Cases To Read

Sagrada Orden de Predicadores de Filipinas vs.
National Coconut
Corporation.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-3756 June 30, 1952
SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-

appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.
First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for
appellant.
Ramirez and Ortigas for appellee.
LABRADOR, J.:
This is an action to recover the possession of a piece of real property (land and warehouses) situated in
Pandacan Manila, and the rentals for its occupation and use. The land belongs to the plaintiff, in whose
name the title was registered before the war. On January 4, 1943, during the Japanese military
occupation, the land was acquired by a Japanese corporation by the name of Taiwan Tekkosho for the
sum of P140,00, and thereupon title thereto issued in its name (transfer certificate of title No. 64330,
Register of Deeds, Manila). After liberation, more specifically on April 4, 1946, the Alien Property
Custodian of the United States of America took possession, control, and custody thereof under section 12
of the Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged to an enemy national.
During the year 1946 the property was occupied by the Copra Export Management Company under a
custodianship agreement with United States Alien Property Custodian (Exhibit G), and when it vacated
the property it was occupied by the defendant herein. The Philippine Government made representations
with the Office Alien Property Custodian for the use of property by the Government (see Exhibits 2, 2-A,
2-B, and 1). On March 31, 1947, the defendant was authorized to repair the warehouse on the land, and
actually spent thereon the repairs the sum of P26,898.27. In 1948, defendant leased one-third of the
warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month.
Sarile did not pay the rents, so action was brought against him. It is not shown, however, if the judgment
was ever executed.
Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as this
was denied, it brought an action in court (Court of First Instance of Manila, civil case No. 5007, entitled
"La Sagrada Orden Predicadores de la Provinicia del Santisimo Rosario de Filipinas," vs. Philippine Alien
Property Administrator, defendant, Republic of the Philippines, intervenor) to annul the sale of property
of Taiwan Tekkosho, and recover its possession. The Republic of the Philippines was allowed to intervene
in the action. The case did not come for trial because the parties presented a joint petition in which it is
claimed by plaintiff that the sale in favor of the Taiwan Tekkosho was null and void because it was
executed under threats, duress, and intimidation, and it was agreed that the title issued in the name of the
Taiwan Tekkosho be cancelled and the original title of plaintiff re-issued; that the claims, rights, title, and
interest of the Alien Property Custodian be cancelled and held for naught; that the occupant National
Coconut Corporation has until February 28, 1949, to recover its equipment from the property and vacate
the premises; that plaintiff, upon entry of judgment, pay to the Philippine Alien Property Administration
the sum of P140,000; and that the Philippine Alien Property Administration be free from responsibility or
liability for any act of the National Coconut Corporation, etc. Pursuant to the agreement the court
rendered judgment releasing the defendant and the intervenor from liability, but reversing to the plaintiff
the right to recover from the National Coconut Corporation reasonable rentals for the use and occupation
of the premises. (Exhibit A-1.)
The present action is to recover the reasonable rentals from August, 1946, the date when the defendant
began to occupy the premises, to the date it vacated it. The defendant does not contest its liability for the
rentals at the rate of P3,000 per month from February 28, 1949 (the date specified in the judgment in civil
case No. 5007), but resists the claim therefor prior to this date. It interposes the defense that it occupied
the property in good faith, under no obligation whatsoever to pay rentals for the use and occupation of the
warehouse. Judgment was rendered for the plaintiff to recover from the defendant the sum of P3,000 a
month, as reasonable rentals, from August, 1946, to the date the defendant vacates the premises. The
judgment declares that plaintiff has always been the owner, as the sale of Japanese purchaser was void ab
initio; that the Alien Property Administration never acquired any right to the property, but that it held the
same in trust until the determination as to whether or not the owner is an enemy citizen. The trial court
further declares that defendant can not claim any better rights than its predecessor, the Alien Property
Administration, and that as defendant has used the property and had subleased portion thereof, it must
pay reasonable rentals for its occupation.
Against this judgment this appeal has been interposed, the following assignment of error having been
made on defendant-appellant's behalf:
The trial court erred in holding the defendant liable for rentals or compensation for the use and
occupation of the property from the middle of August, 1946, to December 14, 1948.
1. Want to "ownership rights" of the Philippine Alien Property Administration did not render
illegal or invalidate its grant to the defendant of the free use of property.
2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff to the
Japanese purchaser null and void ab initio and that the plaintiff was and has remained as the
legal owner of the property, without legal interruption, is not conclusive.
3. Reservation to the plaintiff of the right to recover from the defendant corporation not binding
on the later;
4. Use of the property for commercial purposes in itself alone does not justify payment of rentals.
5. Defendant's possession was in good faith.
6. Defendant's possession in the nature of usufruct.
In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration (PAPA)
was a mere administrator of the owner (who ultimately was decided to be plaintiff), and that as defendant
has used it for commercial purposes and has leased portion of it, it should be responsible therefore to the
owner, who had been deprived of the possession for so many years. (Appellee's brief, pp. 20, 23.)
We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of the
property and the defendant-appellant the occupant, which used for its own benefit but by the express
permission of the Alien Property Custodian of the United States, so easily jumped to the conclusion that
the occupant is liable for the value of such use and occupation. If defendant-appellant is liable at all, its
obligations, must arise from any of the four sources of obligations, namley, law, contract or quasi-
contract, crime, or negligence. (Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any
offense at all, because it entered the premises and occupied it with the permission of the entity which had
the legal control and administration thereof, the Allien Property Administration. Neither was there any
negligence on its part. There was also no privity (of contract or obligation) between the Alien Property
Custodian and the Taiwan Tekkosho, which had secured the possession of the property from the plaintiff-
appellee by the use of duress, such that the Alien Property Custodian or its permittee (defendant-
appellant) may be held responsible for the supposed illegality of the occupation of the property by the said
Taiwan Tekkosho. The Allien Property Administration had the control and administration of the property
not as successor to the interests of the enemy holder of the title, the Taiwan Tekkosho, but by express
provision of law (Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189).
Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of then Government
of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and
against the claim or title of, the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179
N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when defendant-appellant took
possession, to the late of judgment on February 28, 1948, Allien Property Administration had the absolute
control of the property as trustee of the Government of the United States, with power to dispose of it by
sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925],
5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant were liable to the Allien Property
Administration for rentals, these would not accrue to the benefit of the plaintiff-appellee, the owner, but
to the United States Government.
But there is another ground why the claim or rentals can not be made against defendant-appellant. There
was no agreement between the Alien Property Custodian and the defendant-appellant for the latter to pay
rentals on the property. The existence of an implied agreement to that effect is contrary to the
circumstances. The copra Export Management Company, which preceded the defendant-appellant, in the
possession and use of the property, does not appear to have paid rentals therefor, as it occupied it by what
the parties denominated a "custodianship agreement," and there is no provision therein for the payment
of rentals or of any compensation for its custody and or occupation and the use. The Trading with the
Enemy Act, as originally enacted, was purely a measure of conversation, hence, it is very unlikely that
rentals were demanded for the use of the property. When the National coconut Corporation succeeded the
Copra Export Management Company in the possession and use of the property, it must have been also
free from payment of rentals, especially as it was Government corporation, and steps where then being
taken by the Philippine Government to secure the property for the National Coconut Corporation. So that
the circumstances do not justify the finding that there was an implied agreement that the defendant-
appellant was to pay for the use and occupation of the premises at all.
The above considerations show that plaintiff-appellee's claim for rentals before it obtained the judgment
annulling the sale of the Taiwan Tekkosho may not be predicated on any negligence or offense of the
defendant-appellant, or any contract, express or implied, because the Allien Property Administration was
neither a trustee of plaintiff-appellee, nor a privy to the obligations of the Taiwan Tekkosho, its title being
based by legal provision of the seizure of enemy property. We have also tried in vain to find a law or
provision thereof, or any principle in quasi contracts or equity, upon which the claim can be supported.
On the contrary, as defendant-appellant entered into possession without any expectation of liability for
such use and occupation, it is only fair and just that it may not be held liable therefor. And as to the rents
it collected from its lessee, the same should accrue to it as a possessor in good faith, as this Court has
already expressly held. (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)
Lastly, the reservation of this action may not be considered as vesting a new right; if no right to claim for
rentals existed at the time of the reservation, no rights can arise or accrue from such reservation alone.
Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay rentals
from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the judgment is
affirmed. Costs of this appeal shall be against the plaintiff-appellee.
Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ, concur.
Sps Elvira & Cesar Dumlao vs. Marlon Realty Corp..

