deed of absolute sale carries the evidentiary weight
conferred upon such public document with respect to its due execution
(Garrido vs. CA 236 SCRA 450). In a similar vein, jurisprudence has it that
documents acknowledged before a notary public have in their favor the
presumption of regularity, and to contradict the same, there must be
evidence that is clear, convincing and more than preponderant (Salame vs.
CA, 239 SCRA 256).
WHEREFORE, foregoing premises considered, the Decision
dated December 7, 1999 of the Regional Trial Court, Branch 69, is hereby
affirmed.
SO ORDERED.[17]

Thus, petitioners filed the present appeal and raised the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAS
DECIDED CA-‐G.R. CV NO. 66073 IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE HONORABLE COURT IN HOLDING THAT “THE REGIONAL
TRIAL COURT DID NOT COMMIT A REVERSIBLE ERROR IN
DISPOSING THAT PLAINTIFF-‐APPELLANTS (PETITIONERS) FAILED
TO PROVE THE INSANITY OR MENTAL INCAPACITY OF THE LATE
FELICIANO CATALAN AT THE PRECISE MOMENT WHEN THE
PROPERTY IN DISPUTE WAS DONATED”;

2. WHETHER OR NOT THE CERTIFICATE OF DISABILITY FOR
DISCHARGE (EXHIBIT “S”) AND THE REPORT OF A BOARD OF
OFFICERS CONVENED UNDER THE PROVISIONS OF ARMY
REGULATIONS (EXHIBITS “S-‐1” AND “S-‐2”) ARE ADMISSIBLE IN
EVIDENCE;

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAS
DECIDED CA-‐G.R. CV NO. 66073 IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF
THE HONORABLE COURT IN UPHOLDING THE SUBSEQUENT
SALE OF THE PROPERTY IN DISPUTE BY THE DONEE MERCEDES
CATALAN TO HER CHILDREN RESPONDENTS JESUS AND DELIA
BASA; AND-‐

