G.R. No.

L-16109 October 2, 1922

M. D. TAYLOR, plaintiff-appellant,
vs.
UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of Tan Liuan & Company,defendants.
Uy TIENG PIAO, defendant-appellant.

Cohn, Fisher and DeWitt and William C. Brady for plaintiff-appellant.

Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:

This case comes by appeal from the Court of First Instance of the city of Manila, in a case where the court awarded to the plaintiff the sum of P300, as damages for breach of contract.
The plaintiff appeals on the ground that the amount of damages awarded is inadequate; while the defendant Uy Tieng Piao appeals on the ground that he is not liable at all. The
judgment having been heretofore affirmed by us in a brief opinion, we now avail ourselves of the occasion of the filing of a motion to rehear by the attorneys for the plaintiff to
modify the judgment in a slight measure and to state more fully the reasons underlying our decision.

It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as superintendent of an oil factory which the latter contemplated establishing in this
city. The period of the contract extended over two years from the date mentioned; and the salary was to be at the rate of P600 per month during the first year and P700 per month
during the second, with electric light and water for domestic consumption, and a residence to live in, or in lieu thereof P60 per month.

At the time this agreement was made the machinery for the contemplated factory had not been acquired, though ten expellers had been ordered from the United States; and among
the stipulations inserted in the contract with the plaintiff was a provision to the following effect:

It is understood and agreed that should the machinery to be installed in the said factory fail, for any reason, to arrive in the city of Manila within a period of six months from date
hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six months.

The machinery above referred to did not arrive in the city of Manila within the six months succeeding the making of the contract; nor was other equipment necessary for the
establishment of the factory at any time provided by the defendants. The reason for this does not appear with certainty, but a preponderance of the evidence is to the effect that the
defendants, in the first months of 1919, seeing that the oil business no longer promised large returns, either cancelled the order for the machinery from choice or were unable to
supply the capital necessary to finance the project. At any rate on June 28, 1919, availing themselves in part of the option given in the clause above quoted, the defendants
communicated in writing to the plaintiff the fact that they had decided to rescind the contract, effective June 30th then current, upon which date he was discharged. The plaintiff
thereupon instituted this action to recover damages in the amount of P13,000, covering salary and perquisites due and to become due under the contract.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the defendants the right to cancel the contract upon the contingency of the nonarrival of the
machinery in Manila within six months, must be understood as applicable only in those cases where such nonarrival is due to causes not having their origin in the will or act of the
defendants, as delays caused by strikes or unfavorable conditions of transporting by land or sea; and it is urged that the right to cancel cannot be admitted unless the defendants
affirmatively show that the failure of the machinery to arrive was due to causes of that character, and that it did not have its origin in their own act or volition. In this connection the
plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties, and to
article 1119, which says that a condition shall be deemed fulfilled if the obligor intentially impedes its fulfillment.
It will be noted that the language conferring the right of cancellation upon the defendants is broad enough to cover any case of the nonarrival of the machinery, due to whatever
cause; and the stress in the expression "for any reason" should evidently fall upon the word "any." It must follow of necessity that the defendants had the right to cancel the contract
in the contingency that occurred, unless some clear and sufficient reason can be adduced for limiting the operation of the words conferring the right of cancellation. Upon this point
it is our opinion that the language used in the stipulation should be given effect in its ordinary sense, without technicality or circumvention; and in this sense it is believed that the
parties to the contract must have understood it.

Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the
contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to
whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of
the contract as any other act which may have been the subject of agreement. Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehands is
fulfillment.

In this connection, we note that the commentator Manresa has the following observation with respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment
to the will of either of the parties in the negative form of rescission, a case frequent in certain contracts (the letting of service for hire, the supplying of electrical energy, etc.), for in
such supposed case neither is the article infringed, nor is there any lack of equality between the persons contracting, since they remain with the same faculties in respect to fulfillment."
(Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net

Undoubtedly one of the consequences of this stipulation was that the employers were left in a position where they could dominate the contingency, and the result was about the same
as if they had been given an unqualified option to dispense with the services of the plaintiff at the end of six months. But this circumstance does not make the stipulation illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially somewhat analogous, is not precisely in point. In that case one Hardaker had contracted
to render competent and efficient service as manager of a corporation, to which position it was understood he was to be appointed. In the same contract it was stipulated that if "for
any reason" Hardaker should not be given that position, or if he should not be permitted to act in that capacity for a stated period, certain things would be done by Hall. Upon being
installed in the position aforesaid, Hardaker failed to render efficient service and was discharged. It was held that Hall was released from the obligation to do the things that he had
agreed to perform. Some of the judges appear to have thought that the case turned on the meaning of the phrase "for any reason," and the familiar maxim was cited that no man shall
take advantage of his own wrong. The result of the case must have been the same from whatever point of view, as there was an admitted failure on the part of Hardaker to render
competent service. In the present case there was no breach of contract by the defendants; and the argument to the contrary apparently suffers from the logical defect of assuming the
very point at issue.

But it will be said that the question is not so much one concerning the legality of the clause referred to as one concerning the interpretation of the resolutory clause as written, the
idea being that the court should adjust its interpretation of said clause to the supposed precepts of article 1256, by restricting its operation exclusively to cases where the nonarrival
of the machinery may be due to extraneous causes not referable to the will or act of the defendants. But even when the question is viewed in this aspect their result is the same,
because the argument for the restrictive interpretation evidently proceeds on the assumption that the clause in question is illegal in so far as it purports to concede to the defendants
the broad right to cancel the contract upon nonarrival of the machinery due to any cause; and the debate returns again to the point whether in a contract for the prestation of service
it is lawful for the parties to insert a provision giving to the employer the power to cancel the contract in a contingency which may be dominated by himself. Upon this point what
has already been said must suffice.

As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the language used by the parties from its natural meaning and thereby in legal effect to
restrict the words "for any reason," as used in the contract, to mean "for any reason not having its origin in the will or acts of the defendants." To impose this interpretation upon
those words would in our opinion constitute an unjustifiable invasion of the power of the parties to establish the terms which they deem advisable, a right which is expressed in
article 1255 of the Civil Code and constitutes one of the most fundamental conceptions of contract right enshrined in the Code.
The view already expressed with regard to the legality and interpretation of the clause under consideration disposes in a great measure of the argument of the appellant in so far as
the same is based on article 1119 of the Civil Code. This provision supposes a case where the obligor intentionally impedes the fulfillment of a condition which would entitle the
obligee to exact performance from the obligor; and an assumption underlying the provision is that the obligor prevents the obligee from performing some act which the obligee is
entitled to perform as a condition precedent to the exaction of what is due to him. Such an act must be considered unwarranted and unlawful, involving per se a breach of the implied
terms of the contract. The article can have no application to an external contingency which, like that involved in this case, is lawfully within the control of the obligor.

In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a facultative condition (vol. 8, p. 611), and we gather from his comment on articles
1115 and 1119 of the Civil Code that a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void (vol.
8, p. 131). That statement is no doubt correct in the sense intended by the learned author, but it must be remembered that he evidently has in mind the suspensive condition, such as
is contemplated in article 1115. Said article can have no application to the resolutory condition, the validity of which is recognized in article 1113 of the Civil Code. In other words,
a condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the obligor.

If it were apparent, or could be demonstrated, that the defendants were under a positive obligation to cause the machinery to arrive in Manila, they would of course be liable, in the
absence of affirmative proof showing that the nonarrival of the machinery was due to some cause not having its origin in their own act or will. The contract, however, expresses no
such positive obligation, and its existence cannot be implied in the fact of stipulation, defining the conditions under which the defendants can cancel the contract.

Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's claim in so far as damages are sought for the period subsequent to the expiration of
the first six months, but in assessing the damages due for the six-month period, the trial judge evidently overlooked the item of P60, specified in the plaintiff's fourth assignment of
error, which represents commutation of house rent for the month of June, 1919. This amount the plaintiff is clearly entitled to recover, in addition to the P300 awarded in the court
below.

We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the judgment holding him liable as a member of the firm of Tan Liuan and Co.; and it is insisted
in his behalf that he was not bound by the act of Tan Liuan as manager of Tan Liuan and Co. in employing the plaintiff. Upon this we will merely say that the conclusion stated by
the trial court in the next to the last paragraph of the decision with respect to the liability of this appellant in our opinion in conformity with the law and facts.

The judgment appealed from will be modified by declaring that the defendants shall pay to the plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus
modified the judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of the Code of Civil Procedure, and with costs. So ordered.

G.R. No. L-55744 February 28, 1985

JOSE V. HERRERA, petitioner

vs.
L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN- INSURANCE SYSTEM, PROVINCIAL SHERIFF OF
RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON. COURT OF APPEALS, respondents.

Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.
Benjamin Aquino for respondent J.T. Marcelo, Jr.
RESOLUTION
MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the Resolution of this Court, dated April 1, 1981, denying
due course to this Petition for Review on certiorari for lack of merit.

The Motion for Reconsideration was set for oral argument on June 13, 1984, after which, the Court required the parties to submit
simultaneously concise memoranda in amplification of their oral arguments. All parties have complied with the Court's directive.
Briefly, the antecedent facts may be summarized as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the Government Service Insurance System (GSIS) in the
amount of P1,854,311.50. As security therefore, Leviste mortgaged two (2) lots, one located at Parañaque (the Parañaque Property), and
the other located at Buendia Avenue, Makati, with an area of approximately 2,775 square meters, together with the 3-story building thereon
(the Buendia Property).

On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property for the amount of P3,750,000.00. The conditions
were that petitioner would: (1) pay Leviste P11,895,688.50; (2) assume Leviste's indebtedness of P1854,311.50 to the GSIS; and (3)
substitute the Paranaque property with his own within a period of six (6) months.
For his part, Leviste undertook to arrange for the conformity of the GSIS to petitioner's assumption of the obligation.
It was further stipulated in the Contract to Sell that "failure to comply with any of the conditions contained therein, particularly the payment of
the scheduled amortizations on the dates herein specified shall render this contract automatically cancelled and any and all payments made
shall be forfeited in favor of the vendor and deemed as rental and/or liquidated damages."

Petitioner took possession of the Buendia property, received rentals of P21,000.00 monthly, and collected approximately P800,000.00 from
December, 1971, up to March, 1975.
However, petitioner remitted a total of only P300,000.00 to the GSIS.

On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage obligation because of his own arrearages in the payment
of the amortizations. GSIS replied that as a matter of policy, it could not act on his request unless he first made proper substitution of property,
updated the account, and paid 20% thereof to the GSIS. There was no requirement by the GSIS for the execution of a final deed of sale by
Leviste in favor of petitioner.

On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged properties by reason of default in the payment of
amortizations. An application for foreclosure was thereafter filed by the GSIS with the Provincial Sheriff of Rizal, and on February 15, 1975,
the foreclosed properties were sold at public auction and a Certificate of Sale in favor of the GSIS, as the highest bidder, was issued.
On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to respondent Jose Marcelo, Jr. (Marcelo for brevity).
Later, on November 20, 1975, Marcelo redeemed the properties from the GSIS by paying it the sum of P3,232,766.94 for which he was
issued a certificate of redemption. The Paranaque property was turned over by Marcelo to Leviste upon payment by the latter of approximately
P250,000.00 as disclosed at the hearing. Leviste needed the Parañque Property as it had sold the same and suit had been filed against it for
its recovery.

On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to redeem the foreclosed properties and asking that
he be allowed to do so in installments. Apparently, the GSIS had not favorably acted thereon.
On May 13, 1975, petitioner instituted suit against Leviste before the Court of First Instance of Rizal for "Injunction, Damages, and Cancellation
of Annotation."
On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's Complaint for lack of basis in fact and in law, and ordering
an payments made by petitioner to Leviste forfeited in favor of the latter pursuant to their contract providing for automatic forfeiture "in the
event of failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortizations."

On appeal, the Appellate Court affirmed the judgment in toto, stating in part:
It is to be noted that appellee L. P. Leviste and Co., Inc. was not in a financial position to redeem the foreclosed property and there
was no assurance that appellant would redeem the property within the period. In this situation, appellee has no other alternative, but
to assign the right of redemption to a person willing and capable to assume the same, if only to protect his interest in the said property.
Likewise, when the equity to redeem was assigned, appellant could have preserved and protected whatever right he may have to the
property by tendering the redemption price to Marcelo. He had up to February 24, 1976, to do so, but he did not. The record
established further that appellant did not redeem the property. ... 1

Reconsideration sought by petitioner was met with denial by respondent Appellate Court. Hence, the instant Petition seeking review by
certiorari before this instance.
As hereinbefore stated, we denied the Petition for lack of merit.
Petitioner seeks reconsideration essentially on the contention that affirmance of the Appellate Court's Decision would result in patent injustice
as he would not only forfeit the Buendia Property to Marcelo, but would also lose the amount of P1,895,688.50 and P300,000.00, which he
paid to Leviste and the GSIS, respectively; that it would result in the unjust enrichment of Leviste; and that Leviste as well the GSIS and
Marcelo would be benefiting at petitioner's expense.
Considering the grounds of petitioner's Motion for Reconsideration, the arguments adduced during the oral argument and in the parties'
respective Memoranda, we resolve to deny reconsideration upon the following considerations:
1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it received, by way of redemption from respondent Marcelo,
was the mortgage loan it had extended plus interest and sundry charges.
(b) Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid to GSIS the amount P 3,232,766.94, which is not
far below the sum of P 3,750,000.00, which was the consideration petitioner would have paid to Leviste had his contract been consummated.

(c) Leviste had neither profited at the expense of petitioner, For Losing his Buendia Property, all he had received was P 1,854,311.50 from
GSIS less amounts he had paid, plus P 1,895,688.00 paid to him by petitioner, the total of which is substantially a reasonable value of the
Buendia Property.
2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus P 300,000.00 he had paid to GSIS, less the rentals
he had received when in possession of the Buendia Property. That loss is attributable to his fault in:
(a) Not having been able to submit collateral to GSIS in substitution of the Paranaque Property;
(b) Not paying off the mortgage debt when GSIS decided to foreclose; and
(c) Not making an earnest effort to redeem the property as a possible redemptioner.