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 131491 August 17, 2007
SPOUSES ELVIRA AND CESAR DUMLAO, Petitioners,

vs.
MARLON REALTY CORPORATION, Respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision 1 dated August 25, 1997 and Resolution 2 dated November
13, 1997 rendered by the Court of Appeals in CA-G.R. SP No. 43366, entitled "MARLON REALTY
CORPORATION, petitioner, v. HON. JUDGE REGIONAL TRIAL COURT OF PARAÑAQUE, BRANCH
258 and ELVIRA D. DUMLAO, ET AL., respondents."
The following facts are undisputed:
On November 26, 1991, spouses Elvira and Cesar Dumlao, petitioners, and Marlon Realty Corporation,
respondent, entered into a Contract to Sell 3involving a 109 square meter lot in Welcome Village,
Parañaque City. The terms of payment are:
1. Petitioners shall pay respondent P218,000.00 as cost of the lot;
2. The sum of P61,000.00 shall be paid upon the signing of the contract; and
3. The balance of P157,000.00 shall be paid with interest at 24% per annum within six (6)
months.
Petitioners paid P61,000.00 as downpayment upon the signing of the contract. In the meantime, interest
began to accrue on the P157,000.00 balance of the purchase price.
On November 4, 1992, the Urban Bank informed respondent corporation that petitioners’ loan
of P148,000.00, intended as payment for their obligation, was approved. However, the bank imposed the
following conditions: the amount shall be released only after its mortgage lien shall have been registered
in the Registry of Deeds and annotated on petitioners’ land title; and that respondent must first execute a
deed of absolute sale in favor of petitioners.
On November 26, 1992, the parties entered into a Compromise Agreement 4 whereby petitioners agreed to
pay respondent, on or before March 26, 1993, the amount of P38,203.33 representing the accrued interest
as of that date on the P157,000.00 balance of the purchase price; and that respondent shall execute a
Deed of Sale to facilitate the transfer of title to petitioners. On the same day, petitioners paid the buyer’s
equity of P9,000.00.
On December 1, 1992, respondent, pursuant to the Compromise Agreement, executed a Deed of Sale 5 in
favor of petitioners. But they refused to pay the interest agreed upon despite respondent’s repeated
demand.
On January 26, 1995, respondent filed with the Metropolitan Trial Court (MTC), Branch 78, Parañaque
City a complaint for a sum of money against petitioners. The MTC, in its Decision 6 dated June 17, 1996,
dismissed the complaint, holding that it is for specific performance cognizable by the Regional Trial Court
(RTC).
On appeal by respondent, the RTC, Branch 258, Parañaque City rendered its Decision dated November 19,
1996 affirming the MTC judgment dismissing the complaint "not on the ground of lack of jurisdiction, but
for lack of cause of action." 7
Petitioners filed a motion for reconsideration but it was denied by the RTC in its Order of February 04,
1997.
On February 28, 1997, respondent filed with the Court of Appeals a petition for review. In its Decision
dated August 25, 1997, the appellate court held that respondent’s complaint is for a sum of money, the
Contract to Sell being a "unilateral acknowledgment of an existing debt" on petitioners’ part. The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, the petition is hereby given DUE COURSE and the assailed Decision
dated November 19, 1996 of the RTC of Parañaque, Branch 258, and its Order dated February 4, 1997
denying therein plaintiff’s Motion for Reconsideration, as well as the Decision dated June 17, 1996 of the
Metropolitan Trial Court of Parañaque, Branch 78, are REVERSED and SET ASIDE.
A new judgment is hereby entered ordering defendant spouses Cesar and Elvira Dumlao to pay the sum
of P109,929.79 representing the accumulated interests as of January 6, 1995 with interest at 2% per
month computed from January 6, 1995.
SO ORDERED.8
Petitioners filed a motion for reconsideration but it was denied by the Court of Appeals in its Resolution
dated November 13, 1997.
Hence, this petition.
The issue for our resolution is whether petitioners are liable to pay interest on the balance of the purchase
price.
Petitioners insist that they are not liable to pay interest since the loan proceeds were released, not to
petitioners, but directly to respondent; and that pending the release, no interest should accrue.
Petitioners’ arguments are misplaced.
Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.9 We must look into the terms of the contract to determine the respective
obligations of the parties thereto. If the terms of a contract are clear and leave no doubt upon the
contracting parties’ intention, then such terms should be applied in their literal meaning. 10
In this case, there is no question that the parties voluntarily entered into a Contract to Sell a parcel of
land. The terms of payment of the purchase price are clear and unambiguous, thus:
SECOND - That in consideration of the agreement to sell the above described property, the VENDEE
obligates himself/herself to pay the VENDOR the sum of TWO HUNDRED EIGHTEEN THOUSAND
(P218,000.00) PESOS, Philippine Currency from the date of execution of this contract until paid as
follows:
a) The amount of SIXTY ONE THOUSAND xxx (P61,000.00) PESOS when this contract is signed,
and
b) The balance of ONE HUNDRED FIFTY SEVEN THOUSAND ( P157,000.00) PESOS shall be
paid with interest at 24% per annum to be computed based on the outstanding and payable
balance, as of the date of downpayment, within a period of SIX (6) MONTHS x x x. Any
installment not paid on or before the due date, or within the grace period of five (5) days
thereafter, shall bear a penalty of 2%per month based on the remaining unpaid monthly
installments. Note: As per agreement, the amount of P148,000.00 is receivable thru an URBAN
BANK Letter of Guaranty (Pag-ibig Loan)
THIRD - That demand for payment by the VENDOR is not necessary to make the VENDEE incur delay
(default). Note: Buyer’s equity is P9,000.00.
Pursuant to the above agreement, it is clear that a 24% interest per annum on the balance of P157,000.00
shall be paid to respondent by petitioners. Having signed the contract, petitioners are bound to comply
with its terms and conditions in good faith. We reiterate that the contract is the law between them.
We observe that respondent, faithful to its part of the bargain, executed a deed of sale in favor of
petitioners. In fact, a Transfer Certificate of Title was already issued in their names. Fairness demands
that petitioners also fulfill their obligation to pay interest on the balance of the purchase price.
WHEREFORE, we DENY the petition. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 43366 are AFFIRMED.
Costs against petitioners.
SO ORDERED.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chairperson
RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Associate Justice
CANCIO C. GARCIA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Court’s Division.
REYNATO S. PUNO
Chief Justice
Moreover, that the P148,000.00 balance was payable through Pag-ibig Loan, is inconsequential. It should
be recalled that subsequent to their execution of the Contract to Sell, or on November 26, 1992, the parties
entered into another agreement denominated as Compromise Agreement. The fourth "whereas clause"
provides:
WHEREAS, the Second Party (Elvira D. Dumlao) has incurred an interest on her lot balance in the
amount of Thirty Eight Thousand Two Hundred Three & 33/100 (P38, 203.33) Pesos and has agreed to
pay this amount within four (4) months or on or before 26 March 1993 with an interest rate of two (2%)
percent monthly based on remaining interest balance; (emphases added)
Footnotes
1
Penned by Associate Justice Fermin A. Martin, Jr. (retired) and concurred in by Presiding
Justice Ruben T. Reyes (now a member of this Court) and Associate Justice Artemio G. Tuquero
(retired), Annex "A" of the petition, rollo, pp. 12-19.
2
Annex "B" of the petition, id., pp. 20-21.
3
Annex "C" of the petition, id., pp. 22-24.
4
Annex "D" of the petition, id., p. 25.
5
Annex "F" of the petition, id., pp. 110-112.
6
Annex "K" of the petition, id., p. 126.
7
Annex "L" of the petition, id., p. 128.
8
Annex "A" of the petition, id., p. 18.
9
Article 1159 of the New Civil Code of the Philippines; Almeda v. Court of Appeals, G.R. No.
113412, April 17, 1996, 256 SCRA 292.
10
Article 1370 of the New Civil Code of the Philippines; Pryce Corporation v. Philippine
Amusement and Gaming Corporation, G.R. No. 157480, May 6, 2005, 458 SCRA 164; Insular Life
Assurance Company, Ltd. v. Asset Builders Corporation, G.R. No. 147410, February 5, 2004, 422
SCRA 148.
Pedro Elcano vs. Reginald Hill