4. WHETHER OR NOT CIVIL CASE NO. 17666 IS BARRED BY
PRESCRIPTION AND LACHES.[18]

Petitioners aver that the presumption of Feliciano’s competence to donate property
to Mercedes had been rebutted because they presented more than the requisite
preponderance of evidence. First, they presented the Certificate of Disability for the Discharge
of Feliciano Catalan issued on October 20, 1948 by the Board of Medical Officers of the
Department of Veteran Affairs. Second, they proved that on December 22, 1953, Feliciano was
judged an incompetent by the Court of First Instance of Pangasinan, and put under the
guardianship of BPI. Based on these two pieces of evidence, petitioners conclude that Feliciano
had been suffering from a mental condition since 1948 which incapacitated him from entering
into any contract thereafter, until his death on August 14, 1997. Petitioners contend that
Feliciano’s marriage to Corazon Cerezo on September 28, 1948 does not prove that he was not
insane at the time he made the questioned donation. They further argue that the donations
Feliciano executed in favor of his successors (Decision, CA-‐G.R. CV No. 66073) also cannot prove
his competency because these donations were approved and confirmed in the guardianship
proceedings.[19] In addition, petitioners claim that the Deed of Absolute Sale executed on
March 26, 1979 by Mercedes Catalan and her children Jesus and Delia Basa is simulated and
fictitious. This is allegedly borne out by the fact that the document was registered only on
February 20, 1992, more that 10 years after Mercedes Catalan had already died. Since Delia
Basa and Jesus Basa both knew that Feliciano was incompetent to enter into any contract, they
cannot claim to be innocent purchasers of the property in question.[20] Lastly, petitioners
assert that their case is not barred by prescription or laches under Article 1391 of the New Civil
Code because they had filed their case on April 1, 1997, even before the four year period after
Feliciano’s death on August 14, 1997 had begun.[21]
The petition is bereft of merit, and we affirm the findings of the Court of Appeals and
the trial court.
A donation is an act of liberality whereby a person disposes gratuitously a thing or
right in favor of another, who accepts it.[22] Like any other contract, an agreement of the
parties is essential. Consent in contracts presupposes the following requisites: (1) it should be
intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it
should be spontaneous.[23] The parties' intention must be clear and the attendance of a vice of
consent, like any contract, renders the donation voidable.[24]
In order for donation of property to be valid, what is crucial is the donor’s capacity to
give consent at the time of the donation. Certainly, there lies no doubt in the fact that insanity
impinges on consent freely given.[25] However, the burden of proving such incapacity rests
upon the person who alleges it; if no sufficient proof to this effect is presented, capacity will be
presumed.[26]
A thorough perusal of the records of the case at bar indubitably shows that the
evidence presented by the petitioners was insufficient to overcome the presumption that
Feliciano was competent when he donated the property in question to Mercedes. Petitioners
make much ado of the fact that, as early as 1948, Feliciano had been found to be suffering from
schizophrenia by the Board of Medical Officers of the Department of Veteran Affairs. By itself,
however, the allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could still be
presumed capable of attending to his property rights. Schizophrenia was brought to the
attention of the public when, in the late 1800s, Emil Kraepelin, a German psychiatrist, combined
“hebrephrenia” and “catatonia” with certain paranoid states and called the condition “dementia
praecox.” Eugene Bleuler, a Swiss psychiatrist, modified Kraepelin’s conception in the early
1900s to include cases with a better outlook and in 1911 renamed the condition
“schizophrenia.” According to medical references, in persons with schizophrenia, there is a
gradual onset of symptoms, with symptoms becoming increasingly bizarre as the disease
progresses. The condition improves (remission or residual stage) and worsens (relapses) in
cycles. Sometimes, sufferers may appear relatively normal, while other patients in remission
may appear strange because they speak in a monotone, have odd speech habits, appear to have
no emotional feelings and are prone to have “ideas of reference.” The latter refers to the idea
that random social behaviors are directed against the sufferers.[27] It has been proven that the
administration of the correct medicine helps the patient. Antipsychotic medications help bring
biochemical imbalances closer to normal in a schizophrenic. Medications reduce delusions,
hallucinations and incoherent thoughts and reduce or eliminate chances of
relapse.[28] Schizophrenia can result in a dementing illness similar in many aspects to
Alzheimer’s disease. However, the illness will wax and wane over many years, with only very
slow deterioration of intellect.[29]
From these scientific studies it can be deduced that a person suffering from
schizophrenia does not necessarily lose his competence to intelligently dispose his property. By
merely alleging the existence of schizophrenia, petitioners failed to show substantial proof that
at the date of the donation, June 16, 1951, Feliciano Catalan had lost total control of his mental
faculties. Thus, the lower courts correctly held that Feliciano was of sound mind at that time and
that this condition continued to exist until proof to the contrary was adduced.[30] Sufficient
proof of his infirmity to give consent to contracts was only established when the Court of First
Instance of Pangasinan declared him an incompetent on December 22, 1953.[31]
It is interesting to note that the petitioners questioned Feliciano’s capacity at the time
he donated the property, yet did not see fit to question his mental competence when he
entered into a contract of marriage with Corazon Cerezo or when he executed deeds of
donation of his other properties in their favor. The presumption that Feliciano remained
competent to execute contracts, despite his illness, is bolstered by the existence of these other
contracts. Competency and freedom from undue influence, shown to have existed in the other
acts done or contracts executed, are presumed to continue until the contrary is shown.[32]

Needless to state, since the donation was valid, Mercedes had the right to sell the
property to whomever she chose.[33] Not a shred of evidence has been presented to prove the
claim that Mercedes’ sale of the property to her children was tainted with fraud or falsehood. It
is of little bearing that the Deed of Sale was registered only after the death of Mercedes. What is
material is that the sale of the property to Delia and Jesus Basa was legal and binding at the time
of its execution. Thus, the property in question belongs to Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of prescription and laches for the
first time on appeal before this Court. It is sufficient for this Court to note that even if the
present appeal had prospered, the Deed of Donation was still a voidable, not a void, contract. As
such, it remained binding as it was not annulled in a proper action in court within four years.[34]
IN VIEW WHEREOF, there being no merit in the arguments of the petitioners, the
petition is DENIED. The decision of the Court of Appeals in CA-‐G.R. CV No. 66073 is affirmed in
toto.
SO ORDERED.