3. It cannot be validly said that petitioner had fully complied with all the conditions of his contract with Leviste. For one thing, he was not able
to substitute the Parañaque Property with another collateral for the GSIS loan. Moreover, as stated by the Court of Appeals, "nowhere in the
letter (of the GSIS) was mentioned that a final deed of sale must first be executed and presented before the assumption may be considered.
For if it was really the intention of GSIS, the requirement of Deed of Sale should have been stated in its letter."
ACCORDINGLY, petitioner's Motion for Reconsideration is hereby denied.
SO ORDERED.

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,

vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO, JR., defendants-appellees.
Felipe Torres and Associates for plaintiffs-appellants.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.
 RESOLUTION

FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated July 25, 1963 and other rulings and orders
of the then Court of First Instance [CFI] of Rizal, Quezon City, Branch V in Civil Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M.
Yulo, Jr., Plaintiffs versus Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr., Defendants," which, among others, ordered
them to jointly and severally pay defendant-appellee Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as moral
damages and P5,000.00 as attorney's fees; the defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as
unrealized profits, P33,369.72 as actual damages and P5,000.00 as attorney's fees; and defendant-appellee Lope Sarreal, Sr., the additional
amount of P20,000.00 as moral damages aside from costs.
The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal,
Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world.
It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days
thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in
any other such contest without the written consent of Interphil Promotions, Inc.
On May 3, 1961, a supplemental agreement on certain details not covered by the principal contract was entered into by Ketchum and Interphil.
Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial
Stadium on September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n.,
session of March 14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay, assigned to J. Amado Araneta the managerial
rights over Solomon Boysaw.
Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over Boysaw that he earlier acquired from
Ketchum and Ruskay. The next day, September 2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the
Philippines.
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating
his and Boysaw's readiness to comply with the boxing contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter
to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw,
of which he had not been formally notified, and requesting that Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule the Elorde-Boysaw
fight for November 4, 1961. The USA National Boxing Association which has supervisory control of all world title fights approved the date set
by the GAB
Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal on September 26, 1961, offered to advance
the fight date to October 28, 1961 which was within the 30-day period of allowable postponements provided in the principal boxing contract
of May 1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local boxing promoter, for a possible promotion of
the projected Elorde-Boysaw title bout. In one of such communications dated October 6, 1961, Yulo informed Besa that he was willing to
approve the fight date of November 4,1961 provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized.
As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the
CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr.,
then GAB Chairman, to honor their commitments under the boxing contract of May 1,1961.
On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General's Office and Atty. Romeo Edu
of the GAB Legal Department from appearing for defendant Nieto, Jr. on the ground that the latter had been sued in his personal capacity
and, therefore, was not entitled to be represented by government counsel. The motion was denied insofar as Solicitor General Coquia was
concerned, but was granted as regards the disqualification of Atty. Edu.
The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left the country without informing the court and,
as alleged, his counsel. He was still abroad when, on May 13, 1963, he was scheduled to take the witness stand. Thus, the lower court reset
the trial for June 20, 1963. Since Boysaw was still abroad on the later date, another postponement was granted by the lower court for July
23, 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said date, plaintiff's case would be deemed submitted
on the evidence thus far presented.
On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for postponement of the July 23, 1963 trial, pleading
anew Boysaw's inability to return to the country on time. The motion was denied; so was the motion for reconsideration filed by plaintiffs on
July 22, 1963.
The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being deemed submitted after the plaintiffs declined to submit
documentary evidence when they had no other witnesses to present. When defendant's counsel was about to present their case, plaintiff's
counsel after asking the court's permission, took no further part in the proceedings.
After the lower court rendered its judgment dismissing the plaintiffs' complaint, the plaintiffs moved for a new trial. The motion was denied,
hence, this appeal taken directly to this Court by reason of the amount involved.
From the errors assigned by the plaintiffs, as having been committed by the lower court, the following principal issues can be deduced:
1. Whether or not there was a violation of the fight contract of May 1, 1961; and if there was, who was guilty of such violation.

2. Whether or not there was legal ground for the postponement of the fight date from September 1, 1961, as stipulated in the May 1, 1961
boxing contract, to November 4,1961,

3. Whether or not the lower court erred in the refusing a postponement of the July 23, 1963 trial.
4. Whether or not the lower court erred in denying the appellant's motion for a new trial.
5. Whether or not the lower court, on the basis of the evidence adduced, erred in awarding the appellees damages of the character and
amount stated in the decision.
On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was violated by appellant
Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant
Yulo admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to breach it with impunity.
Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach. Thus:
Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene
the terms thereof, are liable for damages. [Art. 1170, Civil Code].
Also:
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. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound
by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or recover
damages by reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].
Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo,
Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil.
Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor. [Art. 1293, Civil Code, emphasis supplied].
That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his acquisition of the managerial rights over Boysaw
cannot change the fact that such acquisition, and the prior acquisition of such rights by Araneta were done without the consent of Interphil.
There is no showing that Interphil, upon receipt of Yulo's letter, acceded to the "substitution" by Yulo of the original principal obligor, who is
Ketchum. The logical presumption can only be that, with Interphil's letter to the GAB expressing concern over reported managerial changes
and requesting for clarification on the matter, the appellees were not reliably informed of the changes of managers. Not being reliably informed,
appellees cannot be deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the aggrieved
creditor is not bound to deal with the substitute.
The consent of the creditor to the change of debtors, whether in expromision or delegacion is an, indispensable requirement . . .
Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of
the new debtor, hence, the creditor should agree to accept the substitution in order that it may be binding on him.
Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under which he transfers to z all his rights
under the first contract, together with the obligations thereunder, but such transfer is not consented to or approved by x, there is no novation.
X can still bring his action against y for performance of their contract or damages in case of breach. [Tolentino, Civil Code of the Philippines,
Vol. IV, p. 3611.
From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That
the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts aforestated. Under
the circumstances, the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on the matter rested with the appellees, and appellants' claims, if any, to the
enforcement of the contract hung entirely upon the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the
appellee's request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had earlier agreed to abide by the GAB
ruling.
In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to October 28, 1961 just to place it within the 30-
day limit of allowable postponements stipulated in the original boxing contract.

The refusal of appellants to accept a postponement without any other reason but the implementation of the terms of the original boxing
contract entirely overlooks the fact that by virtue of the violations they have committed of the terms thereof, they have forfeited any right to its
enforcement.
On the validity of the fight postponement, the violations of the terms of the original contract by appellants vested the appellees with the right
to rescind and repudiate such contract altogether. That they sought to seek an adjustment of one particular covenant of the contract, is under
the circumstances, within the appellee's rights.
While the appellants concede to the GAB's authority to regulate boxing contests, including the setting of dates thereof, [pp. 44-49, t.s.n., Jan.
17, 1963], it is their contention that only Manuel Nieto, Jr. made the decision for postponement, thereby arrogating to himself the prerogatives
of the whole GAB Board.
The records do not support appellants' contention. Appellant Yulo himself admitted that it was the GAB Board that set the questioned fight
date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must be stated that one of the strongest presumptions of law is that official duty has been
regularly performed. In this case, the absence of evidence to the contrary, warrants the full application of said presumption that the decision
to set the Elorde-Boysaw fight on November 4, 1961 was a GAB Board decision and not of Manuel Nieto, Jr. alone.
Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say that the same issue had been raised before Us by appellants
in a petition for certiorari and prohibition docketed as G.R. No. L-21506. The dismissal by the Court of said petition had laid this issue to rest,
and appellants cannot now hope to resurrect the said issue in this appeal.
On the denial of appellant's motion for a new trial, we find that the lower court did not commit any reversible error.

The alleged newly discovered evidence, upon which the motion for new trial was made to rest, consists merely of clearances which Boysaw
secured from the clerk of court prior to his departure for abroad. Such evidence cannot alter the result of the case even if admitted for they
can only prove that Boysaw did not leave the country without notice to the court or his counsel.
The argument of appellants is that if the clearances were admitted to support the motion for a new trial, the lower court would have allowed
the postponement of the trial, it being convinced that Boysaw did not leave without notice to the court or to his counsel. Boysaw's testimony
upon his return would, then, have altered the results of the case.
We find the argument without merit because it confuses the evidence of the clearances and the testimony of Boysaw. We uphold the lower
court's ruling that:
 The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of the defendants. In fact, the
clearances are not even material to the issues raised. It is the opinion of the Court that the 'newly discovered evidence' contemplated
in Rule 37 of the Rules of Court, is such kind of evidence which has reference to the merits of the case, of such a nature and kind,
that if it were presented, it would alter the result of the judgment. As admitted by the counsel in their pleadings, such clearances might
have impelled the Court to grant the postponement prayed for by them had they been presented on time. The question of the denial
of the postponement sought for by counsel for plaintiffs is a moot issue . . . The denial of the petition for certiorari and prohibition filed
by them, had he effect of sustaining such ruling of the court . . . [pp. 296-297, Record on Appeal].
The testimony of Boysaw cannot be considered newly discovered evidence for as appellees rightly contend, such evidence has been in
existence waiting only to be elicited from him by questioning.

We cite with approval appellee's contention that "the two qualities that ought to concur or dwell on each and every of evidence that is invoked
as a ground for new trial in order to warrant the reopening . . . inhered separately on two unrelated species of proof" which "creates a legal
monstrosity that deserves no recognition."
On the issue pertaining to the award of excessive damages, it must be noted that because the appellants wilfully refused to participate in the
final hearing and refused to present documentary evidence after they no longer had witnesses to present, they, by their own acts prevented
themselves from objecting to or presenting proof contrary to those adduced for the appellees.
On the actual damages awarded to appellees, the appellants contend that a conclusion or finding based upon the uncorroborated testimony
of a lone witness cannot be sufficient. We hold that in civil cases, there is no rule requiring more than one witness or declaring that the
testimony of a single witness will not suffice to establish facts, especially where such testimony has not been contradicted or rebutted. Thus,
we find no reason to disturb the award of P250,000.00 as and for unrealized profits to the appellees.
On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence presented by appellees of actual damages
which were neither objected to nor rebutted by appellants, again because they adamantly refused to participate in the court proceedings.
The award of attorney's fees in the amount of P5,000.00 in favor of defendant-appellee Manuel Nieto, Jr. and another P5,000.00 in favor of
defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be regarded as excessive considering the extent
and nature of defensecounsels' services which involved legal work for sixteen [16] months.

However, in the matter of moral damages, we are inclined to uphold the appellant's contention that the award is not sanctioned by law and
well- settled authorities. Art. 2219 of the Civil Code provides:
Art. 2219. Moral damages may be recovered in the following analogous cases:
1) A criminal offense resulting in physical injuries;
2) Quasi-delict causing physical injuries;
3) Seduction, abduction, rape or other lascivious acts;
4) Adultery or concubinage;
5) Illegal or arbitrary detention or arrest;

6) Illegal search;
7) Libel, slander or any other form of defamation;
8) Malicious prosecution;
9) Acts mentioned in Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32, 34 and 35.
The award of moral damages in the instant case is not based on any of the cases enumerated in Art. 2219 of the Civil Code. The action
herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-appellees of the contract of May 1, 1961,
and cannot, as such, be arbitrarily considered as a case of malicious prosecution.
Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the action has been
erroneously filed, such litigant may be penalized for costs.
The grant of moral damages is not subject to the whims and caprices of judges or courts. The court's discretion in granting or refusing
it is governed by reason and justice. In order that a person may be made liable to the payment of moral damages, the law requires
that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment
of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it erroneously. For these the law taxes costs. [Barreto vs. Arevalo, et. al.
No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p. 5818.]
WHEREFORE, except for the award of moral damages which is herein deleted, the decision of the lower court is hereby affirmed.

SO ORDERED.
G.R. No. 47206 September 27, 1989
GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON. FELICIANO S. GONZALES,
petitioners,
vs.
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO,
LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO, respondents.
Agrava, Lucero, Gineta & Roxas for petitioners.
Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:
This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision dated September 30, 1972 of the trial
court (pp. 79-106, Rollo) became final and executory because none of the parties appealed, its execution has taken all of the past seventeen
(17) years with the end nowhere in sight. The delay in writing finis to this case is attributable to several factors, not the least of which is the
intransigence of the defeated party. Now, worn down by this attrital suit, both have pleaded for a decision to end this case.
Assailed in this petition for review are:
(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP 04811, entitled "Africa Valdez Vda. de Reynoso et
al. vs. Hon. Feliciano S. Gonzales and Santiago de Erquiaga" (pp. 275-290, Rollo);
(b) its resolution dated August 3, 1976, denying the motion for reconsideration (p. 298, Rollo);
(c) its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and
(d) its resolution of October 4, 1977, denying the motion to set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development Corporation which owns the
Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to
the latter his 3,100 shares (or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed in
the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third installments on time, the total price
of the sale was later increased to P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented brokers'
commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo).
As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon transferred all his shares (3,100
paid-up shares) in Erquiaga Development Corporation to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of
the corporation (p. 100, Rollo). However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares
in favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso failed to pay the balance of P561,321.70 on or before
December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally
informed Reynoso that he was rescinding the sale of his shares in the Erquiaga Development Corporation (CFI Decision, pp. 81-100, Rollo).
As recited by the Court of Appeals in its decision under review, the following developments occurred thereafter:
 On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for rescission with preliminary injunction against Jose
L. Reynoso and Erquiaga Development Corporation, in the Court of First Instance of Sorsogon, Branch I (Civil Case No. 2446).**
After issues have been joined and after trial on the merits, the lower court rendered judgment (on September 30, 1972),*** the
dispositive portion of which reads as follows:
In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant Jose L. Reynoso,
rescinding the sale of 3,100 paid up shares of stock of the Erquiaga Development Corporation to the defendant, and ordering:
(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the Erquiaga Development Corporation which
now stand in his name in the books of the corporation;

(b) The defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up shares of stock of the Erquiaga
Development Corporation, as well as to return said fruits received by him to plaintiff Santiago de Erquiaga;
(c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from November 4,1968, and the amount of
P310,000.00 plus legal interest from December 17, 1968, until paid;
(d) The defendant to pay the plaintiff as actual damages the amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees; and
(f) The defendant to pay the costs of this suit and expenses of litigation. (Annex A-Petition.)
The parties did not appeal therefrom and it became final and executory.
On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which reads:

It will be noted that both parties having decided not to appeal, the decision has become final and executory. Nevertheless,
the Court finds merit in the contention of the plaintiff that the payment to the defendant of the total sum of P410,000.00 plus
the interest, should be held in abeyance pending rendition of the accounting by the defendant of the fruits received by him on
account of the 3,100 shares of the capital stock of Erquiaga Development Corporation. The same may be said with respect
to the sums due the plaintiff from the defendant for damages and attorney's fees. Indeed it is reasonable to suppose, as
contended by the plaintiff, that when such accounting is made and the accounting, as urged by plaintiff, should refer not only
to the dividends due from the shares of stock but to the products of the hacienda which is the only asset of the Erquiaga
Development Corporation, certain sums may be found due to the plaintiff from the defendant which may partially or entirely
off set (sic) the amount adjudged against him in the decision.
It is the sense of the court that the fruits referred to in the decision include not only the dividends received, if any, on the 3,100 shares of
stocks but more particularly the products received by the defendant from the hacienda. The hacienda and the products thereon produced
constitute the physical assets of the Erquiaga Development Corporation represented by the shares of stock and it would be absurd to suppose
that any accounting could be made by the defendant without necessarily taking into account the products received which could be the only
basis for determining whether dividends are due or not on account of the investment. The hacienda and its natural fruits as represented by
the shares of stock which the defendant received as manager and controlling stockholder of the Erquiaga Development Corporation can not
be divorced from the certificates of stock in order to determine whether the defendant has correctly reported the income of the corporation or
concealed part of it for his personal advantage. It is hardly necessary for the Court to restate an obvious fact that on both legal and equitable
grounds, the Erquiaga Development Corporation and defendant Jose Reynoso are one and the same persons as far as the obligation to
account for the products of the hacienda is concerned,' (pp. 4-6, Annex 1, Answer.)
In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of P100,000.00. The reasons of the
lower court for appointing a receiver 'were that the matter of accounting of the fruits received by defendant Reynoso as directed in the decision
will take time; that plaintiff Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver in order to preserve the
Hacienda which has obviously been mismanaged by the defendant to a point where the amortization of the loan with the Development Bank
of the Philippines has been neglected and the arrears in payments have risen to the amount of P503,510.70 as of October 19, 1972, and
there is danger that the Development Bank of the Philippines may institute foreclosure proceedings to the damage and prejudice of the
plaintiff.' (p. 7, Id.)
On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda. de Reynoso and
children, as party defendants.
Defendants filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the annulment of the aforementioned Order
of March 21, 1973. On June 28, 1973, the Court of Appeals rendered judgment dismissing the petition with costs against the petitioners,
ruling that said Order is valid and the respondent court did not commit any grave abuse of discretion in issuing the same (Annex 2, Id.).
Petitioners brought the case up to the Supreme Court on a petition for review on certiorari which was denied by said tribunal in a Resolution
dated February 5, 1974 (Annex 3, Id.). Petitioners' motion for reconsideration thereof was likewise denied by the Supreme Court on March
29,1974.
Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February 12,1975, dissolving the receivership and ordering the delivery
of the possession of the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00 conditioned to the
payment of whatever may be due to the substituted heirs of deceased defendant Reynoso (petitioners herein) after the approval of the
accounting report submitted by Reynoso. Said order further directed herein petitioners to allow counsel for Erquiaga to inspect, copy and
photograph certain documents related to the accounting report (Annex B, Petition).
On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the possession, management and control
of the hacienda were turned over to Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their motion for reconsideration which the CFI
of Sorsogon denied in an Order, dated June 23, 1975 (Annex D, Id.).
In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections interposed thereto by herein petitioners (Reynosos),
the CFI of Sorsogon issued an Order, dated October 9, 1975, the dispositive portion of which reads:
 WHEREFORE, in view of the foregoing, on the first count, the defendants are directed (to deliver) to the plaintiff or his counsel
within five (5) days from receipt of this order the 1,600 shares of stock of the Erquiaga Development Corporation which are in
their possession. Should the defendants refuse or delay in delivering such shares of stock, as prayed for, the plaintiff is
authorized:
(a) To call and hold a special meeting of the stockholders of the Erquiaga Development Corporation to elect the members of the Board of
Directors;
(b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name but also the 1,600 shares in the name
and possession of the defendants;

(c) The question as to who shall be elected members of the Board of Directors and officers of the board is left to the discretion of the plaintiff;
(d) The members of the board and the officers who are elected are authorized to execute any and all contracts or agreements under such
conditions as may be required by the Development Bank for the purpose of restructuring the loan of the Erquiaga Development Corporation
with the said bank.
On the second count, the prayer to strike out all expenses alleged[ly] incurred by the defendants in the production of the fruits
of Hacienda San Jose and declaring the obligation of the plaintiff under paragraph (c) of the judgment to pay the defendant
the sum of P410,000.00 with interest as fully compensated by the fruits earned by the defendants from the property, as well
as the issuance of a writ of execution against the defendants to pay the plaintiffs P62,000.00 under paragraphs (e) and (d)
and costs of litigation under paragraph (f) of the judgment of September 30, 1972, is denied.
The defendants are once more directed to comply with the order of February 12, 1975, by answering the interrogatories propounded by
counsel for the plaintiff and allowing said counsel or his representative to inspect, copy and photograph the documents mentioned by the
plaintiff during reasonable hours of any working day within twenty (20) days from receipt of this order, should the defendants persist in their
refusal or failure to comply with the order, the plaintiff may inform the court seasonably so that the proper action may be taken. (Annex J, Id.)
Hence, the present petition for certiorari, prohibition and mandamus instituted by the substituted defendants, heirs of the deceased defendant
Jose L. Reynoso against the CFI of Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:
IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had acted with grave abuse of discretion or in excess
of jurisdiction in issuing the assailed order of October 9, 1975 (Annex A, Petition) insofar only as that part of the Order (1) giving
private respondent voting rights on the 3,100 shares of stock of the Erquiaga Development Corporation without first divesting
petitioners of their title thereto and ordering the registration of the same in the corporation books in the name of private respondent,
pursuant to Section 10, Rule 39 of the Revised Rules of Court; (2) authorizing corporate meetings and election of members of the
Board of Directors of said corporation and (3) refusing to order the reimbursement of the purchase price of the 3,100 shares of stock
 in the amount of P410,000.00 plus interests awarded in said final decision of September 30, 1972 and the set-off therewith of the
amount of P62,000.00 as damages and attorney's fees in favor of herein private respondent are concerned. Let writs of certiorari and
prohibition issue against the aforesaid acts, and the writ of preliminary injunction heretofore issued is hereby made permanent only
insofar as (1), (2) and (3) above are concerned. As to all other matters involved in said Order of October 9, 1975, the issuance of
writs prayed for in the petition are not warranted and therefore denied.

FINALLY, to give effect to all the foregoing, with a view of putting an end to a much protracted litigation and for the best interest of the parties,
let a writ of mandamus issue, commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the
necessary deed of conveyance to effect the transfer of ownership of the entire 3,100 shares of stock of the Erquiaga Development Corporation
to private respondent Santiago Erquiaga in case of failure of petitioners to comply with the Order of October 9, 1975 insofar as the delivery
of the 1,600 shares of stock to private respondent is concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners
or transfer by the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of execution ordering private
respondent to pay petitioners the amount of P410,000.00 plus interests in accordance with the final decision of September 30, 1972 in Civil
Case No. 2448, setting-off therewith the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners' predecessor-
in-interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. (pp. 289-290, Rollo.)
It may be seen from the foregoing narration of facts that as of the time the Court of Appeals rendered its decision on May 31, 1976 (now
under review) only the following have been done by the parties in compliance with the final judgment in the main case (Civil Case No. 2446):
1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety bond of P410,000 in favor
of Reynoso;
2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga Development Corporation, instead of 3,100
shares, as ordered in paragraph (a) of the final judgment.
What the parties have not done yet are:
1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a,) of the decision;
2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda San Jose by virtue of the 3,100 shares of stock of
the Erquiaga Development Corporation delivered to him under the sale, as ordered in paragraph (b) of the decision;
3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from November 4, 1968 and P310,000
plus legal interest from December 17, 1968, until paid (total: P410,000) as ordered in paragraph (c) of the decision;
4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of Erquiaga, under paragraph (d) of the judgment;
5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the final judgment.
The petitioner alleges, in her petition for review, that:
I. The decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum of P410,000 plus interest,
without first awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates the law of the case and Article 1385 of the
Civil Code, alters the final order dated February 12, 1975 of the trial court, and is inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.
We address first the third assignment of error for it will be futile to discuss the first and second if, after all, the decision complained of is
already final, and the entry of judgment which the Court of Appeals directed to be made in its resolution of August 24,1977 (p. 316, Rollo)
was proper. After examining the records, we find that the Court of Appeals' decision is not yet final. The entry of judgment was improvident
for the Court of Appeals, in its resolution of December 13, 1976, suspended the proceedings before it "pending the parties' settlement
negotiations" as prayed for in their joint motion (p. 313, Rollo). Without however giving them an ultimatum or setting a deadline for the
submission of their compromise agreement, the Court of Appeals, out of the blue, issued a resolution on August 24, 1977 ordering the
Judgment Section of that Court to enter final judgment in the case (p. 316, Rollo).
We hold that the directive was precipitate and premature. Erquiaga received the order on September 2, 1977 and filed on September 12,
1977 (p. 317, Rollo) a motion for reconsideration which the Court of Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial
was received on October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for extension of time to file
a petition for review, and the petition was filed within the extension granted by this Court.
We now address the petitioners' first and second assignments of error.
After deliberating on the petition for review, we find no reversible error in the Court of Appeals' decision directing the clerk of court of the trial
court to execute a deed of conveyance to Erquiaga of the 1,600 shares of stock of the Erquiaga Development Corporation still in Reynoso's
name and/or possession, in accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling the trial
court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development Corporation without having effected the transfer of
those shares in his name in the corporate books; and (2) authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga
Development Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his name. It is a fundamental
rule in Corporation Law (Section 35) that a stockholder acquires voting rights only when the shares of stock to be voted are registered in his
name in the corporate books.
Until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus,
the unrecorded transferee cannot enjoy the status of a stockholder; he cannot vote nor be voted for, and he will not be entitled to
dividends. The Corporation will be protected when it pays dividend to the registered owner despite a previous transfer of which it had
no knowledge. The purpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of a stockholder,
and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject
 to the liabilities of a stockholder. (Corporation Code, Comments, Notes and Selected cases by Campos & Lopez-Campos, p. 838,1981
Edition.)
The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after deducting P62,000 due from Reynoso
under the decision) as the price paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's
3,100 shares with the fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with
Art. 1385 of the Civil Code which provides:
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did
not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the conveyance to him of the
remaining 1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter paid for those shares.
Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the principal object of the contract
to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual restitution of the fruits, namely: the legal
interest earned by Reynoso's P410,000 while in the possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose which
Reynoso received from the time the hacienda was delivered to him on November 4,1968 until it was placed under receivership by the court
on March 3, 1975. However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver
to Reynoso the legal interest earned by his money, should await the rendition and approval of his accounting. To this extent, the decision of
the Court of Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned by
Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account
for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3, 1975.
WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 paid by
Reynoso for Erquiaga's 3,100 shares of stock of the Erquiaga Development Corporation should be computed as provided in the final judgment
in Civil Case No. 2446 up to September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's
fees and damages in the total sum of P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to return to Reynoso,
the balance of the judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after September 30,1972,
the date of the judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits received by him
from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed
cancelled. In all other respects, the decision of the Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-42283 March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to sell as
not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees,
to pay P500.00 attorney's fees and costs.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate
review.

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles
and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per
annum.
The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly
installments of P 41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs-appellees paid
the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the
defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed to meet subsequent
payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch X to compel the
defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the
land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty taxes and incidental
expenses for the registration and transfer of the land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated
paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the
month of August, 1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads:

WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs and against the
defendants declaring that the contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants.
Consequently, the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500.00 by
way of attorney's fees. Costs against the defendants.

A motion for reconsideration filed by the defendants-appellants was denied.

As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law.
The defendants-appellants assigned the following alleged errors of the lower court:
First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY
AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE
LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.

Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES.
The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract which provides:

xxx xxx xxx

SIXTH.—In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is
granted a month of grace within which to make the retarded payment, together with the one corresponding to the said month of grace; it is
understood, however, that should the month of grace herein granted to the party of the SECOND PART expired; without the payments
corresponding to both months having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is
understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party
of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the party of the FIRST
PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose
of the parcel of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such
cancellation of the contract, all the amounts paid in accordance with this agreement together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation of the above mentioned premises, and as payment for the damages suffered by
failure of the party of the SECOND PART to fulfill his part of the agreement; and the party of the SECOND PART hereby renounces all his
right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of
the FIRST PART. (Emphasis supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite demands for more than four
(4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld
the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6
of the contract in this case. The defendants-appellants also argue that even in the absence of the aforequoted provision, they had the right
to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6 of the contract to sell
is contrary to law insofar as it provides that in case of specified breaches of its terms, the sellers have the right to declare the contract
cancelled and of no effect, because it granted the sellers an absolute and automatic right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
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.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the other to perform the
obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into an agreement that violation
of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA
276)—
 Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs, 37 SCRA
327, and cases cited therein)
Resort to judicial action for rescission is obviously not contemplated . . . The validity of the stipulation can not be seriously disputed. It is in
the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile v. Court of Appeals, 29
SCRA 504).
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides
that it may be rescinded for violation of its terms and conditions, was qualified by this Court in University of the Philippines v. De los Angeles,
(35 SCRA 102) where we explained that:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the
proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to
the party prejudiced.
In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court
action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether
the action taken was or was not correct in law. ... .
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital
de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only the final award of the court
of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should
become barred by acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of
Appeals (33 SCRA 1) the Court stated that—
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine
Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances.
(Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides:
 SECOND.—That in consideration of the agreement of sale of the above described property, the party of the SECOND PART obligates
himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3,920.00),
Philippine Currency, plus interest at the rate of 7% per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and

(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of each month, from this date until the total payment of
the price above stipulated, including interest.
because they failed to pay the August installment, despite demand, for more than four (4) months.