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-24803 May 26, 1977
PEDRO ELCANO and PATRICIA ELCANO, in their capacity as Ascendants of Agapito

Elcano, deceased, plaintiffs-appellants,
vs.
REGINALD HILL, minor, and MARVIN HILL, as father and Natural Guardian of said
minor, defendants-appellees.
Cruz & Avecilla for appellants.
Marvin R. Hill & Associates for appellees.
BARREDO, J.:
Appeal from the order of the Court of First Instance of Quezon City dated January 29, 1965 in Civil Case
No. Q-8102, Pedro Elcano et al. vs. Reginald Hill et al. dismissing, upon motion to dismiss of defendants,
the complaint of plaintiffs for recovery of damages from defendant Reginald Hill, a minor, married at the
time of the occurrence, and his father, the defendant Marvin Hill, with whom he was living and getting
subsistence, for the killing by Reginald of the son of the plaintiffs, named Agapito Elcano, of which, when
criminally prosecuted, the said accused was acquitted on the ground that his act was not criminal, because
of "lack of intent to kill, coupled with mistake."
Actually, the motion to dismiss based on the following grounds:
1. The present action is not only against but a violation of section 1, Rule 107, which is
now Rule III, of the Revised Rules of Court;
2. The action is barred by a prior judgment which is now final and or in res-adjudicata;
3. The complaint had no cause of action against defendant Marvin Hill, because he was
relieved as guardian of the other defendant through emancipation by marriage.
(P. 23, Record [p. 4, Record on Appeal.])
was first denied by the trial court. It was only upon motion for reconsideration of the defendants of such
denial, reiterating the above grounds that the following order was issued:
Considering the motion for reconsideration filed by the defendants on January 14, 1965
and after thoroughly examining the arguments therein contained, the Court finds the
same to be meritorious and well-founded.
WHEREFORE, the Order of this Court on December 8, 1964 is hereby reconsidered by

ordering the dismissal of the above entitled case.
SO ORDERED.
Quezon City, Philippines, January 29, 1965. (p. 40, Record [p. 21, Record on Appeal.)
Hence, this appeal where plaintiffs-appellants, the spouses Elcano, are presenting for Our resolution the
following assignment of errors:
THE LOWER COURT ERRED IN DISMISSING THE CASE BY UPHOLDING THE

CLAIM OF DEFENDANTS THAT -
THE PRESENT ACTION IS NOT ONLY AGAINST BUT ALSO A VIOLATION OF

SECTION 1, RULE 107, NOW RULE 111, OF THE REVISED RULES OF COURT, AND
THAT SECTION 3(c) OF RULE 111, RULES OF COURT IS APPLICABLE;
II
THE ACTION IS BARRED BY A PRIOR JUDGMENT WHICH IS NOW FINAL OR RES-