REYNATO S. PUNO
Chief Justice

WE CONCUR:

ANGELINA SANDOVAL-‐GUTIERREZ
Associate Justice

RENATO C. CORONA ADOLFO S. AZCUNA

SECOND DIVISION

PAN PACIFIC SERVICE G.R. No. 169975
CONTRACTORS, INC. and
RICARDO F. DEL ROSARIO, Present:
Petitioners,
CARPIO, J., Chairperson,
BRION,
DEL CASTILLO,
-‐ versus -‐ ABAD, and
PEREZ, JJ.

EQUITABLE PCI BANK (formerly THE PHILIPPINE COMMERCIAL
INTERNATIONAL BANK), Promulgated:
Respondent.
March 18, 2010
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D E C I S I O N

CARPIO, J.:

The Case

PAN PACIFIC SERVICE CONTRACTORS, INC. AND RICARDO F. DEL ROSARIO (PETITIONERS)
FILED THIS PETITION FOR REVIEW[1] ASSAILING THE COURT OF APPEALS’ (CA)
DECISION[2] DATED 30 JUNE 2005 IN CA-‐G.R. CV NO. 63966 AS WELL AS THE
RESOLUTION[3] DATED 5 OCTOBER 2005 DENYING THE MOTION FOR RECONSIDERATION. IN
THE ASSAILED DECISION, THE CA MODIFIED THE 12 APRIL 1999 DECISION[4] OF THE REGIONAL
TRIAL COURT OF MAKATI CITY, BRANCH 59 (RTC) BY ORDERING EQUITABLE PCI
BANK[5] (RESPONDENT) TO PAY PETITIONERS P1,516,015.07 WITH INTEREST AT THE LEGAL
RATE OF 12% PER ANNUM STARTING 6 MAY 1994 UNTIL THE AMOUNT IS FULLY PAID.

The Facts

Pan Pacific Service Contractors, Inc. (Pan Pacific) is engaged in contracting mechanical
works on airconditioning system. On 24 November 1989, Pan Pacific, through its President,
Ricardo F. Del Rosario (Del Rosario), entered into a contract of mechanical works (Contract) with
respondent for P20,688,800. Pan Pacific and respondent also agreed on nine change orders for
P2,622,610.30. Thus, the total consideration for the whole project was P23,311,410.30.[6] The
Contract stipulated, among others, that Pan Pacific shall be entitled to a price adjustment in
case of increase in labor costs and prices of materials under paragraphs 70.1[7] and 70.2[8] of
the “General Conditions for the Construction of PCIB Tower II Extension” (the escalation
clause).[9]

Pursuant to the contract, Pan Pacific commenced the mechanical works in the project
site, the PCIB Tower II extension building in Makati City. The project was completed in June
1992. Respondent accepted the project on 9 July 1992.[10]
In 1990, labor costs and prices of materials escalated. On 5 April 1991, in accordance with the
escalation clause, Pan Pacific claimed a price adjustment of P5,165,945.52. Respondent’s
appointed project engineer, TCGI Engineers, asked for a reduction in the price adjustment. To
show goodwill, Pan Pacific reduced the price adjustment to P4,858,548.67.[11]
On 28 April 1992, TCGI Engineers recommended to respondent that the price
adjustment should be pegged at P3,730,957.07. TCGI Engineers based their evaluation of the
price adjustment on the following factors:
1. Labor Indices of the Department of Labor and Employment.
2. PRICE INDEX OF THE NATIONAL STATISTICS OFFICE.
PD 1594 AND ITS IMPLEMENTING RULES AND REGULATIONS AS AMENDED, 15 MARCH 1991.
SHIPPING DOCUMENTS SUBMITTED BY PPSCI.
SUB-‐CLAUSE 70.1 OF THE GENERAL CONDITIONS OF THE CONTRACT DOCUMENTS.[12]