The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other
words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P 3,920.00
excluding the 7 percent interests, the plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction the rescission
made by the defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It
would unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the defendants-appellants in cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely
done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their
own.
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
NINTH.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART, as not exacting
a strict compliance with the conditions of paragraph 6 of this contract, as well as any other condonation that the party of the FIRST
PART may give to the party of the SECOND PART with regards to the obligations of the latter, should not be interpreted as a
renunciation on the part of the party of the FIRST PART of any right granted it by this contract, in case of default or non-compliance
by the party of the SECOND PART.
The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once, but
for as many times as he wishes.
The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the defendants-appellants, instead
of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees
have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now
estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long arrearages, neither they nor their predecessor, Teodoro de Guzman, even took steps to
cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the delayed payments were
received without protest or qualification. ... Under these circumstances, We cannot but agree with the lower court that at the time appellees
exercised their option, appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the
non-payment of six months rentals by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees
of all their arrearages.
The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671,67 due from the
plaintiffs-appellees. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have exceeded
P3,920.00, a substantial portion of the said payments were applied to the interests since the contract specifically provides for a 7% interest
per annum on the remaining balance. The defendants-appellants rely on paragraph 2 of the contract which provides:
SECOND.—That in consideration of the agreement of sale of the above described property, the party of the SECOND PART obligates
himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P 3,920.00),
Philippine Currency, plus interest at the rate of 7% per annum ... . (Emphasis supplied)

The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendants-appellants a total
sum of P4,533.38, the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the
contract which provides:
TWELFTH.—That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party to the FIRST PART
will execute in favor of the party of the SECOND PART, the necessary deed or deeds to transfer to the latter the title of the parcel of
land sold, free from all hens and encumbrances other than those expressly provided in this contract; it is understood, however, that
au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART, as above stated.
Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The
defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home,
affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the
terms of the agreement. It was offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:
xxx xxx xxx
... (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto. . . . there are certain contracts almost
all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion,
because the only participation of the party is the signing of his signature or his "adhesion" thereto. Insurance contracts, bills of lading, contracts
of sale of lots on the installment plan fall into this category. (Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis
supplied)

While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3,920.00 plus
7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the
P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the
plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially where
such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the
same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in
essence, and in its entirety is most unfair to the buyers."

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount
of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon
payment of the balance of P671.67 without any interest thereon, the defendants-appellants must immediately execute the final deed of sale
in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's
fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the
plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without
any interests. Costs against the defendants-appellants.

SO ORDERED.

G.R. No. 207348 August 19, 2014

ROWENA R. SALONTE, Petitioner,
vs.
COMMISSION ON AUDIT, CHAIRPERSON MA. GRACIA PULIDO-TAN, COMMISSIONER JUANITO G. ESPINO, JR., COMMISSIONER
HEIDI L. MENDOZA, and FORTUNATA M. RUBICO, DIRECTOR IV, COA COMMISSION SECRETARIAT, in their official capacities,
Respondents.
DECISION

VELASCO, JR., J.:

The Case
This is a petition for review filed under Rule 64 assailing the February 15, 2008 Decision 1 and November 5, 2012 Resolution,2 denominated as Decision Nos. 2008-018 and 2012-190, respectively, of the Commission on Audit

(COA). The assailed issuances affirmed the Notice of Disallowance No. (ND) 2000-002-101(97) dated November 14, 2001 issued by Rexy M. Ramos, COA State Auditor IV, pursuant to COA Assignment Order No. 2000-63.3

The Facts
On April 26, 1989, the City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a Contract of Reclamation 4 in which F.F. Cruz, in consideration of a defined land

sharing formula thus stipulated, agreed to undertake, at its own expense, the reclamation of 180 hectares, more or less, of f oreshore and submerged lands fromthe Cabahug Causeway in that city. The timetables, i.e., commencement of the contract and project completion, are provided in paragraphs 2 and 15 of the Contract which state:

2. COMMENCEMENT. Work on the reclamation shall commence not later than [July 1989], after thiscontract shall be ratified by the
Sanggunian Panlungsod;
xxxx
15. CONTRACT DURATION. The project is estimated to be completed in six (6) years: (3 years for the dredge-filling and seawall construction
and 3 years for the infrastructures completion). However, if all the infrastructures within the OWNERS’ share of the project are already
completed within the six (6) year period agreed upon, any extension of time for works to bedone within the share of the DEVELOPERS, shall
be at the discretion of the DEVELOPERS, as a growing city, changes in requirements of the lot buyers are inevitable.
On a best effort basis, the construction of roadways, drainage system and open spaces in the area designated as share of the City of
Mandaue, shall be completed not later than December 31, 1991. (emphasis supplied)
Subsequently, the parties inked inrelation to the above project a Memorandum of Agreement (MOA) dated October 24, 1989 5 whereby the City of Mandaue allowed

F.F. Cruz to put up structures on a portion of a parcel of land owned by the city for the use of and to house F.F. Cruz personnel assigned at the project site, subject to terms particularly provided in paragraphs 3, 4 and 5 of the MOA:

3) That [F.F. Cruz] desires to use a portion of a parcel of land of the [City of Mandaue] described under paragraph 1 hereof to the extent of
495 square meters x x x to be used by them in the construction of their offices to house its personnel to supervise the Mandaue City
Reclamation Project x x x.
xxxx
4) That the [City of Mandaue] agrees to the desire of [F.F. Cruz] to use a portion of the parcel of land described under paragraph 1 by [F.F.
Cruz] for the latter to use for the construction of their offices to house its personnel to supervise the said Mandaue City Reclamation Project
with no rental to be paid by [F.F. Cruz] to the [City of Mandaue].
5) That the [City of Mandaue] and [F.F. Cruz] have agreed that upon the completion of the Mandaue City Reclamation Project, all
improvements introduced by [F.F. Cruz] to the portion of the parcel of land owned by the [City of Mandaue]as described under paragraph 3
hereof existing upon the completion of the said Mandaue City Reclamation Project shall ipso facto belong to the [City of Mandaue] in
ownershipas compensation for the use of said parcel of land by [F.F. Cruz] without any rental whatsoever. (emphasis supplied)
Pursuant to the MOA, F.F. Cruz proceeded to construct the contemplated housing units and other facilities which included a canteen and a
septic tank.
Later developments saw the City of Mandaue undertaking the Metro Cebu Development Project II (MCDP II), part of which required the
widening of the Plaridel Extension Mandaue Causeway. However, the structures and facilities built by F.F. Cruz subject of the MOA stood in
the direct path of the road widening project. Thus, the Department of Public Works and Highways (DPWH) and Samuel B. Darza, MCDP II
project director, entered into an Agreement to Demolish, Remove and Reconstruct Improvement dated July 23, 1997 6 with F.F. Cruz whereby the latter would demolish the

improvements outside of the boundary of the road widening project and, in return, receive the total amount of PhP 1,084,836.42 in compensation.

Accordingly, petitioner Rowena B.Rances (now Rowena RancesSolante), Human Resource Management Officer III, prepared and, with the
approval of Samuel B. Darza (Darza), then issued Disbursement Voucher (DV) No. 102-07-88-97 dated July 24, 1997 7 for PhP 1,084,836.42 in favor of F.F. Cruz. In the voucher,

Solante certified that the expense covered by it was "necessary, lawful and incurred under my direct supervision."

Thereafter, Darza addressed a letter-complaint to the Office of the Ombudsman, Visayas, inviting attention to several irregularities regarding
the implementation of MCDP II. The letter was referred to the COA which then issued Assignment Order No. 2000-063 for a team to audit
the accounts of MCDP II. Following an audit, the audit team issued Special Audit Office (SAO) Report No. 2000-28, par. 5 of which states:
F.F. Cruz and Company, Inc. was paid ₱1,084,836.42 for the cost of the property affected by the widening of Plaridel Extension, Mandaue
Causeway. However, under Section 5 of its MOA with Mandaue City, the former was no longer the lawful owner of the properties at the time
the payment was made. 8

Based on the above findings, the SAO audit team, through Rexy Ramos, issued the adverted ND 2000-002-101-(97) 9 disallowing the payment of PhP 1,084,836.42 to F.F. Cruz

and naming that company, Darza and Solante liable for the transaction. Therefrom, Solante sought reconsideration, while F.F. Cruz appealed, but the motion for reconsideration and the appeal were jointly denied in Legal and Adjudic ation Office (LAO) Local Decision No. 2004-040 dated March 5, 2004, which F.F. Cruz in time appealed to COA Central.

In the meantime, the adverted letter-complaint of Darza was upgraded as an Ombudsman case, docketed as OMB-V-C-03-0173-C, against
Solante, et al., albeit the Ombudsman, by Resolution of June 29, 2006, 10 would subsequently dismiss the same for lack of merit.

The Ruling of the Commission on Audit

In its February 15, 2008 Decision, 11 the COA, as indicated at the outset, affirmed ND 2000-002-101-97 on the strength of the following premises:
From the above provision of the MOA, it is clear that the improvements introduced by F.F. Cruz x x x would be owned by the City upon
completion of the project which under the Contract of reclamation should have been in 1995. However, the project was not completed in 1995
and even in 1997 when MDCP paid for these improvements. The fact that the reclamation project had not yet been completed or turned over
to the City of Mandaue by F.F. Cruz in 1997 or two years after it should have been completed, does not negate the right over such
improvements by the City x x x. Clearly, the intention of the stipulation is for F.F. Cruz x x x to compensate the government for the use of the
land on which the office, pavement, canteen, extension shed, house and septic tank were erected. Thus, to make the government pay for the
cost of the demolished improvements will defeat the intention of parties as regards compensation due from the contractor for its use of [the]
subject land. Under Article 1315 of the Civil Code, from the moment a contract is perfected, the parties are bound to the fulfillment to what
has been expressly stipulated and all the consequences which according to their nature, may be in keeping with good faith, usage and law.
Thus, even if the contractual stipulations may turn out to be financially disadvantageous to any party, such will not relieve any or both parties
fromtheir contractual obligations. 12(emphasis supplied)

From such decision, Solante filed a Motion for Reconsideration dated June 28, 2010 purportedly with Audit Team Leader, Leila Socorro P.
Domantay. This motion was denied by the COA in a Resolution dated November 5, 2012 13 wherein the commission held:

x x x The arguments of Ms. Solante that as long as the Project has not yet been turned over, the ownership of the said improvements would
not be acquired yet by the City would put the entire contract at the mercy of F.F. Cruz & Co., Inc., thus, negating the mutuality of contracts
principle expressed in Article 1308 ofthe New Civil Code, which states:
Art. 1308. The contracts must bindboth contracting parties; its validity or compliance cannot be leftto the will of one of them.

On February 15, 2013, Solante received a Notice of Finality of Decision (NFD) 14 stating that the COA Decision dated February 15, 2008 and Resolution dated November 5, 2012 have become final and executory, a copy of the Resolution

having been served on the parties on November 9, 2012 by registered mail. Notably, Solante never received a copy of the COA Resolution. She came to get one only on May 8, 2013 after inquiring from the Cebu Central Post Office, which, in a Certification of Deliverydated May 8, 2013,15 stated that the registered mail containing said copy was in fact not delivered.

Hence, the instant petition.

The Issue

The resolution of the present controversy rests on the determination of a sole issue: who between the City ofMandaue and F.F. Cruz owned
during the period material the properties that were demolished.
The Court’s Ruling

The petition is meritorious. The COA and its audit team obviously misread the relevant stipulations of the MOA in relation to the provisions
on project completion and termination of contract of the Mandaue-F.F. Cruz reclamation contract.
Essentially, the COA is alleging that the Contract of Reclamation establishes an obligation on the part of F.F. Cruz to finish the project within
the allotted period of six (6) years from contract execution in August 1989. Prescinding from this premise, the COA would conclude that after
the six (6)-year period, F.F. Cruz is automatically deemed to be in delay, the contract considered as completed, and the ownership of the
structures built in accordance with the MOA transferred to the City of Mandaue.
COA’s basic position and the arguments holding it together is untenable.
On this point, the Civil Code provision on obligations with a period is relevant. Article 1193 thereof provides:
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to bethat which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the
preceding Section. (emphasis supplied)
A plain reading of the Contract ofReclamation reveals that the six (6)-year period provided for projectcompletion, or, with like effect, termination
of the contract was a mere estimateand cannot be considered a period or a "day certain" inthe context of the aforequoted Art. 1193. To be
clear, par. 15 of the Contract of Reclamation states: "[T]he project is estimated to be completed in six (6) years." As such, the lapse of six (6)
years from the perfection of the contract did not, by itself, make the obligation to finish the reclamation project demandable, such as to put
the obligor in a state of actionable delay for its inability to finish. Thus, F.F. Cruz cannot be deemed to be in delay. Parenthetically, the
Ombudsman, in a Resolution of June 29, 2006 in OMB-V-C-03-0173-C, espoused a similar view in dismissing the complaint against Solante,
thus:
A careful reading of the pertinent section of the Contract of Reclamation between F.F. Cruz and Mandaue City, however, would confirm
respondents Rances-Solante[’s]and Sungahid’s view that herein respondent Cruz was still the owner of the subject properties at the time
these were demolished. Indeed, the Contract specifies that the six (6)-year period was no more than an estimate of the project completion. It
was not a fixed period agreed upon. Being so, the mere lapse of six (6) years from the execution of the Contract, did not by itself deem the
reclamation project completed, muchless bring about the fulfillment of the condition stipulated in the MOA (on the shift of ownership over the
demolished properties). Herein respondent Cruz, and/or his company, at least on this particular regard, can be said to be still the owner of
the structures along Plaridel Extension x x x, when these were demolished to give way to road widening. It was nothing but equitable that
they get compensated for the damages caused by the demolition. 16 (emphasis supplied)

Put a bit differently, the lapse of six (6) years from the perfection of the subject reclamation contract, withoutmore, could not have automatically
vested Mandaue City, under the MOA, with ownership of the structures.
Moreover, even if we consider the allotted six (6) years within which F.F. Cruz was supposed to completethe reclamation project, the lapse
thereof does not automatically mean thatF.F. Cruz was in delay. As may be noted, the City of Mandaue never madea demand for the fulfillment
of its obligation under the Contract of Reclamation. Article 1169 of the Civil Code on the interaction of demand and delay and the exceptions
to the requirement of demand relevantly states:
Article 1169. Those obliged to deliver orto do something incur in delay from the time the obligeejudicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the momentone of the parties fulfills his obligation, delay by the other begins.
Thus, in J Plus Asia Development Corporation v. Utility Assurance Corporation, 17 the Court has held:

In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be demandable
and already liquidated;(2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.
(emphasis supplied)
In the instant case, the records are bereft of any document whence to deduce that the City of Mandaue exactedfrom F.F. Cruz the fulfillment
of its obligation under the reclamation contract. And to be sure, not one of the exceptions to the requisite demand under Art. 1169 is
established, let alone asserted. On the contrary, the then city mayor of Mandaue, no less, absolved F.F. Cruz from incurring under the
premises in delay. In his affidavit dated July 9, 2004,18 then Mayor Ouano stated:

That although x x x the reclamation wasestimatedto be completed in six years ending in 1995, the said project however, was not fully
completed when the demolition of the mentioned improvements of [F.F. Cruz] was made x x x [and in fact] up to now the said Mandaue
Reclamation Project has not yet been fully completed and turned over to the City of Mandaue.
x x x [S]ince at the time of the demolition the said improvements actually belonged to [F.F. Cruz] and the City of Mandaue has no claim
whatsoever on the said payment x x x for the demolished improvements. (emphasis supplied)
As it were, the Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on the property of the city will belong to the latter only
upon the completion of the project. Clearly, the completion of the project is a suspensive condition that has yet to be fulfilled.1âwphi1 Until the
condition arises, ownership of the structures properly pertains to F .F. Cruz.