ADJUDICTA;
III
THE PRINCIPLES OF QUASI-DELICTS, ARTICLES 2176 TO 2194 OF THE CIVIL CODE,

ARE INAPPLICABLE IN THE INSTANT CASE; and
IV
THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST DEFENDANT
MARVIN HILL BECAUSE HE WAS RELIEVED AS GUARDIAN OF THE OTHER
DEFENDANT THROUGH EMANCIPATION BY MARRIAGE. (page 4, Record.)
It appears that for the killing of the son, Agapito, of plaintiffs-appellants, defendant- appellee Reginald
Hill was prosecuted criminally in Criminal Case No. 5102 of the Court of First Instance of Quezon City.
After due trial, he was acquitted on the ground that his act was not criminal because of "lack of intent to
kill, coupled with mistake." Parenthetically, none of the parties has favored Us with a copy of the decision
of acquittal, presumably because appellants do not dispute that such indeed was the basis stated in the
court's decision. And so, when appellants filed their complaint against appellees Reginald and his father,
Atty. Marvin Hill, on account of the death of their son, the appellees filed the motion to dismiss above-
referred to.
As We view the foregoing background of this case, the two decisive issues presented for Our resolution
are:
1. Is the present civil action for damages barred by the acquittal of Reginald in the criminal case wherein
the action for civil liability, was not reversed?
2. May Article 2180 (2nd and last paragraphs) of the Civil Code he applied against Atty. Hill,
notwithstanding the undisputed fact that at the time of the occurrence complained of. Reginald, though a
minor, living with and getting subsistenee from his father, was already legally married?
The first issue presents no more problem than the need for a reiteration and further clarification of the
dual character, criminal and civil, of fault or negligence as a source of obligation which was firmly
established in this jurisdiction in Barredo vs. Garcia, 73 Phil. 607. In that case, this Court postulated, on
the basis of a scholarly dissertation by Justice Bocobo on the nature of culpa aquiliana in relation
to culpa criminal or delito and mere culpa or fault, with pertinent citation of decisions of the Supreme
Court of Spain, the works of recognized civilians, and earlier jurisprudence of our own, that the same
given act can result in civil liability not only under the Penal Code but also under the Civil Code. Thus, the
opinion holds:
The, above case is pertinent because it shows that the same act machinist. come under
both the Penal Code and the Civil Code. In that case, the action of the agent killeth
unjustified and fraudulent and therefore could have been the subject of a criminal action.
And yet, it was held to be also a proper subject of a civil action under article 1902 of the
Civil Code. It is also to be noted that it was the employer and not the employee who was
being sued. (pp. 615-616, 73 Phil.). 1
It will be noticed that the defendant in the above case could have been prosecuted in a
criminal case because his negligence causing the death of the child was punishable by the
Penal Code. Here is therefore a clear instance of the same act of negligence being a proper
subject matter either of a criminal action with its consequent civil liability arising from a
crime or of an entirely separate and independent civil action for fault or negligence under
article 1902 of the Civil Code. Thus, in this jurisdiction, the separate individuality of
a cuasi-delito or culpa aquiliana, under the Civil Code has been fully and clearly
recognized, even with regard to a negligent act for which the wrongdoer could have been
prosecuted and convicted in a criminal case and for which, after such a conviction, he
could have been sued for this civil liability arising from his crime. (p. 617, 73 Phil.) 2
It is most significant that in the case just cited, this Court specifically applied article 1902
of the Civil Code. It is thus that although J. V. House could have been criminally
prosecuted for reckless or simple negligence and not only punished but also made civilly
liable because of his criminal negligence, nevertheless this Court awarded damages in an
independent civil action for fault or negligence under article 1902 of the Civil Code. (p.
618, 73 Phil.) 3
The legal provisions, authors, and cases already invoked should ordinarily be sufficient to
dispose of this case. But inasmuch as we are announcing doctrines that have been little
understood, in the past, it might not he inappropriate to indicate their foundations.
Firstly, the Revised Penal Code in articles 365 punishes not only reckless but also simple
negligence. If we were to hold that articles 1902 to 1910 of the Civil Code refer only to
fault or negligence not punished by law, accordingly to the literal import of article 1093 of
the Civil Code, the legal institution of culpa aquiliana would have very little scope and
application in actual life. Death or injury to persons and damage to property- through any
degree of negligence - even the slightest - would have to be Idemnified only through the
principle of civil liability arising from a crime. In such a state of affairs, what sphere
would remain for cuasi-delito or culpa aquiliana? We are loath to impute to the
lawmaker any intention to bring about a situation so absurd and anomalous. Nor are we,
in the interpretation of the laws, disposed to uphold the letter that killeth rather than the
spirit that giveth life. We will not use the literal meaning of the law to smother and render
almost lifeless a principle of such ancient origin and such full-grown development
as culpa aquiliana or cuasi-delito, which is conserved and made enduring in articles 1902
to 1910 of the Spanish Civil Code.
Secondary, to find the accused guilty in a criminal case, proof of guilt beyond reasonable
doubt is required, while in a civil case, preponderance of evidence is sufficient to make
the defendant pay in damages. There are numerous cases of criminal negligence which
can not be shown beyond reasonable doubt, but can be proved by a preponderance of
evidence. In such cases, the defendant can and should be made responsible in a civil
action under articles 1902 to 1910 of the Civil Code. Otherwise. there would be many
instances of unvindicated civil wrongs. "Ubi jus Idemnified remedium." (p. 620,73 Phil.)
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the
Civil Code on this subject, which has given rise to the overlapping or concurrence of
spheres already discussed, and for lack of understanding of the character and efficacy of
the action for culpa aquiliana, there has grown up a common practice to seek damages
only by virtue of the civil responsibility arising from a crime, forgetting that there is
another remedy, which is by invoking articles 1902-1910 of the Civil Code. Although this
habitual method is allowed by, our laws, it has nevertheless rendered practically useless
and nugatory the more expeditious and effective remedy based on culpa aquiliana or
culpa extra-contractual. In the present case, we are asked to help perpetuate this usual
course. But we believe it is high time we pointed out to the harms done by such practice
and to restore the principle of responsibility for fault or negligence under articles 1902 et
seq. of the Civil Code to its full rigor. It is high time we caused the stream of quasi-delict
or culpa aquiliana to flow on its own natural channel, so that its waters may no longer be