Pan Pacific contended that with this recommendation, respondent was already
estopped from disclaiming liability of at least P3,730,957.07 in accordance with the escalation
clause.[13]
Due to the extraordinary increases in the costs of labor and materials, Pan Pacific’s operational
capital was becoming inadequate for the project. However, respondent withheld the payment
of the price adjustment under the escalation clause despite Pan Pacific’s repeated
demands.[14] Instead, respondent offered Pan Pacific a loan of P1.8 million. Against its will and
on the strength of respondent’s promise that the price adjustment would be released soon, Pan
Pacific, through Del Rosario, was constrained to execute a promissory note in the amount of
P1.8 million as a requirement for the loan. Pan Pacific also posted a surety bond. The P1.8
million was released directly to laborers and suppliers and not a single centavo was given to Pan
Pacific.[15]
Pan Pacific made several demands for payment on the price adjustment but respondent merely
kept on promising to release the same. Meanwhile, the P1.8 million loan matured and
respondent demanded payment plus interest and penalty. Pan Pacific refused to pay the loan.
Pan Pacific insisted that it would not have incurred the loan if respondent released the price
adjustment on time. Pan Pacific alleged that the promissory note did not express the true
agreement of the parties. Pan Pacific maintained that the P1.8 million was to be considered as
an advance payment on the price adjustment. Therefore, there was really no consideration for
the promissory note; hence, it is null and void from the beginning.[16]
Respondent stood firm that it would not release any amount of the price adjustment to Pan
Pacific but it would offset the price adjustment with Pan Pacific’s outstanding balance of
P3,226,186.01, representing the loan, interests, penalties and collection charges.[17]
Pan Pacific refused the offsetting but agreed to receive the reduced amount of P3,730,957.07 as
recommended by the TCGI Engineers for the purpose of extrajudicial settlement, less P1.8
million and P414,942 as advance payments.[18]

On 6 May 1994, petitioners filed a complaint for declaration of nullity/annulment of the
promissory note, sum of money, and damages against the respondent with the RTC of Makati
City, Branch 59. On 12 April 1999, the RTC rendered its decision, the dispositive portion of which
reads:
WHEREFORE, PREMISES CONSIDERED, JUDGMENT IS
HEREBY RENDERED IN FAVOR OF THE PLAINTIFFS AND AGAINST THE
DEFENDANT AS FOLLOWS:
1. DECLARING THE PROMISSORY

NOTE (EXHIBIT “B”) NULL AND
VOID;
ORDERING THE DEFENDANT TO PAY THE PLAINTIFFS THE FOLLOWING AMOUNTS:
A. P1,389,11
1.10
REPRESEN
TING
UNPAID
BALANCE
OF THE
ADJUSTM
ENT
PRICE,
WITH
INTEREST
THEREON
AT THE
LEGAL
RATE OF
TWELVE
(12%)
PERCENT
PER
ANNUM
STARTING
MAY 6,
1994, THE
DATE
WHEN
THE
COMPLAI
NT WAS
FILED,
UNTIL THE
AMOUNT
IS FULLY
PAID;
P100,000.00 REPRESENTING MORAL DAMAGES;

P50,000.00 REPRESENTING EXEMPLARY DAMAGES; AND
P50,000.00 AS AND FOR ATTORNEY’S FEES.
2. DISMISSING DEFENDANT’S
COUNTERCLAIM, FOR LACK OF
MERIT; AND
WITH COSTS AGAINST THE DEFENDANT.