To be clear, the MOA does not state that the structures shall inure in ownership to the City of Mandaue after the lapse of six ( 6) years from
the execution of the Contract of Reclamation. What the MOA does provide is that ownership of the structures shall vest upon, or ipso facto
belong to, the City of Mandaue when the Contract of Reclamation shall have been completed. Logically, before such time, or until the agreed
reclamation project is actually finished, F.F. Cruz owns the structures. The payment of compensation for the demolition thereof is justified.
The disallowance of the payment is without factual and legal basis. COA then gravely abused its discretion when it decreed the disallowance.
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed February 15, 2008 Decision, November 5, 2012 Resolution, and
Notice of Disallowance No. 2000-002-101 (97) dated November 14, 2001 issued by the Commission on Audit are hereby REVERSED and
SET ASIDE.
No costs.
SO ORDERED.

G.R. No. L-3316 October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,
vs.
SANTIAGO SYJUCO, INC., defendant-appellant,
PHILIPPINE NATIONAL BANK, defendant-appellee.
Jose D. Cortes and Claro M. Recto for plaintiff and appellant.
Ramon Diokno and Jose Diokno for defendant and appellant.
Hilarion U. Jarencio for defendant and appellee.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of Manila absolving defendant Santiago Syjuco, Inc. of the complaint and
condemning the plaintiff to pay to said defendant the sum of P18,000 as principal and the further sum of P5,130 as interest thereon from
August 6, 1944, to May 5, 1949, or a total of P23,130, Philippine currency, with interest thereon at the rate of 6% per annum from May 6,
1949, until said amount is paid in full, with costs against the plaintiff.
The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary details, are well narrated in the brief submitted
by counsel for the Philippine National Bank, and which for purposes of this decision are hereunder reproduced:

The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the owner of two (2) parcels of land known as Lots 871
and 872 of the Murcia Cadastre, Negros Occidental, more particularly described in Transfer Certificates of Titles Nos. 17176 and 17175,
respectively. On March 9, 1936 the Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon, hereinafter to
be referred to as Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630 upon the execution of the said deed; and (b) the
balance P23,670 in ten (10) annual amortizations, the first amortization to fall due one year after the execution of the said contract (See
annex "A" Syjuco's Segunda Contestacion Enmendada).
On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter to be referred to a s Syjuco, in the amount of
P200,000 in Japanese Military Notes, payable within one (1) year from May 5, 1948. It was also provided in said promissory note that the
promisor (Ponce de Leon) could not pay, and the payee (Syjuco) could not demand, the payment of said note except within the
aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the parcels of land which he
agreed to purchase from the Bank (See Annex "B", Syjuco's Segunda Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to P23,670 in Japanese Military notes and,
on the same date, the Bank executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned parcels of land (See Annex
"F", Syjuco's Segunda Contectacion Enmendada).
The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by Ponce de Leon in favor of Syjuco
were registered in the Office of the Register of Deeds of Negros Occidental and, as a consequence of such registration, Transfer Certificate
of Title Nos. 17175 and 17176 in the name of the Bank were cancelled and Transfer Certificate of Title No. 398 (P.R.) and No. 399 (P.R.),
respectively, were issued in the name of Ponce de Leon. The mortgage in favor of Syjuco was annotated on the back of said certificates.
On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount of P16,000 in Japanese Military notes and executed
in the latter's favor of promissory note of the same tenor as the one had previously executed (R. on Appeal, pp. 23-24)
On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in Japanese military notes in full payment
of his indebtedness to Syjuco. The amount tendered included not only the interest up to the time of the tender, but also all the interest up to
May 5, 1948. Ponce de Leon also wrote to Syjuco a letter tendering the payment of his indebtedness, including interests up to May 5, 1948,
Syjuco, however, refused to accept such repeated tenders. During the trial, Ponce de Leon explained that he wanted to settle his obligations
because as a member of the guerilla forces he was being hunted by the Japanese and he was afraid of getting caught and killed (t.s.n. pp.
14-15).
In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with the Clerk of Court, of First Instance
of Manila the amount of P254,880 and, on November 4, 1944, he filed a complaint consigning the amount so deposited to Syjuco. To this
complaint Syjuco filed his answer. The records of this case were destroyed as a result of the war and after the liberation the same were
reconstituted (R. on A., pp. 1-17)
On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros Occidental for the reconstitution of transfer Certificates
of Titles Nos. 17175 and 17176 in the name of the Bank and, in an order dated June 4, 1946, the Court ordered the reconstitution of said
titles. In compliance with said order, the Register of Deeds of Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R in the
names of the Bank. Ponce de Leon then filed with the Register of Deeds a copy of the deed of sale of the properties covered by the said
certificates of title issued by the Bank in his (Ponce de Leon's) favor and the Register of Deeds cancelled the said Certificates of Title Nos.
1297-R and 1298-R and issued in favor of Ponce de Leon Transfer Certificates of Title Nos. 526-N and 527-N (R. on A., pp. 48-50).
On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not exceeding P135,000 and, on the same
date, he executed a mortgage of the two parcels of land covered by the reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in
favor of the said Bank to secure the payment of any amount which he may obtain from the Bank under aforementioned overdraft account.
The overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not being aware of the mortgage which Ponce de
Leon had executed in favor of Syjuco during the Japanese occupation, and said Bank believing that the said properties had no lien or
encumbrance appeared annotated on the reconstituted certificates of Title Nos. 526-N and 527-N in the name of Ponce de Leon (See
Testimony of Atty. Endriga).
On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's complaint and, in its "Tercera Reconvention", it claimed
that Ponce de Leon, by reconstituting the titles in the name of the Bank, by causing the Register of Deeds to have the said titles transferred
in his (Ponce de Leon's name, and by subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft account, had
violated the conditions of the morgage which Ponce de Leon has executed in its favor during the Japanese occupation. Syjuco then prayed
that the mortgage executed by Ponce de Leon in favor of the Bank be declared null and void. (R. on A., pp. 32-53).
Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp. 55-58). Notwithstanding said objection, however, the
lower court ordered the inclusion of the Bank as a cross-defendant (R. on A., pp. 59-60).
On June 28, 1947, the Bank filed a motion to drop on the ground that it had been misjoined and to dismiss on the ground that the venue was
improperly laid and there is another action pending between the same parties for the same cause (R. on A., pp. 65-75). The said motion was
denied by the lower court in its order dated October 7, 1947 (R. on A., pp. 95-100). In view of such denial, the Bank filed its answer on October
29, 1947 (R. on A., pp. 101-106).
On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint and condemning Ponce de Leon
to pay Syjuco the total amount of P23,130 with interest at the legal rate from May 6, 1949, until fully paid (R. on A., pp. 107-135). Both Ponce
de Leon and Syjuco file their appeal from this decision.

The principal questions to be determined in this appeal are: (1) Did the lower court err in not giving validity to the consignation made by the
plaintiff of the principal and interest of his two promissory notes with the clerk of court?; (2) did the lower court err in reducing the principal
and interest of said promissory notes to their just proportions using as a pattern the Ballantyne schedule in effecting the reduction?; (3) did
the lower court err in disregarding the defense of moratorium set up by the plaintiff against the counterclaim of defendant Syjuco?; and (4)
did the lower court err in not passing on the question of priority between the mortgage claim of defendant Syjuco and that of the Philippine
National Bank on the same set of properties on the ground that they are situated in a province different from that in which this action was
brought? We will discuss these issues in the order in which they are propounded.
1. It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000 obtained on May 5, 1944, and another for
P16,000 obtained on July 31, 1944. These two loans appear in two promissory notes signed by the plaintiff which were couched in practically
the same terms and conditions and were secured by two deeds of mortgage covering the same parcels of land. In said promissory notes it
was expressly agreed upon that plaintiff shall pay the loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency of
the Government of the Philippines that, at the time of payment above fixed it is the legal tender for public and private debts, with interests at
the rate of 6% per annum, payable in advance for the first year, and semi-annually in advance during the succeeding years", and that, the
period above set forth having been established for the mutual benefit of the debtor and creditor, the former binds himself to pay, and the latter
not to demand the payment of, the loans except within the period above mentioned. And as corollary to have the above stipulations, it was
likewise agreed upon in the two deeds of mortgage that "if either party should attempt to annul or alter any of the stipulations of this deed or
of the note which it secures, or do anything which has for its purpose or effect an alteration or annulment of any of said stipulations, he binds
himself to indemnify the other for the losses and damages, which the parties hereby liquidate and fix at the amount of P200,000".
The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above mentioned, plaintiff offered to pay to the
defendant not only the principal sum due on the two promissory notes but also all the interests which said principal sum may earn up to the
dates of maturity of the two notes, and as the defendant refused to accept the payment so tendered, plaintiff deposited the money with the
clerk of court and brought this action to compel the defendant to accept it to relieve himself of further liability.

The question now to be determined is, is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon
in the two promissory notes signed by the plaintiff? Our answer is in the negative.

In order that cogsignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show
(1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment
was made refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been given to the person interested in the performance
of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that
after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). In the instant case, while it is admitted
a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel its
acceptance on the part of the creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at
least two of the above requirements have not been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk
of the court, failed to give previous notice thereof to the person interested in the performance of the obligation. It also appears that the
obligation was not yet due and demandable when the money was consigned, because, as already stated, by the very express provisions of
the document evidencing the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was made before
this period matured. The failure of these two requirements is enough ground to render the consignation ineffective. And it cannot be contended
that plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary obligation contracted with a period, the presumption is that the same is deemed constituted
in favor of both the creditor and the debtor unless from its tenor or from other circumstances it appears that the period has been established
for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception or circumstance exists.
It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation because the
debtor has offered to pay all the interests up to the date it would become due, but this argument loses force if we consider that the payment
of interests is not the only reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other reasons why
this cannot be done. One of them is that the creditor may want to keep his money invested safely instead of having it in his hands (Moore vs.
Cord 14 Wis. 231). Another reason is that the creditor by fixing a period protects himself against sudden decline in the purchasing power of
the currency loaned specially at a time when there are many factors that influence the fluctuation of the currency (Kemmerer on Money, pp.
9-10). And all available authorities on the matter are agreed that, unless the creditor consents, the debtor has no right to accelerate the time
of payment even if the premature tender "included an offer to pay principal and interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see
ruling of this Court in the recent case of Ilusorio vs. Busuego, 84 Phil., 630).
Tested by the law and authorities we have cited above, the conclusion is inescapable that the consignation made by the plaintiff is invalid
and, therefore, did not have the effect of relieving him of his obligation.
2. The next question to be determined is whether the lower court erred in reducing the amount of the loans by applying the Ballantyne
schedule.
This is not the first time that this question has been raised. On two previous occasions this Court had been called upon to rule on a similar
question and has decided that when the creditor and the debtor have agreed on a term within which payment of the obligation should be paid
and on the currency in which payment should be made, that stipulation should be given force and effect unless it appears contrary to law,
moral or public order. Thus, in one case this Court said: "One who borrowed P4,000 in Japanese military notes on October 5, 1944, to be
paid one year after, in currency then prevailing, was ordered by the Supreme Court to pay said sum after October 5, 1945, that is, after
liberation, in Philippine currency (Roño vs. Gomez et al., 83 Phil., 890). In another case, wherein the parties executed a deed of sale with
pacto de retro of a parcel of land for the sum of P5,000 in Japanese military notes agreeing that within 30 days after the expiration of one
year from June 24, 1944, the aforementioned land may be redeemed sa ganito ding halaga (at the same price), the Court held that the
"phrase sa ganito ding halaga meant the same price of P5,000 in Japanese war notes". The Court further said, "The parties herein gambled
and speculated on the date of the termination of the war and the liberation of the Philippines by America. This can be gleaned from the
stipulation about redemption, particularly that portion to the effect that redemption could be effected not before the expiration of one year from
June 24, 1844. This kind of agreement is permitted by law. We find nothing immoral or unlawful in it" (Gomez vs. Tabia Off. Gaz., 641; 84
Phil., 269).
In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited because the plaintiff agreed not only to
pay the obligation within one year from May 5, 1948, but also to pay peso for peso in the coin or currency of the Government that at the time
of payment it is the legal tender for public and private debts. This stipulation is permitted by law because there is nothing immoral or improper
in it. And it is not oppressive because it appears that plaintiff used a great portion of that money to pay his obligations during the Japanese
occupation as shown by the fact that he settled his account with the Philippine National Bank and other accounts to the tune of P100,000. It
would seem therefore clear that plaintiff has no other alternative than to pay the defendant his obligation peso for peso in the present currency
as expressly agreed upon in the two promissory notes in question. The decision of the lower court on this point should, therefore, be modified.
As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to the following finding of the court a quo:
"The attempt made by the plaintiff to pay the obligation before the arrival of the term fixed for the purpose may be wrong; but it may be
attributed to an honest belief that the term was not binding and not to a desire to modify the contract". This penal clause should be strictly
construed.
3. As regards the third question, we find that the lower court erred in disregarding the defense of moratorium set up by the plaintiff against
the counterclaim of the defendant on the sole ground that this defense was not raised by the plaintiff in his pleadings. An examination of the
record shows that the plaintiff raised this question in his pleadings. This must have been overlooked by the court.
The lower court, therefore, should have passed upon this defense in the light of Executive Order No. 32, which suspended payment of all
obligations contracted before March 10, 1945. We note, however, that said moratorium orders have already been modified by Republic Act
No. 342 in the sense of limiting the ban on obligations contracted before the outbreak of the war to creditors who have filed claims for
reparations with the Philippine War Damage Commission, leaving them open to obligations contracted during the Japanese occupation (Uy
vs. Kalaw Katigbak, G.R. No. L-1830, December 1, 1949). As the obligation in question has been contracted during enemy occupation the
same is still covered by the moratorium orders. The claim of counsel for the defendant that the moratorium orders cannot be invoked because
they are unconstitutional cannot now be determined it appearing that it has been raised for the first time in this instance. This defense of
moratorium was raised by plaintiff in his reply to the amended answer of the defendant dated August 1, 1946, and in his motion to dismiss
the counterclaim dated October 29, 1946, but the defendant did not traverse that allegation nor raise the constitutionality of the moratorium
orders in any of its pleadings filed in the lower court. It is a well known rule that this Court can only considera question of constitutionality
when it has been raised by any of the parties in the lower court (Laperal vs. City of Manila, 62 Phil., 352; Macondray and Co. vs. Benito and
Ocampo, 62 Phil., 137).
4. The facts relative to the execution of the deed of mortgage in favor of the Philippine National Bank on the two lots in question are as follows:
On March 9, 1936, the Philippine National Bank was the owner of the lots Nos. 872 and 871 of the Murcia Cadastre, Negros Occidental,
covered by Certificates of Titles Nos. 17175 and 17176 respectively. On the same date, the Bank sold the two lots to the plaintiff and as a
result Transfer Certificates of Titles Nos. 398 and 399 were issued in the name of the plaintiff. On May 5, 1944, plaintiff mortgaged these two
lots to defendant Syjuco to guarantee the payment of two loans, one for P200,000 and another for P16,000. The mortgage was registered in
accordance with the law. Then liberation came. Plaintiff taking advantage of the destruction of the records of the office of the Register of
Deeds of Negros Occidental, obtained from the Court of First Instance of said province the 3‚3 reconstitution of Transfer Certificate of Titles
Nos. 17175 and 17176 and by virtue thereof, the register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R in the name
of the Philippine National Bank. Then he secured the cancellation of the titles last named and the issuance of Transfer Certificates of Titles
Nos. 526-N and 527-N in his name without informing the court of the encumbrance existing in favor of defendant Syjuco. After securing the
new titles in his name, plaintiff obtained a loan from the Philippine National Bank for the sum of P135,000 on the security of the property
covered by said reconstituted titles. On said titles no encumbrance appears annotated, but it was noted thereon that they would be subject
to whatever claim may be filed by virtue of documents or instruments previously registered but which, for some reason, do not appear
annotated thereon, as required by a circular of the Department of Justice.
From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant Syjuco is prior in point of time and in point
of registration to that executed in favor of the Philippine National Bank, let alone the fact that when the later mortgage was executed, the
Bank must have known, as it was its duty to find out, that there was a warning appearing in reconstituted titles that the same were subject to
whatever encumbrance may exist which for one reason or another does not appear in said titles. With such warning, the Bank should have
taken the necessary precaution to inquire into the existence of any hidden transaction or encumbrance that might affect the property that was
being offered in security such as the one existing in favor of the defendant, and when the Bank accepted as security the titles offered by the
plaintiff without any further inquiry, it assumed the risk and the consequences resulting therefrom. Moreover, it also appears that this same
question of priority has already been threshed out and determined by the Court of First Instance of Negros Occidental in the cadastral
proceedings covered the two lots in question wherein the court ordered the cancellation of the reconstituted titles issued in the name of the
plaintiff and the reconstitution of the former titles copies of which were in the possession of defendant Syjuco, subject only to the requirement
that the mortgage in favor of the Philippine National Bank be annotated on said new titles. In other words, the court declared valid the titles
originally issued in the name of the plaintiff wherein the encumbrance in favor of the defendant Syjuco appears and declared invalid the
reconstituted titles secured by plaintiff through fraud and misinterpretation. This order is now final because no appeal has been taken
therefrom by any interested party.