diverted into that of a crime under the Penal Code. This will, it is believed, make for the
better safeguarding or private rights because it realtor, an ancient and additional remedy,
and for the further reason that an independent civil action, not depending on the issues,
limitations and results of a criminal prosecution, and entirely directed by the party
wronged or his counsel, is more likely to secure adequate and efficacious redress. (p. 621,
73 Phil.)
Contrary to an immediate impression one might get upon a reading of the foregoing excerpts from the
opinion in Garcia that the concurrence of the Penal Code and the Civil Code therein referred to
contemplate only acts of negligence and not intentional voluntary acts - deeper reflection would reveal
that the thrust of the pronouncements therein is not so limited, but that in fact it actually extends to fault
or culpa. This can be seen in the reference made therein to the Sentence of the Supreme Court of Spain of
February 14, 1919, supra, which involved a case of fraud or estafa, not a negligent act. Indeed, Article 1093
of the Civil Code of Spain, in force here at the time of Garcia, provided textually that obligations "which
are derived from acts or omissions in which fault or negligence, not punishable by law, intervene shall be
the subject of Chapter II, Title XV of this book (which refers to quasi-delicts.)" And it is precisely the
underline qualification, "not punishable by law", that Justice Bocobo emphasized could lead to an ultimo
construction or interpretation of the letter of the law that "killeth, rather than the spirit that giveth lift-
hence, the ruling that "(W)e will not use the literal meaning of the law to smother and render almost
lifeless a principle of such ancient origin and such full-grown development as culpa aquiliana or quasi-
delito, which is conserved and made enduring in articles 1902 to 1910 of the Spanish Civil Code." And so,
because Justice Bacobo was Chairman of the Code Commission that drafted the original text of the new
Civil Code, it is to be noted that the said Code, which was enacted after the Garcia doctrine, no longer uses
the term, 11 not punishable by law," thereby making it clear that the concept of culpa aquiliana includes
acts which are criminal in character or in violation of the penal law, whether voluntary or matter. Thus,
the corresponding provisions to said Article 1093 in the new code, which is Article 1162, simply says,
"Obligations derived from quasi-delictoshall be governed by the provisions of Chapter 2, Title XVII of this
Book, (on quasi-delicts) and by special laws." More precisely, a new provision, Article 2177 of the new
code provides:
ART. 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal Code.
But the plaintiff cannot recover damages twice for the same act or omission of the
defendant.
According to the Code Commission: "The foregoing provision (Article 2177) through at first sight startling,
is not so novel or extraordinary when we consider the exact nature of criminal and civil negligence. The
former is a violation of the criminal law, while the latter is a "culpa aquiliana" or quasi-delict, of ancient
origin, having always had its own foundation and individuality, separate from criminal negligence. Such
distinction between criminal negligence and "culpa extracontractual" or "cuasi-delito" has been sustained
by decision of the Supreme Court of Spain and maintained as clear, sound and perfectly tenable by Maura,
an outstanding Spanish jurist. Therefore, under the proposed Article 2177, acquittal from an accusation of
criminal negligence, whether on reasonable doubt or not, shall not be a bar to a subsequent civil action,
not for civil liability arising from criminal negligence, but for damages due to a quasi-delict or 'culpa
aquiliana'. But said article forestalls a double recovery.", (Report of the Code) Commission, p. 162.)
Although, again, this Article 2177 does seem to literally refer to only acts of negligence, the same argument
of Justice Bacobo about construction that upholds "the spirit that giveth lift- rather than that which is
literal that killeth the intent of the lawmaker should be observed in applying the same. And considering
that the preliminary chapter on human relations of the new Civil Code definitely establishes the
separability and independence of liability in a civil action for acts criminal in character (under Articles 29
to 32) from the civil responsibility arising from crime fixed by Article 100 of the Revised Penal Code, and,
in a sense, the Rules of Court, under Sections 2 and 3 (c), Rule 111, contemplate also the same separability,
it is "more congruent with the spirit of law, equity and justice, and more in harmony with modern
progress"- to borrow the felicitous relevant language in Rakes vs. Atlantic. Gulf and Pacific Co., 7 Phil.
359, to hold, as We do hold, that Article 2176, where it refers to "fault or negligencia covers not only acts
"not punishable by law" but also acts criminal in character, whether intentional and voluntary or
negligent. Consequently, a separate civil action lies against the offender in a criminal act, whether or not
he is criminally prosecuted and found guilty or acquitted, provided that the offended party is not allowed,
if he is actually charged also criminally, to recover damages on both scores, and would be entitled in such
eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. In other
words, the extinction of civil liability referred to in Par. (e) of Section 3, Rule 111, refers exclusively to civil
liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act
considered as a quasi-delict only and not as a crime is not estinguished even by a declaration in the
criminal case that the criminal act charged has not happened or has not been committed by the accused.
Briefly stated, We here hold, in reiteration of Garcia, that culpa aquiliana includes voluntary and
negligent acts which may be punishable by law.4
It results, therefore, that the acquittal of Reginal Hill in the criminal case has not extinguished his liability
for quasi-delict, hence that acquittal is not a bar to the instant action against him.
Coming now to the second issue about the effect of Reginald's emancipation by marriage on the possible
civil liability of Atty. Hill, his father, it is also Our considered opinion that the conclusion of appellees that
Atty. Hill is already free from responsibility cannot be upheld.
While it is true that parental authority is terminated upon emancipation of the child (Article 327, Civil
Code), and under Article 397, emancipation takes place "by the marriage of the minor (child)", it is,
however, also clear that pursuant to Article 399, emancipation by marriage of the minor is not really full
or absolute. Thus "(E)mancipation by marriage or by voluntary concession shall terminate parental
authority over the child's person. It shall enable the minor to administer his property as though he were of
age, but he cannot borrow money or alienate or encumber real property without the consent of his father
or mother, or guardian. He can sue and be sued in court only with the assistance of his father, mother or
guardian."
Now under Article 2180, "(T)he obligation imposed by article 2176 is demandable not only for one's own
acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his
death or incapacity, the mother, are responsible. The father and, in case of his death or incapacity, the