SO ORDERED.[19]

On 23 May 1999, petitioners partially appealed the RTC Decision to the CA. On 26
May 1999, respondent appealed the entire RTC Decision for being contrary to law and evidence.
In sum, the appeals of the parties with the CA are as follows:
1. WITH RESPECT TO THE PETITIONERS, WHETHER THE RTC ERRED IN

DEDUCTING THE AMOUNT OF P126,903.97 FROM THE BALANCE
OF THE ADJUSTED PRICE AND IN AWARDING ONLY 12%
ANNUAL INTEREST ON THE AMOUNT DUE, INSTEAD OF THE
BANK LOAN RATE OF 18% COMPOUNDED ANNUALLY
BEGINNING SEPTEMBER 1992.
2. With respect to respondent, whether the RTC erred in declaring the

promissory note void and in awarding moral and exemplary
damages and attorney’s fees in favor of petitioners and in
dismissing its counterclaim.
In its decision dated 30 June 2005, the CA modified the RTC decision, with respect to
the principal amount due to petitioners. The CA removed the deduction of P126,903.97 because
it represented the final payment on the basic contract price. Hence, the CA ordered respondent
to pay P1,516,015.07 to petitioners, with interest at the legal rate of 12% per annum starting 6
May 1994.[20]
On 26 July 2005, petitioners filed a Motion for Partial Reconsideration seeking a
reconsideration of the CA’s Decision imposing the legal rate of 12%. Petitioners claimed that the
interest rate applicable should be the 18% bank lending rate. Respondent likewise filed a Motion
for Reconsideration of the CA’s decision. In a Resolution dated 5 October 2005, the CA denied
both motions.
AGGRIEVED BY THE CA’S DECISION, PETITIONERS ELEVATED THE CASE BEFORE THIS
COURT.

The Issue

Petitioners submit this sole issue for our consideration: Whether the CA, in awarding the
unpaid balance of the price adjustment, erred in fixing the interest rate at 12% instead of the
18% bank lending rate.

Ruling of the Court

We grant the petition.

This Court notes that respondent did not appeal the decision of the CA. Hence, there
is no longer any issue as to the principal amount of the unpaid balance on the price adjustment,
which the CA correctly computed at P1,516,015.07. The only remaining issue is the interest rate
applicable for respondent’s delay in the payment of the balance of the price adjustment.
The CA denied petitioners’ claim for the application of the bank lending rate of 18%
compounded annually reasoning, to wit:
Anent the 18% interest rate compounded annually, while it is

true that the contract provides for an interest at the current bank lending
rate in case of delay in payment by the Owner, and the promissory note
charged an interest of 18%, the said proviso does not authorize plaintiffs
to unilaterally raise the interest rate without the other party’s consent.
Unlike their request for price adjustment on the basic contract price,
plaintiffs never informed nor sought the approval of defendant for the
imposition of 18% interest on the adjusted price. To unilaterally increase
the interest rate of the adjusted price would be violative of the principle of
mutuality of contracts. Thus, the Court maintains the legal rate of twelve
percent per annum starting from the date of judicial demand. Although
the contract provides for the period when the recommendation of the
TCGI Engineers as to the price adjustment would be binding on the parties,
it was established, however, that part of the adjusted price demanded by
plaintiffs was already disbursed as early as 28 February 1992 by defendant
bank to their suppliers and laborers for their account.[21]

In this appeal, petitioners allege that the contract between the parties consists of two
parts, the Agreement[22] and the General Conditions,[23] both of which provide for interest at
the bank lending rate on any unpaid amount due under the contract. Petitioners further claim
that there is nothing in the contract which requires the consent of the respondent to be given in
order that petitioners can charge the bank lending rate.[24] Specifically, petitioners invoke
Section 2.5 of the Agreement and Section 60.10 of the General Conditions as follows:
Agreement
2.5 IF ANY PAYMENT IS DELAYED, THE CONTRACTOR MAY