We have, therefore, no other alternative than to declare that the mortgage claim of the defendant Syjuco is entitled to priority over that of the
Philippine National Bank. This question can be threshed out here regardless of venue because the counterclaim is but ancillary to the main
case (1 Moran, Comments on the Rules of Court, 2nd ed., 201).
In view of the foregoing, the decision appealed from should be modified in the sense of ordering the plaintiff to pay the defendant Syjuco the
sum of P216,000, Philippine currency, value of two promissory notes, with interest thereon at the rate of 6% per annum from May 6, 1949,
until said amount is paid in full. It is further ordered that should said amount, together with the corresponding interests, be not paid within 90
days from the date this judgment in accordance with law, with costs against the plaintiff.
However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued, until after the moratorium orders
shall have been lifted.
Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31, 1944, another loan of P16,000, payable
within one year from May 5, 1948." On November 15, 1944, the plaintiff offered to pay the entire indebtedness plus all the interest up to the
date of maturity. Upon Syjuco's refusal to accept the tendered payment, the plaintiff deposited the amount with the clerk of the Court of First
Instance of Manila and instituted the present action to compel Syjuco to accept payment. The records of the case were destroyed during the
war, but they were duly reconstituted after the liberation. The trial court sentenced the plaintiff to pay Syjuco the total sum of P23,130,
representing the whole indebtedness plus all the interest from August 6, 1944, to May 5, 1949, computed according to the Ballantyne scale
of values. From this judgment Syjuco has appealed, claiming his right to be paid the sum of P216,000, actual Philippine currency, plus
P200,000, as penalty agreed upon in the contract. The majority of this Court sustains Syjuco's claim for P216,000.
As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30, 19491, Roño vs. Gomez, May 31, 19492,
46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs. Tabia, August 5, 19493, 47 Off. Gaz., 644, in which I dissented, I have to disagree with
the majority in the case at bar.
On the question whether a debtor can pay an indebtedness before the date of maturity provided corresponding interest is paid, I said the
following in Ilusorio vs. Busuego:
In other words, I hold that the mortgagor has the right to pay the indebtedness at any time within three years provided that, as in this case,
he pays the interest for the whole term of the mortgage. In the ordinary course of things, a loan is granted in consideration of interest, and if
by the early payment of the obligation, the creditor would not lose any part of the stipulated interest, both paragraphs 3 and 4 would practically
be enforced. It cannot be alleged that the creditor herein, in addition to interest, wanted to have his money in the safekeeping of the debtor
because the contract is one of the loan and not of deposit. It is to be remembered, moreover, that the debt was being paid in the same
currency loaned (Japanese money). The effect of inflation is one of the risks naturally incident to the money-lending business, and the lender
should protect himself against it by plain covenants.
On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in equivalent Philippine currency, I am
hereinbelow reproducing at length what I stated in Roño vs, Gomez which should have greater application and force, because while in the
Roño case the amount of the loan is only P4,000, in the case at bar the debtor is being ordered to pay the large sum of P216,000:
The principal defense set up by Roño in that the note is contrary to law, morals or public order. This defense was flatly overruled in the court
of origin, seconded by the Court of Appeals. The judgment of the latter court is now before us upon appeal by certiorari of Cristobal Roño.
The situation in which a borrower of P4,000 in Japanese war notes is made to pay the same amount in currency of the present Philippine
Republic. In other words, the borrower of P4,000 during the latter part of the Japanese Military occupation which, in ordinary practical terms,
could hardly purchase a cavan of rice, is now compelled to pay P4,000 in actual Philippine currency which, in the same ordinary practical
terms, may be held equivalent to at least 100 cavanes of rice. Said borrower is compelled to do so, merely because in his promissory note
he agreed to pay after one year in pesos of the Philippine Currency, and expressly waived any postwar arraignment devaluating the amount
borrowed in October, 1944.
The Court of Appeals held that the commitment of Cristobal Roño settle his indebtedness in the legal tender at the time of payment is not
against the law, morals or public order. We readily acquiesce in the proposition that the contract is not contrary to law or public order, for we
are aware of no statute or public policy which prohibits a person from bringing about or causing his own financial reverses. But we are of the
opinion that, if enforced to the letter, it is against morals. If the contract was entered into in times of peace, its obligations should have the
force of law between the parties and must be performed in accordance with their stipulations (Art. 1091, Civil Code). But when as in the case
at bar, the borrower had to obtain a loan during war time, when living conditions were abnormal and oppressive, everything was uncertain,
and everybody was fighting for his survival, our conscience and common sense demand that his acts be judged by compatible standards.
The Court of Appeals found that everybody was aware of the developments of the war outside of official propaganda and that, in so far as
knowledge of war events is concerned, Roño was on more or less on an equal footing with Gomez. This means that all knew the bombings
by the american air forces of various parts of the islands in September, 1944, and of the decisive defeats of the Axis powers in Europe, and
that the mighty forces of the Allies would soon, as in fact they did, concentrate on and crush Japan, with the result that the Japanese war
notes would accordingly become worthless. It may of course be opposed that Roño knowingly bound himself to his pact. But this is true
merely in theory. Although, as found also by the Court of Appeals, Roño was not entirely an ignorant man because he is a mechanic and
knows English, the fact nevertheless remains that the lender, Jose L. Gomez, was a lawyer, and the exaggerated way the promissory word
is worded plainly shows that the latter must have thoroughly studied the transaction with Roño imposed the conditions evidenced therein to
his one-sided advantage. It is needless to say that borrowers are always at the mercy of unscrupulous money lenders. "Neccesitous men are
not, truly speaking, free men; but, to answer a present emergency, will submit to any terms that the crafty may impose upon them." (Marquez
et al. vs. Valencia, 44 Off. Gaz., pp. 895, 897*, quoting Villa vs. Santiago, 38 Phil., 157, 164). We cannot believe, as intimated in the testimony
of Sinforosa A. de Gomez (wife of Jose L. Gomez), that Roño informed them that he would use the money to purchase a jitney, for the simple
reason that, in view of the inflated value of the Japanese war notes on October, 1944, the amount of P4,000 could not possibly purchase a
jitney. At any rate, even accepting the conjecture that said amount was invested by Roño in his business, the circumstance still makes him a
necessitous man that had to submit to the terms of his lender. That a contract like the one in question is shocking to the conscience and
therefore immoral becomes patent when we resort to the example of a borrower of P2,000 just before the liberation, when a kilo of sugar
already cost P2,000, being compelled to pay the same in Philippine currency now when a kilo of sugar hardly costs P0.50. Where is the
conscience of anyone who will collect P2,000 for a loan of virtually fifty centavos?

The Court of Appeals argued that the parties took equal risks, since it was impossible to predict the exact time at which the Philippines would
be liberated and that, supposing that the liberation had been delayed for more than one year, Gomez might have been the loser and Roño
the winner, for the Japanese currency might have further diminished in value. To this we would answer that Gomez would then be paid in the
same currency that was borrowed and during the same war time when the loan was extended. This would not be unusual, as the parties are
still under the very environments that surrounded the execution of the contract.
I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia:
The majority also hold that the contract here in question is aleatory. This is open to doubt. Aleatory contracts, or those depending on chance,
are covered by Title XII, Book IV, of the Civil Code. It is to be noted that, under article 1790, an aleatory contract involves the occurrence of
an event which is uncertain or will happen at an indeterminate time. Moreover, the contracts contemplated by the Code as being aleatory,
are grouped under insurance, contracts, gambling and betting, and life annuities. It follows that the contract now under consideration, which
is one of loan does not fall under any of those groups of aleatory contracts. At any rate, the contract of loan herein involved is clearly not
dependent upon any uncertain event. The loan was granted on a definite date and has to be paid on a definite date. Both dates are certain.
The payment of the loan has to be effected regardless of the result of the war.
As the contract in question contemplated that the payment is to be made in the same currency that was loaned, and the parties are presumed
never to have intended that said payment would be made in what has become valueless money, justice demands that the indebtedness be
paid in actual Philippine currency at an equivalent amount determined in the Ballantyne schedule, in the absence of evidence as to such
value. The exceptions mentioned in the Ballantyne schedule refers to contracts in which the obligation is payable by something other than
legal tender. Indeed, the majority in Hilado vs. De la Costa et al.,** G.R. No. L-150, decided on April 30, 1949, held that "what the debtor
should pay is the value of the Japanese war notes in relation the peso of Philippine currency obtaining on the date when at the place where
the obligation was incurred, unless the parties had agreed otherwise." This underscored clause undoubtedly contemplates an agreement to
pay in a consideration other than legal tender of the Philippines, such as gold dollars, pounds sterling, Spanish pesetas, or the like. It cannot
be otherwise, since if the intention is merely to pay in legal tenders, no express stipulation is necessary, because under section 1612 of the
Revised Administrative Code, the Philippine currency is the legal tender for all debts.
In reiteration of my stand in the case of Roño vs. Gomez, supra, I wish to emphasize that to require the herein respondent to pay the sum of
P5,000 actual Philippine currency, in return for an indebtedness obtained in Japanese military notes equivalent in actual Philippine currency
according to the Ballantyne schedule, to only P790.26 as found by the Court of Appeals, is unconscionable.
In my considered opinion, the appealed judgment should at most be affirmed.

[G.R. No. 136913. May 12, 2000]

ANITA C. BUCE, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C.
TIONGCO and ARACELI TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M.
TIONGCO, respondents.
DECISION
DAVIDE, JR., C.J.: Ncm
The basic issue in this petition is whether the parties intended an automatic renewal of the lease contract[1] when they agreed that the lease shall be for
a period of fifteen years "subject to renewal for another ten (10) years."

Petitioner leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan, Manila. The lease contract was for a period
of fifteen years to commence on 1 June 1979 and to end on 1 June 1994 "subject to renewal for another ten (10) years, under the same
terms and conditions." Petitioner then constructed a building and paid the required monthly rental of P200. Private respondents, through their
administrator Jose Tiongco, later demanded a gradual increase in the rental until it reached P400 in 1985. For July and August 1991, petitioner
paid private respondents P1,000 as monthly rental.[2]
On 6 December 1991, private respondents counsel wrote petitioner informing her of the increase in the rent to P1,576.58 effective January
1992 pursuant to the provisions of the Rent Control Law.[3] Petitioner, however, tendered checks dated 5 October 1991,[4] 5 November 1991,[5] 5 December 1991,[6]
5 January 1992,[7] 31 May 1992,[8] and 2 January 1993[9] for only P400 each, payable to Jose Tiongco as administrator. As might be expected, private respondents refused to accept
the same.