mother, are responsible for the damages caused by the minor children who live in their company." In the
instant case, it is not controverted that Reginald, although married, was living with his father and getting
subsistence from him at the time of the occurrence in question. Factually, therefore, Reginald was still
subservient to and dependent on his father, a situation which is not unusual.
It must be borne in mind that, according to Manresa, the reason behind the joint and solidary liability of
presuncion with their offending child under Article 2180 is that is the obligation of the parent to supervise
their minor children in order to prevent them from causing damage to third persons. 5 On the other hand,
the clear implication of Article 399, in providing that a minor emancipated by marriage may not,
nevertheless, sue or be sued without the assistance of the parents, is that such emancipation does not
carry with it freedom to enter into transactions or do any act that can give rise to judicial litigation. (See
Manresa, Id., Vol. II, pp. 766-767, 776.) And surely, killing someone else invites judicial action. Otherwise
stated, the marriage of a minor child does not relieve the parents of the duty to see to it that the child,
while still a minor, does not give answerable for the borrowings of money and alienation or encumbering
of real property which cannot be done by their minor married child without their consent. (Art. 399;
Manresa, supra.)
Accordingly, in Our considered view, Article 2180 applies to Atty. Hill notwithstanding the emancipation
by marriage of Reginald. However, inasmuch as it is evident that Reginald is now of age, as a matter of
equity, the liability of Atty. Hill has become milling, subsidiary to that of his son.
WHEREFORE, the order appealed from is reversed and the trial court is ordered to proceed in accordance
with the foregoing opinion. Costs against appellees.
Fernando (Chairman), Antonio, and Martin, JJ., concur.
Concepcion Jr., J, is on leave.
Martin, J, was designated to sit in the Second Division.
Separate Opinions
AQUINO, J, concurring:
Article 2176 of the Civil Code comprehends any culpable act, which is blameworthy, when judged by
accepted legal standards. "The Idea thus expressed is undoubtedly board enough to include any rational
conception of liability for the tortious acts likely to be developed in any society." (Street, J. in Daywalt vs.
Corporacion de PP. Agustinos Recoletos, 39 Phil. 587, 600). See article 38, Civil Code and the ruling that
"the infant tortfeasor is liable in a civil action to the injured person in the same manner and to the same
extent as an adult" (27 Am. Jur. 812 cited by Bocobo, J., in Magtibay vs. Tiangco, 74 Phil. 576, 579).
Separate Opinions
AQUINO, J, concurring:
Article 2176 of the Civil Code comprehends any culpable act, which is blameworthy, when judged by
accepted legal standards. "The Idea thus expressed is undoubtedly board enough to include any rational
conception of liability for the tortious acts likely to be developed in any society." (Street, J. in Daywalt vs.
Corporacion de PP. Agustinos Recoletos, 39 Phil. 587, 600). See article 38, Civil Code and the ruling that
"the infant tortfeasor is liable in a civil action to the injured person in the same manner and to the same
extent as an adult" (27 Am. Jur. 812 cited by Bocobo, J., in Magtibay vs. Tiangco, 74 Phil. 576, 579).
Footnotes
1 Referring to Sentence of the Supreme Court of Spain of February 14, 1919.
2 Referring to Manzanares vs. Moreta, 38 Phil. 821.
3 Referring to Bernal et al, vs. House et al., 54 Phil. 327.
4 Parenthetically, Manresa seemingly holds. the contrary view thus:
"Sin embargo, para no ineurrir en error hay que tener en cuenta que los lineage. del precepts contenido en
el presente articulo son bastante mas reducidos, pues no se hallan comprendidos en el todos los datios
que pues tener por causa la culpa o la negligencia.
"En efecto, examinando detenidamente la terminos general de la culpa y de la negligencia. se observe que,
tanto en una como en otra de dichas causas, hay tres generoso o tres especies distintas, a saber:
1. La que represents una accion u omision voluntaria por la que results incumplida una obligacion
anteriormente constituida.
2. La que sin existencia de una obligacion anterior produce un dano o perjuicio que, teniendo su origen en
un hecho ilicito, no reviste los caracteres de delito o falta; y
3. La que teniendo por origen un hecho que constituya delito o falta produce una responsabilidad civil
como accesoria de la responsabilidad criminal.
"La primera de estas tres especies de culpa o negligencia es siempre accesoria de una obligacion principal,
cuyo incumplimiento da origen a la terminos especial de la culpa en materia de contratos, y el eatudio de
esta debe harms al examinar cada contrato, en especial, como lo hicimos asi, analizando entoces los
peculiares efectos de dicha culpa en cada uno de ellos.
"La tercera de las especies citadas es accesoria tambien, pues no puede concebirse su existencia sin la de
un delicto o falts que la produzca. Es decir, que solo al lado de la responsabilidad criminal puede supuesto
esa responsabilidad civil y la obligacion proveniente de la culpa, ineurrir como una consecuencia de la
responsabilidad criminal, y, por consiguente, su examen y regulacion perusal. al Derecho penal.
"Como consecuencia de ello, results que la unica especie de culpa y omisiones o negligencia que puede ser
y es meanwhile.' del presente capitulo, es la separability, o sea la que sin la existencia de una obligacion
anterior, y sin ningun antecedents contractual, produce un dano o perjuico que tiene su origen en una
accion u omision culpable solo civilmente; as decir, que siendo ilicita, no reviste sin embargo, los
caracteres de un delito o falta por no estar penada por la ley. Y aun dentro de estos lineage hay que
restringir aun mas los terminos o la materia propria de este articulo, el cual se refiere unicamente a la
culpa o negligencia personates del obligado, pero no a las que prudencia de actos o de omisiones de
persons., distintas de este." (pp. 642-643, Vol. XII, Manresa, Codigo Civil Espanol.)
5 "Nuestro Codigo no ha seguido la escuela italiana, sino que mas bien se ha instantaneous, en el criterio
de la doctrina full-grown puesto que impone la obligacion de reparar, el dano causado en virtud de una
presuncion juris tecum de culpa por parte del que tiene bajo su autoridad o dependecia al causante del
daho, derivada del hicimos de no haber puesto el cuidado y la vinculos debida en los actos de sus
subordinados para evitar dicho resultado. Asi es que, segun el parrafo ultimo del art. 1,903, cesa dicha
responsabilidad cuando se prueba que los obligados por los actos ajenos emplearon toda la diligencia de
un buen padre de familia. Luego no es la causa de la obligacion impuesta la representacion, ni el interes,
ni la necesidad de que haya quienes responda del dano causado por el que no tiene personalidad in
garantias de specialist. para responsabilidad por siendo sino el incumplimiento implicito o supuesto de
los deberes de precaucion y de prudencia que impuesta los vinculos civiles que unicamente al obligado
con las persons., por quienes debe representacion, el mal causado, Por ese motivo coloca dicha obligacion
entre las que prudencia de la culpa of negligentj (pp. 670671, Manresa, Codigo Civil Espanol, Vol. XII.)
Marcelo Agcaoili vs. Gov't Service Insurance System