CHARGE INTEREST THEREON AT THE CURRENT BANK
LENDING RATES, WITHOUT PREJUDICE TO OWNER’S
RECOURSE TO ANY OTHER REMEDY AVAILABLE UNDER
EXISTING LAW.[25]
GENERAL CONDITIONS
60.10 TIME FOR PAYMENT
THE AMOUNT DUE TO THE CONTRACTOR UNDER ANY INTERIM CERTIFICATE ISSUED BY THE
ENGINEER PURSUANT TO THIS CLAUSE, OR TO ANY TERM OF THE CONTRACT, SHALL, SUBJECT
TO CLAUSE 47, BE PAID BY THE OWNER TO THE CONTRACTOR WITHIN 28 DAYS AFTER SUCH
INTERIM CERTIFICATE HAS BEEN DELIVERED TO THE OWNER, OR, IN THE CASE OF THE FINAL
CERTIFICATE REFERRED TO IN SUB-‐CLAUSE 60.8, WITHIN 56 DAYS, AFTER SUCH FINAL
CERTIFICATE HAS BEEN DELIVERED TO THE OWNER. IN THE EVENT OF THE FAILURE OF THE
OWNER TO MAKE PAYMENT WITHIN THE TIMES STATED, THE OWNER SHALL PAY TO THE
CONTRACTOR INTEREST AT THE RATE BASED ON BANKING LOAN RATES PREVAILING AT THE
TIME OF THE SIGNING OF THE CONTRACT UPON ALL SUMS UNPAID FROM THE DATE BY WHICH
THE SAME SHOULD HAVE BEEN PAID. THE PROVISIONS OF THIS SUB-‐CLAUSE ARE WITHOUT
PREJUDICE TO THE CONTRACTOR’S ENTITLEMENT UNDER CLAUSE 69.[26] (EMPHASIS SUPPLIED)

Petitioners thus submit that it is automatically entitled to the bank lending rate of
interest from the time an amount is determined to be due thereto, which respondent should
have paid. Therefore, as petitioners have already proven their entitlement to the price
adjustment, it necessarily follows that the bank lending interest rate of 18% shall be
applied.[27]
On the other hand, respondent insists that under the provisions of 70.1 and 70.2 of the General
Conditions, it is stipulated that any additional cost shall be determined by the Engineer and shall
be added to the contract price after due consultation with the Owner, herein respondent.
Hence, there being no prior consultation with the respondent regarding the additional cost to
the basic contract price, it naturally follows that respondent was never consulted or informed of
the imposition of 18% interest rate compounded annually on the adjusted price.[28]
A perusal of the assailed decision shows that the CA made a distinction between the consent
given by the owner of the project for the liability for the price adjustments, and the consent for
the imposition of the bank lending rate. Thus, while the CA held that petitioners consulted
respondent for price adjustment on the basic contract price, petitioners, nonetheless, are not
entitled to the imposition of 18% interest on the adjusted price, as petitioners never informed
or sought the approval of respondent for such imposition.[29]
We disagree.
It is settled that the agreement or the contract between the parties is the formal
expression of the parties’ rights, duties, and obligations. It is the best evidence of the intention
of the parties. Thus, when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and
their successors in interest, no evidence of such terms other than the contents of the written
agreement.[30]
The escalation clause of the contract provides:
CHANGES IN COST AND LEGISLATION
70.1 Increase or Decrease of Cost
There shall be added to or deducted from the Contract Price such sums in respect of rise or fall
in the cost of labor and/or materials or any other matters affecting the cost of the execution of
the Works as may be determined.