On 9 August 1993, petitioner filed with the Regional Trial Court of Manila a complaint for specific performance with prayer for consignation,
which was docketed as Civil Case No. 93-67135. She prayed that private respondents be ordered to accept the rentals in accordance with
the lease contract and to respect the lease of fifteen years, which was renewable for another ten years, at the rate of P200 a month.
In their Answer, private respondents countered that petitioner had already paid the monthly rent of P1,000 for July and August 1991. Under
Republic Act No. 877, as amended, rental payments should already be P1,576.58[10] per month; hence, they were justified in refusing the checks for P400
that petitioner tendered. Moreover, the phrase in the lease contract authorizing renewal for another ten years does not mean automatic
renewal; rather, it contemplates a mutual agreement between the parties. Ncmmis
During the pendency of the controversy, counsel for private respondents wrote petitioner reminding her that the contract expired on 1 June
1994 and demanding that she pay the rentals in arrears, which then amounted to P33,000.
On 29 August 1995, the RTC declared the lease contract automatically renewed for ten years and considered as evidence thereof (a) the
stipulations in the contract giving the lessee the right to construct buildings and improvements and (b) the filing by petitioner of the complaint
almost one year before the expiration of the initial term of fifteen years. It then fixed the monthly rent at P400 from 1 June 1990 to 1 June
1994; P1,000 from 1 June 1994 until 1 June 1999; and P1,500 for the rest of the period or from 1 June 2000 to 1 June 2004, reasoning that
the continuous increase of rent from P200 to P250 then P300, P400 and finally P1,000 caused "an inevitable novation of their contract."[11]

On appeal, the Court of Appeals reversed the decision of the RTC, and ordered petitioner to immediately vacate the leased premises on the
ground that the contract expired on 1 June 1994 without being renewed and to pay the rental arrearages at the rate of P1,000 monthly.[12]
According to the Court of Appeals, the phrase in the contract "this lease shall be for a period of fifteen (15) years effective June 1, 1979,
subject to renewal for another ten (10) years, under the same terms and conditions" is unclear as to who may exercise the option to renew.
The stipulation allowing the construction of a building and other improvements and the fact that the complaint was filed a year before the
expiration of the contract are not indicative of automatic renewal. It applied the ruling in Fernandez v. Court of Appeals[13] that without a stipulation
that the option to renew the lease is solely for the benefit of one party any renewal of a lease contract must be upon the agreement of the parties. Since private respondents were not
agreeable to an extension, the original term of the lease ended on 1 June 1994. Private respondents refusal to accept petitioners checks for P400
was justified because
although the original contract specified a monthly rental of P200, the tender and acceptance of the increased rental of P1,000 novated the
contract of lease; thus, petitioner was estopped from claiming that the monthly rental is otherwise.
The Court of Appeals denied petitioners motion for reconsideration. Hence this petition. Scncm
Petitioner contends that by ordering her to vacate the premises, the Appellate Court went beyond the bounds of its authority because the
case she filed before the RTC was for "Specific Performance" not unlawful detainer. The power to order the lessee to vacate the leased
premises is lodged in another forum. Additionally, private respondents did not pray for the ejectment of petitioners from the leased premises
in their Answer with Counterclaim; well-settled is the rule that a court cannot award relief not prayed for in the complaint or compulsory
counterclaim.
Petitioner further maintains that the phrase "renewable for another ten years at the option of both parties" in the Fernandez case clearly
indicated the intention of the parties to renew the contract only upon mutual agreement. Whereas in this case the contract states, "[T]his
lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms
and conditions," making this stipulation subject to interpretation with due regard to the contemporaneous and subsequent acts of the parties.
The stipulation in the contract allowing the lessee to construct buildings and improvements; her filing of the complaint a year before the
expiration of the initial 15-year term; and private respondents acceptance of the increased rental are contemporaneous and subsequent acts
that signify the intention of the parties to renew the contract.

On the other hand, private respondents aver that even if the original petition filed before the RTC was not for unlawful detainer, the order of
the Court of Appeals requiring petitioner to vacate the premises is but a logical consequence of its finding that the lease contract had expired.
To require another litigation would constitute multiplicity of suits; besides, petitioner has no other reason to stay in the premises. There is no
basis why Fernandez should not be applied to the case at bar. Absent contrary stipulation in reciprocal contracts, the period of lease is
deemed to be for the benefit of both parties. Sdaamiso
Private respondents argue that the alleged contemporaneous and subsequent acts do not determine the real intention of the parties as
regards renewal of the lease contract. Had they intended an automatic renewal of the lease contract they would have agreed on a 25-year
period instead. Correlatively, private respondents letter reminding petitioner of the expiration of the contract on 1 June 1994 and demanding
payment of the rentals in arrears signifies that they are no longer interested in renewing the contract. Also petitioners refusal to pay the
increased rental of P1,000 as early as 1991 and private respondents refusal to accept the P400 tendered constituted a disagreement on the
rate of rental; hence, any renewal is out of the question.
The basic issue, as agreed upon by the parties, is the correct interpretation of the contract provision "this lease shall be for a period of fifteen
(15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms and conditions."
The literal meaning of the stipulations shall control if the terms of the contract are clear and leave no doubt upon the intention of the contracting
parties.[14] However, if the terms of the agreement are ambiguous resort is made to contract interpretation which is the determination of the meaning attached to written or spoken
words that make the contract.[15] Also, to ascertain the true intention of the parties, their actions, subsequent or contemporaneous, must be principally considered.[16]
The phrase "subject to renewal for another ten (10) years" is unclear on whether the parties contemplated an automatic renewal or extension
of the term, or just an option to renew the contract; and if what exists is the latter, who may exercise the same or for whose benefit it was
stipulated.
In this jurisdiction, a fine delineation exists between renewal of the contract and extension of its period. Generally, the renewal of a contract
connotes the death of the old contract and the birth or emergence of a new one. A clause in a lease providing for an extension operates of
its own force to create an additional term, but a clause providing for a renewal merely creates an obligation to execute a new lease contract
for the additional term. As renewal of the contract contemplates the cessation of the old contract, then it is necessary that a new one be
executed between the parties.[17] Sdaad
There is nothing in the stipulations in the contract and the parties actuation that shows that the parties intended an automatic renewal or
extension of the term of the contract. Even the RTC conceded that the issue of automatic renewal is debatable. The fact that the lessee was
allowed to introduce improvements on the property is not indicative of the intention of the lessors to automatically extend the contract.
Considering the original 15-year duration of the contract, structures would have necessarily been constructed, added, or built on the property,
which in its previous state was an idle 56-square meter lot in the heart of Manila. Petitioner leased the property for the purpose of turning it
into a commercial establishment and to which it has been transformed as Anitas Grocery and Store. Neither the filing of the complaint a year
before the expiration of the 15-year term nor private respondents acceptance of the increased rentals has any bearing on the intention of the
parties regarding renewal. It must be recalled that the filing of the complaint was even spawned by private respondents refusal to accept the
payment of monthly rental in the amount of only P400.
Now on the applicability of Fernandez v. Court of Appeals to the case at bar. Although the factual scenario in that case with regard to the
renewal option is slightly off-tangent to the case under consideration because the intention of the parties therein for future mutual agreement
was clearly discernible in their contract, we cannot completely disregard the pronouncement of this Court in that case; thus:
[I]n a reciprocal contract like a lease, the period must be deemed to have been agreed upon for the benefit of both parties,
absent language showing that the term was deliberately set for the benefit of the lessee or lessor alone.[18] We are not aware of any
presumption in law that the term was deliberately set for the benefit of the lessee alone . Koh and Cruzin effect rested upon such a presumption.
But that presumption cannot reasonably be indulged in casually in an era of rapid economic change, marked by, among other
things, volatile costs of living and fluctuations in the value of domestic currency. The longer the period the more clearly
unreasonable such a presumption would be. In an age like that we live in, very specific language is necessary to show an
intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone or to the lessor alone for that
matter.[19] Scsdaad
In the case at bar, it was not specifically indicated who may exercise the option to renew, neither was it stated that the option was given for
the benefit of herein petitioner. Thus, pursuant to theFernandez ruling and Article 1196 of the Civil Code, the period of the lease contract is
deemed to have been set for the benefit of both parties. Renewal of the contract may be had only upon their mutual agreement or at the will
of both of them. Since the private respondents were not amenable to a renewal, they cannot be compelled to execute a new contract when
the old contract terminated on 1 June 1994. It is the owner-lessors prerogative to terminate the lease at its expiration.[20] The continuance, effectivity
and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not,
completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of
the contract would be dictated solely by the lessee.[21]

After the lease terminated on 1 June 1994 without any agreement for renewal being reached, petitioner became subject to ejectment from
the premises.[22] It must be noted, however, that private respondents did not include in their Answer with Counterclaim a prayer for the restoration of possession of the leased
premises. Neither did they file with the proper Metropolitan Trial Court an unlawful detainer suit[23] against petitioner after the expiration of the lease contact. Moreover, the issues agreed
upon by the parties to be resolved during the pre-trial were the correct interpretation of the contract and the validity of private respondents refusal to accept petitioners payment of P400
as monthly rental.[24] They later limited the issue to the first, i.e., the correct interpretation of the contract.[25] The issue of possession of the leased premises was not
among the issues agreed upon by the parties or threshed out before the court a quo. Neither was it raised by private respondents on appeal.

Accordingly, as correctly contended by the petitioner, the Court of Appeals went beyond the bounds of its authority[26] when after interpreting the
questioned provision of the lease contract in favor of the private respondents it proceeded to order petitioner to vacate the subject premises.

WHEREFORE, the instant petition is partly GRANTED. The assailed decision of the Court of Appeals is REVERSED insofar as it ordered
the petitioner to immediately vacate the leased premises, without prejudice, however, to the filing by the private respondents of an action for
the recovery of possession of the subject property.
No costs.
SO ORDERED. DAVIDE, JR.

G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.
Araneta and Araneta for petitioner.
Rosauro Alvarez and Ernani Cruz Paño for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R, affirming with modification, an amendatory
decision of the Court of First Instance of Manila, in its Civil Case No. 36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff,
versus J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as the Sta. Mesa Heights Subdivision, and
covered by a Torrens title in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area
of 43,034.4 square meters, more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties
stipulated, among in the contract of purchase and sale with mortgage, that the buyer will —
Build on the said parcel land the Sto. Domingo Church and Convent
while the seller for its part will —
Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets on all four
sides; and the street on the NE side shall be named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo Church and Convent, but the seller,
Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction of the street in the Northeast side named
(Sto. Domingo Avenue) because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a middle part
thereof, refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M.
Tuason & Co., Inc., and instance, seeking to compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of
sale, and/or to pay damages in the event they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter particularly setting up the principal
defense that the action was premature since its obligation to construct the streets in question was without a definite period which needs to
he fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper.
The issues having been joined, the lower court proceeded with the trial, and upon its termination, it dismissed plaintiff's complaint (in a
decision dated May 31, 1960), upholding the defenses interposed by defendant Gregorio Araneta, Inc.1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within which defendants will comply with their
obligation to construct the streets in question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not expressly or impliedly allege and pray
for the fixing of a period to comply with its obligation and that the evidence presented at the trial was insufficient to warrant the fixing of such
a period.
On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of such a period," issued an order granting
plaintiff's motion for reconsideration and amending the dispositive portion of the decision of May 31, 1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a period of two (2) years from notice hereof, within
which to comply with its obligation under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which motion, plaintiff opposed.
On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter perfected its appeal Court of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief granted, i.e., fixing of a period, under the
amendatory decision of July 16, 1960, was not justified by the pleadings and not supported by the facts submitted at the trial of the case in
the court below and that the relief granted in effect allowed a change of theory after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that the fixing of a period was within the pleadings and that there was no true
change of theory after the submission of the case for decision since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said
issue by alleging in paragraph 7 of the affirmative defenses contained in its answer which reads —
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a reasonable time within which to comply with its obligations
to construct and complete the streets on the NE, NW and SW sides of the lot in question; that under the circumstances, said reasonable time
has not elapsed;
Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not decisive in the resolution of the legal
issues posed in the instant appeal before us, said appellate court rendered its decision dated December 27, 1963, the dispositive part of
which reads —
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given two (2) years from the date of finality of this
decision to comply with the obligation to construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same would
be a block surrounded by streets on all four sides.
Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc. resorted to a petition for review by
certiorari to this Court. We gave it due course.
We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of First Instance is legally untenable. The
fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that petitioner
(defendant below) placed the absence of a period in issue by pleading in its answer that the contract with respondent Philippine Sugar Estates
Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to construct and
complete the streets." Neither of the courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue was
not whether the court should fix the time of performance, but whether or not the parties agreed that the petitioner should have reasonable
time to perform its part of the bargain. If the contract so provided, then there was a period fixed, a "reasonable time;" and all that the court
should have done was to determine if that reasonable time had already elapsed when suit was filed if it had passed, then the court should
declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting damages. On the other hand, if the
reasonable time had not yet elapsed, the court perforce was bound to dismiss the action for being premature. But in no case can it be logically
held that under the plea above quoted, the intervention of the court to fix the period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and the trial court's
amended decision nowhere declared any such fact) still, the complaint not having sought that the Court should set a period, the court could
not proceed to do so unless the complaint in as first amended; for the original decision is clear that the complaint proceeded on the theory
that the period for performance had already elapsed, that the contract had been breached and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of performance, still the amended decision is defective in that no basis
is stated to support the conclusion that the period should be set at two years after finality of the judgment. The list paragraph of Article 1197
is clear that the period can not be set arbitrarily. The law expressly prescribes that —
the Court shall determine such period as may under the circumstances been probably contemplated by the parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the proven facts precisely warrant the fixing of
such a period," a statement manifestly insufficient to explain how the two period given to petitioner herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must first determine that "the obligation does
not fix a period" (or that the period is made to depend upon the will of the debtor)," but from the nature and the circumstances it can be
inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to the second step,
and decide what period was "probably contemplated by the parties" (Do., par. 3). So that, ultimately, the Court can not fix a period merely
because in its opinion it is or should be reasonable, but must set the time that the parties are shown to have intended. As the record stands,
the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are mentioned to support
it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the parties were fully aware that the land described therein was
occupied by squatters, because the fact is expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties
must have known that they could not take the law into their own hands, but must resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. The
conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters
were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. Yet, the circumstances admit no
other reasonable view; and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of
performance.
It follows that there is no justification in law for the setting the date of performance at any other time than that of the eviction of the squatters
occupying the land in question; and in not so holding, both the trial Court and the Court of Appeals committed reversible error. It is not denied
that the case against one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in this case was rendered.
In view of the foregoing, the decision appealed from is reversed, and the time for the performance of the obligations of petitioner Gregorio
Araneta, Inc. is hereby fixed at the date that all the squatters on affected areas are finally evicted therefrom.
 THIRD DIVISION

G.R. No. 206806, June 25, 2014

ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS, Petitioners, v. DAN T. LIM, DOING BUSINESS UNDER THE NAME AND STYLE OF
QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES, Respondent.