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30056 August 30, 1988
MARCELO AGCAOILI, plaintiff-appellee

vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
Artemio L. Agcaoili for plaintiff-appellee.
Office of the Government Corporate Counsel for defendant-appellant.
NARVASA, J.:
The appellant Government Service Insurance System, (GSIS, for short) having approved the application of
the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina,
Rizal, subject to the condition that the latter should forthwith occupy the house, a condition that Agacoili
tried to fulfill but could not for the reason that the house was absolutely uninhabitable; Agcaoili, after
paying the first installment and other fees, having thereafter refused to make further payment of other
stipulated installments until GSIS had made the house habitable; and appellant having refused to do so,
opting instead to cancel the award and demand the vacation by Agcaoili of the premises; and Agcaoili
having sued the GSIS in the Court of First Instance of Manila for specific performance with damages and
having obtained a favorable judgment, the case was appealled to this Court by the GSIS. Its appeal must
fail.
The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for
purchase 1 was contained in a letter 2addressed to Agcaoili and signed by GSIS Manager Archimedes
Villanueva in behalf of the Chairman-General Manager, reading as follows:
Please be informed that your application to purchase a house and lot in our GSIS Housing
Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block
No. (48) 2, together with the housing unit constructed thereon, has been allocated to you.
You are, therefore, advised to occupy the said house immediately.
If you fail to occupy the same within three (3) days from receipt of this notice, your
application shall be considered automatically disapproved and the said house and lot will
be awarded to another applicant.
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very
next day, because the house was nothing more than a shell, in such a state of incompleteness that civilized
occupation was not possible: ceiling, stairs, double walling, lighting facilities, water connection,
bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did however ask a homeless friend, a certain
Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of
the house. Agcaoili thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly
installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS
completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the
premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific
performance and damages. 5 Pending the action, a written protest was lodged by other awardees of
housing units in the same subdivision, regarding the failure of the System to complete construction of
their own houses. 6 Judgment was in due course rendered , 7 on the basis of the evidence adduced by
Agcaoili only, the GSIS having opted to dispense with presentation of its own proofs. The judgment was in
Agcaoili's favor and contained the following dispositions, 8 to wit:
1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff
(Mariano Agcaoili) illegal and void;
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the
plaintiff relative to Lot No. 26, Block No. (48) 2 of the Government Service Insurance
System (GSIS) low cost housing project at Nangka Marikina, Rizal;
3) Ordering the defendant to complete the house in question so as to make the same
habitable and authorizing it (defendant) to collect the monthly amortization thereon only
after said house shall have been completed under the terms and conditions mentioned in
Exhibit A ;and
4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's
fees, and costs.
Appellant GSIS would have this Court reverse this judgment on the argument that—
1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his
housing unit, since said unit had been sold "in the condition and state of completion then existing ... (and)
he is deemed to have accepted the same in the condition he found it when he accepted the award;" and
assuming indefiniteness of the contract in this regard, such circumstance precludes a judgment for
specific performance. 9
2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate
occupancy of the house subject thereof, and the latter having failed to comply with the condition, no
contract ever came into existence between them ; 10
3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent
knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a
deprivation of the GSIS at the same time of the reasonable rental value of the property. 11
Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled
"Application to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and submitted
it. 12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the
GSIS. As already mentioned, this form sent to Agcaoili, duly filled up, advised him of the approval of his
"application to purchase a house and lot in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL,"
and that "Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been
allocated to you." Neither the application form nor the acceptance or approval form of the GSIS — nor the
notice to commence payment of a monthly amortizations, which again refers to "the house and lot
awarded" — contained any hint that the house was incomplete, and was being sold "as is," i.e., in whatever
state of completion it might be at the time. On the other hand, the condition explicitly imposed on
Agcaoili — "to occupy the said house immediately," or in any case within three (3) days from notice,
otherwise his "application shall be considered automatically disapproved and the said house and lot will
be awarded to another applicant" — would imply that construction of the house was more or less
complete, and it was by reasonable standards, habitable, and that indeed, the awardee should stay and
live in it; it could not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer
or settler in a rude wilderness, making do with whatever he found available in the envirornment.
There was then a perfected contract of sale between the parties; there had been a meeting of the minds
upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka
Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from that moment
the parties acquired the right to reciprocally demand performance. 13 It was, to be sure, the duty of the
GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the
purpose contemplated , 14 in other words, to deliver the house subject of the contract in a reasonably
livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the
sale. Under the circumstances there can hardly be any doubt that the house contemplated was one that
could be occupied for purposes of residence in reasonable comfort and convenience. There would be no
sense to require the awardee to immediately occupy and live in a shell of a house, a structure consisting
only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was
intended by the parties, since the contract did not clearly impose upon it the obligation to deliver
a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective
interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to
deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated
price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it
cannot invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between
them. It is axiomatic that "(i)n 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." 15
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter
had not complied with the condition of occupying the house within three (3) days. The record shows that
Agcaoili did try to fulfill the condition; he did try to occupy the house but found it to be so uninhabitable
that he had to leave it the following day. He did however leave a friend in the structure, who being
homeless and hence willing to accept shelter even of the most rudimentary sort, agreed to stay therein and
look after it. Thus the argument that Agcaoili breached the agreement by failing to occupy the house, and
by allowing another person to stay in it without the consent of the GSIS, must be rejected as devoid of
merit.
Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or
imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili; it was after
all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to
purchase, that offer being contained in a printed form supplied by the GSIS. Said appellant having caused
the ambiguity of which it would now make capital, the question of interpretation arising therefrom,
should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that the contract between the
parties had not been validly cancelled and was therefore still in force, and that Agcaoili could not be
compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract until and
unless it had first completed construction of the house. This would leave the contract hanging or in
suspended animation, as it were, Agcaoili unwilling to pay unless the house were first completed, and the
GSIS averse to completing construction, which is precisely what has been the state of affairs between the
parties for more than twenty (20) years now. On the other hand, assuming it to be feasible to still finish
the construction of the house at this time, to compel the GSIS to do so so that Agcaoili's prestation to pay
the price might in turn be demanded, without modifying the price therefor, would not be quite fair. The
cost to the GSIS of completion of construction at present prices would make the stipulated price
disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may
render complete justice to both parties.
As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579,
589 [1978]). "(E)quity as the complement of legal jurisdiction seeks to reach and do
complete justice where courts of law, through the inflexibility of their rules and want of
power to adapt their judgments to the special circumstances of cases, are incompetent so
to do. Equity regards the spirit of and not the letter, the intent and not the form, the
substance rather than the circumstance, as it is variously expressed by different courts...
" 16
In this case, the Court can not require specific performance of the contract in question according to its
literal terms, as this would result in inequity. The prevailing rule is that in decreeing specific performance
equity requires 17 —
... not only that the contract be just and equitable in its provisions, but that the
consequences of specific performance likewise be equitable and just. The general rule is
that this equitable relief will not be granted if, under the circumstances of the case, the
result of the specific enforcement of the contract would be harsh, inequitable, oppressive,
or result in an unconscionable advantage to the plaintiff . .
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the
circumstances obtaining at the time of rendition of judgment, when these are significantly different from
those existing at the time of generation of those rights.
The Court is not restricted to an adjustment of the rights of the parties as they existed
when suit was brought, but will give relief appropriate to events occuring ending the
suit. 18
While equitable jurisdiction is generally to be determined with reference to the situation