70.2 Subsequent Legislation
If, after the date 28 days prior to the latest date of submission of tenders for the Contract there
occur in the country in which the Works are being or are to be executed changes to any National
or State Statute, Ordinance, Decree or other Law or any regulation or bye-‐law (sic) of any local
or other duly constituted authority, or the introduction of any such State Statute, Ordinance,
Decree, Law, regulation or bye-‐law (sic) which causes additional or reduced cost to the
contractor, other than under Sub-‐Clause 70.1, in the execution of the Contract, such additional
or reduced cost shall, after due consultation with the Owner and Contractor, be determined by
the Engineer and shall be added to or deducted from the Contract Price and the Engineer shall
notify the Contractor accordingly, with a copy to the Owner.[31]

In this case, the CA already settled that petitioners consulted respondent on the
imposition of the price adjustment, and held respondent liable for the balance of P1,516,015.07.
Respondent did not appeal from the decision of the CA; hence, respondent is estopped from
contesting such fact.

However, the CA went beyond the intent of the parties by requiring respondent to
give its consent to the imposition of interest before petitioners can hold respondent liable for
interest at the current bank lending rate. This is erroneous. A review of Section 2.6 of the
Agreement and Section 60.10 of the General Conditions shows that the consent of the
respondent is not needed for the imposition of interest at the current bank lending rate, which
occurs upon any delay in payment.

When the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. In these cases, courts have
no authority to alter a contract by construction or to make a new contract for the parties. The
Court’s duty is confined to the interpretation of the contract which the parties have made for
themselves without regard to its wisdom or folly as the court cannot supply material stipulations
or read into the contract words which it does not contain. It is only when the contract is vague
and ambiguous that courts are permitted to resort to construction of its terms and determine
the intention of the parties.[32]

The escalation clause must be read in conjunction with Section 2.5 of the Agreement
and Section 60.10 of the General Conditions which pertain to the time of payment. Once the
parties agree on the price adjustment after due consultation in compliance with the provisions
of the escalation clause, the agreement is in effect an amendment to the original contract, and
gives rise to the liability of respondent to pay the adjusted costs. Under Section 60.10 of the
General Conditions, the respondent shall pay such liability to the petitioner within 28 days from
issuance of the interim certificate. Upon respondent’s failure to pay within the time provided
(28 days), then it shall be liable to pay the stipulated interest.

This is the logical interpretation of the agreement of the parties on the imposition of interest. To
provide a contrary interpretation, as one requiring a separate consent for the imposition of the
stipulated interest, would render the intentions of the parties nugatory.

Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated in writing.
Therefore, payment of monetary interest is allowed only if:
(1) there was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in writing. The
concurrence of the two conditions is required for the payment of monetary interest.[33]
We agree with petitioners’ interpretation that in case of default, the consent of the
respondent is not needed in order to impose interest at the current bank lending rate.

Applicable Interest Rate
Under Article 2209 of the Civil Code, the appropriate measure for damages in case of
delay in discharging an obligation consisting of the payment of a sum of money is the payment
of penalty interest at the rate agreed upon in the contract of the parties. In the absence of a
stipulation of a particular rate of penalty interest, payment of additional interest at a rate equal
to the regular monetary interest becomes due and payable. Finally, if no regular interest had
been agreed upon by the contracting parties, then the damages payable will consist of payment
of legal interest which is 6%, or in the case of loans or forbearances of money, 12% per
annum.[34] It is only when the parties to a contract have failed to fix the rate of interest or
when such amount is unwarranted that the Court will apply the 12% interest per annum on a
loan or forbearance of money.[35]

The written agreement entered into between petitioners and respondent provides for an
interest at the current bank lending rate in case of delay in payment and the promissory note
charged an interest of 18%.