DECISION

LEONEN, J.:

Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may be implied only if the old and new contracts
are incompatible on every point.

Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G.R. CV No. 95709, which stemmed from a complaint3 filed in the
Regional Trial Court of Valenzuela City, Branch 171, for collection of sum of money.

The facts are as follows:

Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name Quality Paper and Plastic Products, Enterprises,
to factories engaged in the paper mill business.4From February 2007 to March 2007, he delivered scrap papers worth P7,220,968.31 to Arco Pulp and Paper
Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and President, Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper
would either pay Dan T. Lim the value of the raw materials or deliver to him their finished products of equivalent value. 6cralawred

in the amount of P1,487,766.68 as partial payment, with the

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated April 18, 20077
assurance that the check would not bounce.8 When he deposited the check on April 18, 2007, it was dishonored for being drawn against a closed account.9cralawred

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10where
Arco Pulp and Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his account. According to the memorandum, the raw materials would be supplied by Dan T. Lim, through
his company, Quality Paper and Plastic Products. The memorandum of agreement reads as follows: chanRoblesvirtualLawlibrary

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner
150/175 GSM, full width 76 inches at the price of P18.50 per kg. to Megapack Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:

. . . .

It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by Quality Paper & Plastic Products
Ent., total of 600 Metric Tons at P6.50 per kg. (price subject to change per advance notice). Quantity of Local OCC delivery will be based on the quantity of Test
Liner delivered to Megapack Container Corp. based on the above production schedule. 11
On May 5, 2007, Dan T. Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of ?7,220,968.31, but no payment was made to him.13cralawred

for collection of sum of money with prayer for attachment with the Regional Trial Court, Branch 171, Valenzuela City, on May 28, 2007.
Dan T. Lim filed a complaint14
Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his
evidence ex parte.16cralawred

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of
agreement, novation took place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim. 17cralawred

the judgment with the Court of Appeals. According to him, novation did not take place since the memorandum of agreement between Arco Pulp
Dan T. Lim appealed18
and Paper and Eric Sy was an exclusive and private agreement between them. He argued that if his name was mentioned in the contract, it was only for supplying
the parties their required scrap papers, where his conformity through a separate contract was indispensable.19cralawred

rendered a decision21 reversing and setting aside the judgment dated September 19, 2008 and ordering Arco Pulp and Paper
On January 11, 2013, the Court of Appeals20
to jointly and severally pay Dan T. Lim the amount of P7,220,968.31 with interest at 12% per annum from the time of demand; P50,000.00 moral damages;
P50,000.00 exemplary damages; and P50,000.00 attorney’s fees.22cralawred

The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation.23 It also ruled that Dan T. Lim was entitled to damages and
attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking. 24cralawred

Its motion for reconsideration25 having been denied,26 Arco Pulp and Paper and its President and Chief Executive Officer, Candida A. Santos, bring this petition for review
on certiorari.

On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation since Eric Sy became the
new debtor of respondent. They also argue that there is no legal basis to hold petitioner Candida A. Santos personally liable for the transaction that petitioner
corporation entered into with respondent. The Court of Appeals, they allege, also erred in awarding moral and exemplary damages and attorney’s fees to
respondent who did not show proof that he was entitled to damages. 27
cralawred

Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper novation in this case. He argues that the Court of Appeals was correct in ordering the payment of
?7,220,968.31 with damages since the debt of petitioners remains unpaid. 28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since
petitioner Candida A. Santos was “the prime mover for such outstanding corporate liability.”29cralawred

In their reply, petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. They also argue that when respondent allowed
them to deliver the finished products to Eric Sy, the original obligation was novated. 30cralawred

A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC dated November 21, 2000.31cralawred

The issues to be resolved by this court are as follows:chanRoblesvirtualLawlibrary

1. Whether the obligation between the parties was extinguished by novation

2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.

3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded

The petition is denied.

The obligation between the

parties was an alternative
obligation

The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:chanRoblesvirtualLawlibrary

Article 1199. A person alternatively bound by different prestations shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other undertaking.

“In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by the choice of the debtor who generally has the
right of election.”32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice
known.33 The choice of the debtor must also be communicated to the creditor who must receive notice of it since: chanRoblesvirtualLawlibrary

The object of this notice is to give the creditor . . . opportunity to express his consent, or to impugn the election made by the debtor, and only after said notice
shall the election take legal effect when consented by the creditor, or if impugned by the latter, when declared proper by a competent court.34

According to the factual findings of the trial court and the appellate court, the original contract between the parties was for respondent to deliver scrap papers
worth P7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner
Arco Pulp and Paper, as the debtor, had the option to either (1) pay the price or (2) deliver the finished products of equivalent value to respondent.35cralawred

The appellate court, therefore, correctly identified the obligation between the parties as an alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would
either pay him the price of the raw materials or, in the alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, they exercised their option to pay the price.
Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay.

This choice was also shown by the terms of the memorandum of agreement, which was executed on the same day. The memorandum declared in clear terms
that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person, thereby extinguishing the option to deliver the finished products
of equivalent value to respondent.

The memorandum of
agreement did not constitute
a novation of the original
contract

The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between the parties. When petitioner
Arco Pulp and Paper opted instead to deliver the finished products to a third person, it did not novate the original obligation between the parties.

The rules on novation are outlined in the Civil Code, thus:chanRoblesvirtualLawlibrary

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with each other. (1204)

Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will
of the latter, but not without the consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. (1205a)

Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor. It occurs
only when the new contract declares so “in unequivocal terms” or that “the old and the new obligations be on every point incompatible with each other.”36cralawred

Novation was extensively discussed by this court in Garcia v. Llamas:37cralawred

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the
old one, or by subrogating a third person to the rights of the creditor. Article 1293 of the Civil Code defines novation as follows:

“Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.”

In general, there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion. In expromision, the initiative for the change does
not come from — and may even be made without the knowledge of — the debtor, since it consists of a third person’s assumption of the obligation. As such, it
logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the
consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the
place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory
agreement. Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective
or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective
or personal novation. For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible with the old one on every point. The test of incompatibility is whether the
two obligations can stand together, each one with its own independent existence.38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it is never presumed, thus:chanRoblesvirtualLawlibrary

In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence, the principle — novatio non
praesumitur — that novation is never presumed. At bottom, for novation to be a jural reality, its animus must be ever present, debitum pro debito —
basically extinguishing the old obligation for the new one.39 (Emphasis supplied)

There is nothing in the memorandum of agreement that states that with its execution, the obligation of petitioner Arco Pulp and Paper to respondent would be
extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. It merely shows that petitioner Arco
Pulp and Paper opted to deliver the finished products to a third person instead.

The consent of the creditor must also be secured for the novation to be valid: chanRoblesvirtualLawlibrary
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement.40 (Emphasis supplied)

In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract need not be secured. This is clear from the first
line of the memorandum, which states:chanRoblesvirtualLawlibrary

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . . 41

If the memorandum of agreement was intended to novate the original agreement between the parties, respondent must have first agreed to the substitution of
Eric Sy as his new debtor. The memorandum of agreement must also state in clear and unequivocal terms that it has replaced the original obligation of petitioner
Arco Pulp and Paper to respondent. Neither of these circumstances is present in this case.

Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. When
respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former neither acknowledged nor consented to the
latter as his new debtor. These acts, when taken together, clearly show that novation did not take place.

Since there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must
still pay respondent the full amount of P7,220,968.31.

Petitioners are liable for damages

Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad
faith:chanRoblesvirtualLawlibrary

Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied)

Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith. As this court
stated:chanRoblesvirtualLawlibrary
Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the party from whom it is claimed acted fraudulently
or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.42

Further, the following requisites must be proven for the recovery of moral damages: chanRoblesvirtualLawlibrary

An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical, mental or psychological,
clearly sustained by the claimant; (2) second, there must be culpable act or omission factually established; (3)third, the wrongful act or omission of the defendant
is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.43

Here, the injury suffered by respondent is the loss of P7,220,968.31 from his business. This has remained unpaid since 2007. This injury undoubtedly was caused
by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations.

When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded check but also entered into a contract with a third
person in an effort to evade its liability. This proves the third requirement.

As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances: chanRoblesvirtualLawlibrary

Article 2219. Moral damages may be recovered in the following and analogous cases:ChanRoblesVirtualawlibrary

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party breaches a contract, he or she goes against Article 19
of the Civil Code, which states:chanRoblesvirtualLawlibrary
Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and
good faith.

Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. Failure to do so results in an abuse of that
right, which may become the basis of an action for damages. Article 19, however, cannot be its sole basis:chanRoblesvirtualLawlibrary

Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an actionable tort. Article 19 describes the degree of
care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21.44

Article 20 and 21 of the Civil Code are as follows:chanRoblesvirtualLawlibrary

Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are contrary to morals, good customs, and public
policy:chanRoblesvirtualLawlibrary

Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been willful or negligent. Willful may refer to the
intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as injurious. Negligence may refer to a situation
where the act was consciously done but without intending the result which the plaintiff considers as injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily proscribed by law. This article requires that the act be
willful, that is, that there was an intention to do the act and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around whether
such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care
required in Article 19.45

When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk of violating Article 1159 of the Civil
Code:chanRoblesvirtualLawlibrary
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since it only specifies, among others, Article 21. When
a party reneges on his or her obligations arising from contracts in bad faith, the act is not only contrary to morals, good customs, and public policy; it is also a
violation of Article 1159. Breaches of contract become the basis of moral damages, not only under Article 2220, but also under Articles 19 and 20 in relation to
Article 1159.

Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the breach be done fraudulently or in bad faith. In
Adriano v. Lasala:46cralawred

To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless and malicious, in bad faith, oppressive, or abusive.
Hence, the person claiming bad faith must prove its existence by clear and convincing evidence for the law always presumes good faith.

Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach
of known duty through some motive or interest or ill will that partakes of the nature of fraud. It is, therefore, a question of intention, which can be inferred from
one’s conduct and/or contemporaneous statements.47 (Emphasis supplied)

Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the circumstances in each case.

When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was presumably with the knowledge that it was being
drawn against a closed account. Worse, it attempted to shift their obligations to a third person without the consent of respondent.

Petitioner Arco Pulp and Paper’s actions clearly show “a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty
through some motive or interest or ill will that partakes of the nature of fraud.”48 Moral damages may, therefore, be awarded.

Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following circumstances: chanRoblesvirtualLawlibrary

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated.

Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral, temperate or compensatory
damages before the court may consider the question of whether or not exemplary damages should be awarded.
In Tankeh v. Development Bank of the Philippines,49 we stated that:chanRoblesvirtualLawlibrary

The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. The case
of People v. Rante citing People v. Dalisay held that:ChanRoblesVirtualawlibrary

Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings,
and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct.
These terms are generally, but not always, used interchangeably. In common law, there is preference in the use of exemplary damages when the award is to
account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly
inflicted, the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such
circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The
terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous
conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future.50 (Emphasis
supplied; citations omitted)

The requisites for the award of exemplary damages are as follows:ChanRoblesVirtualawlibrary

(1) they may be imposed by way of example in addition to compensatory

damages, and only after the claimant's right to them has been
established;
(2) that they cannot be recovered as a matter of right, their determination
depending upon the amount of compensatory damages that may be
awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton,
fraudulent, oppressive or malevolent manner.51

Business owners must always be forthright in their dealings. They cannot be allowed to renege on their obligations, considering that these obligations were freely
entered into by them. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.

Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered. Article 2208 of the Civil Code
states:chanRoblesvirtualLawlibrary
Article 2208. 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[.]

Petitioner Candida A. Santos

is solidarily liable with petitioner
corporation

Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was also a
personal undertaking of petitioner Santos. We disagree.

In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:chanRoblesvirtualLawlibrary

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and
in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers
and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations incurred
by the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues.

. . . .

Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.

While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of
fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues if the findings of the lower
court are not supported by the evidence on record or are based on a misapprehension of facts.53 (Emphasis supplied)

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. However, this veil
of corporate fiction may be pierced if complainant is able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and (2) such negligence
or bad faith was clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper. She also
issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face of
the check bearing the account name, “Arco Pulp & Paper, Co., Inc.”54 Any obligation arising from these acts would not, ordinarily, be petitioner Santos’ personal
undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines:55cralawred

Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused
or used for wrongful purposes. Under the doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.56 (Emphasis supplied)

According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper, stating that:chanRoblesvirtualLawlibrary

In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent].
After the check in the amount of P1,487,766.68 issued by [petitioner] Santos was dishonored for being drawn against a closed account, [petitioner] corporation
denied any privity with [respondent]. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights.57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate veil. When petitioner Arco Pulp and Paper’s obligation to
respondent became due and demandable, she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp
and Paper’s liability. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. These acts clearly amount to bad faith. In this instance,
the corporate veil may be pierced, and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.

The rate of interest due on

the obligation must be reduced
in view of Nacar v. Gallery
Frames58cralawred

In view, however, of the promulgation by this court of the decision dated August 13, 2013 inNacar v. Gallery Frames,59 the rate of interest due on the obligation must be modified from
12% per annum to 6% per annum from the time of demand.

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals,60 and we have laid down the following guidelines with regard to the rate
of legal interest:chanRoblesvirtualLawlibrary

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-
MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable
damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the
discretion of the courtat the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation of P7,220,968.31 should now be at 6% per annum, computed from May 5, 2007, when respondent
sent his letter of demand to petitioners. This interest shall continue to be due from the finality of this decision until its full satisfaction.

WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent Dan T. Lim the amount of P7,220,968.31 with
interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction, with moral damages in the amount of P50,000.00, exemplary
damages in the amount of P50,000.00, and attorney’s fees in the amount of P50,000.00.

SO ORDERED.