To prove petitioners’ entitlement to the 18% bank lending rate of interest, petitioners
presented the promissory note[36] prepared by respondent bank itself. This promissory note,
although declared void by the lower courts because it did not express the real intention of the
parties, is substantial proof that the bank lending rate at the time of default was 18% per
annum. Absent any evidence of fraud, undue influence or any vice of consent exercised by
petitioners against the respondent, the interest rate agreed upon is binding on them.[37]

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision and Resolution of
the Court of Appeals in CA-‐G.R. CV No. 63966. We ORDER respondent to pay petitioners
P1,516,015.07 with interest at the bank lending rate of 18% per annum starting 6 May 1994
until the amount is fully paid.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

D. BRION
ASSOCIATE JUSTICE

MARIANO C. DEL CASTILLO ROBERTO A. ABAD
ASSOCIATE JUSTICE ASSOCIATE JUSTICE

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HERALD BLACK DACASIN, G.R. No. 168785

CARPIO, J., Chairperson,

SHARON DEL MUNDO DACASIN, Promulgated:

For review[1] is a dismissal[2] of a suit to enforce a post-foreign divorce child custody

On 28 January 2002, petitioner and respondent executed in Manila a contract

The Ruling of the Trial Court

Hence, this petition.

The Ruling of the Court

Regional Trial Courts Vested With Jurisdiction

Petitioner’s Suit Lacks Cause of Action

There can be no question as to the validity of that Nevada

We reiterated Van Dorn in Pilapil v. Ibay-Somera[29] to dismiss criminal complaints

The Facts of the Case and Nature of Proceeding

MARIANO C. DEL CASTILLO ROBERTO A. ABAD

PHILIPPINE CHARTER INSURANCE CORPORATION, G.R. No. 180898

FOR : All Dept. Heads

WITH ALL DUE RESPECT, THE HONORABLE PUBLIC RESPONDENT COURT OF

A) THE MANAGEMENT HAS THE SOLE DISCRETION TO SCHEDULE THE

B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-­‐SERVICE-­‐TRAINING OF

THE HONORABLE PUBLIC RESPONDENT ERRED IN OVERSEEING THE

G.R. No. 179382 January 14, 2013

The Antecedent Facts

The RTC Ruling

6. To pay cost.

Only BSP appealed the foregoing disquisition before the CA.

The CA Ruling

Issues Before the Court

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING RESPONDENT BOY

The Court's Ruling

The petition lacks merit.

Such contention cannot be sustained.

Article 1311 of the Civil Code states:

ESTELA M. PERLAS-­‐BERNABE Associate Justice

ANTONIO T. CARPIO Associate Justice Chairperson

ARTURO D. BRION MARIANO C. DEL CAST

ANTONIO T. CARPIO Associate Justice Chairperson, Second Division

G.R. No. 168396 June 22, 2006

The antecedent facts are as follows:

5. Costs of suit.

Hence the present petition.

The petition is impressed with merit.

There is, sir.

A: Not yet, Your Honor.

Q: How was it explained to you, if you know?

Atty. Tansinsin, Jr.:

Do you know how to read?

A: Grade VI, sir.

A: No, Your Honor.

Court: Until now?

A: No, your honor.

Atty. Tansinsin, Jr.:

There is no document yet, Your Honor.

That is why I laid the basis, Your Honor.

A: Yes, Your Honor.16

Republic of the Philippines

G.R. No. 184950 � � � � � � � October 11, 2012

NGEI MULTI-­‐PURPOSE COOPERATIVE INC. AND HERNANCITO RONQUILLO, Petitioners,

FILIPINAS PALMOIL PLANTATION INC. AND DENNIS VILLAREAL, Respondents.

WHETHER OR NOT PETITIONERS’ CAUSE OF ACTION HAS PRESCRIBED.9

The Court finds the petition bereft of merit.

IV. POLICIES AND GOVERNING PRINCIPLES

WHEREFORE, the petition is DENIED.

JOSE CATRAL MENDOZA

[G.R. No. 160533. January 12, 2005]

B) THE MANAGEMENT IS NOT LIABLE FOR THE IN-‐SERVICE-‐TRAINING OF

ESTELA M. PERLAS-‐BERNABE Associate Justice

NGEI MULTI-‐PURPOSE COOPERATIVE INC. AND HERNANCITO RONQUILLO, Petitioners,