existing at the time the suit is filed, the relief to be accorded by the decree is governed by
the conditions which are shown to exist at the time of making thereof, and not by the
circumstances attending the inception of the litigation. In making up the final decree in
an equity suit the judge may rightly consider matters arising after suit was brought.
Therefore, as a general rule, equity will administer such relief as the nature, rights, facts
and exigencies of the case demand at the close of the trial or at the time of the making of
the decree. 19
That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person
must act with justice, give everyone his due, and observe honesty and good faith. 20 Adjustment of rights
has been held to be particularly applicable when there has been a depreciation of currency.
Depreciation of the currency or other medium of payment contracted for has frequently
been held to justify the court in withholding specific performance or at least conditioning
it upon payment of the actual value of the property contracted for. Thus, in an action for
the specific performance of a real estate contract, it has been held that where the currency
in which the plaintiff had contracted to pay had greatly depreciated before enforcement
was sought, the relief would be denied unless the complaint would undertake to pay the
equitable value of the land. (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill
v. Edwards, 59 Ala 424) 21
In determining the precise relief to give, the Court will "balance the equities" or the respective interests of
the parties, and take account of the relative hardship that one relief or another may occasion to them .22
The completion of the unfinished house so that it may be put into habitable condition, as one form of
relief to the plaintiff Agcaoili, no longer appears to be a feasible option in view of the not inconsiderable
time that has already elapsed. That would require an adjustment of the price of the subject of the sale to
conform to present prices of construction materials and labor. It is more in keeping with the realities of
the situation, and with equitable norms, to simply require payment for the land on which the house
stands, and for the house itself, in its unfinished state, as of the time of the contract. In fact, this is an
alternative relief proposed by Agcaoili himself, i.e., "that judgment issue . . (o)rdering the defendant
(GSIS) to execute a deed of sale that would embody and provide for a reasonable amortization of payment
on the basis of the present actual unfinished and uncompleted condition, worth and value of the said
house. 23
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by
respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS
low cost housing project at Nangka, Marikina, Rizal, and orders the former to respect the aforesaid award
and to pay damages in the amounts specified, is AFFIRMED as being in accord with the facts and the law.
Said judgments is however modified by deleting the requirement for respondent GSIS "to complete the
house in question so as to make the same habitable," and instead it is hereby ORDERED that the contract
between the parties relative to the property above described be modified by adding to the cost of the land,
as of the time of perfection of the contract, the cost of the house in its unfinished state also as of the time
of perfection of the contract, and correspondingly adjusting the amortizations to be paid by petitioner
Agcaoili, the modification to be effected after determination by the Court a quo of the value of said house
on the basis of the agreement of the parties, or if this is not possible by such commissioner or
commissioners as the Court may appoint. No pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Aquino and Medialdea, JJ., concur.
Footnotes
1 Dated June 24, 1964.
2 Dated October 5, 1965 (Exh. A ); Folder of Exhibits,p.1.
3 O.R. No. 186558, Oct. 10, 1966.
4 Exh. D, Folder of Exhibits, p. 4.

5 Docketed as Civil Case No. 69417.
6 The letter was sent thru the awardees' "Samahang Lakas ng Mahihirap," copy having been marked at the
trial as Exh. F; to the letter was attached a resolution of said Samahan adopted at its meeting of July 23,
1967 and to which, in turn, was appended a 3 page list of uncompleted houses with a specification of items
not completed.
7 By Hon. Manuel P. Barcelona, presiding over Br. VIII of the CFI of Manila; Record on Appeal, pp. 22-25,
Rollo, p. 13.
8 Parenthetical insertions Identifying the parties, supplied.
9 Appellant's brief, pp. 11-14.
10 Id., pp. 7-8.
11 Appellant's brief, pp. 8-10.
12 Exh. E.
I3 Art. 1475, Civil Code; Pacific Oxygen & Acetylene Co. v. Central Bank, 37 SCRA 685.
14 Lim v. de los Santos, 8 SCRA 798.
I5 Art. 1169, last paragraph, Civil Code.
16 Cristobal vs. Melchor, 101 SCRA 857, 865.
17 771 Am. Jur. 2d, 101.
18 30C.J.S. 929.
19 27 Am Jur. 2d. 818.
20 Art. 19, Civil Code: "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 and good faith."
21 71 Am. Jur. 2d, 120.
22 Am. Jur. 2nd 628-629: "Their is a general principle that a court of equity will balance the equities'
between the parties in determining what, if any, relief to give. . . Thus, for example, wherein the effect of
the only relief which can be granted to protect the plaintiff will be destructive of the defendants' business,
which would be lawful but for the harm it does to the plaintiff, relief may be refused if, on a balancing of
the respective interests, that of the defendant is found to be relatively important, and that of the plaintiff
relatively insignificant. . ."
23 Record on Appeal, p. 5; Rollo, p. 13.
Song Fo & Company vs. Hawaiian Philippine Co.

SUPREME COURT
Manila
EN BANC
G.R. No. 23769 September 16, 1925
SONG FO & COMPANY, plaintiff-appellee,

vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two
causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment
was asked for P70,369.50, with legal interest, and costs. In an amended answer and cross-complaint, the
defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses
delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel
and rescind the said contract. The case was submitted for decision on a stipulation of facts and the
exhibits therein mentioned. The judgment of the trial court condemned the defendant to pay to the
plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and
with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has
made the following assignment of errors: "I. The lower court erred in finding that appellant had agreed to
sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in
finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed
by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in
favor of the appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower
court erred in denying appellant's motion for a new trial." The specified errors raise three questions which
we will consider in the order suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons
of molasses? The trial court found the former amount to be correct. The appellant contends that
the smaller amount was the basis of the agreement.
The contract of the parties is in writing. It is found principally in the documents, Exhibits F and
G. The First mentioned exhibit is a letter addressed by the administrator of the Hawaiian-
Philippine Co. to Song Fo & Company on December 13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.

December 13, 1922
Messrs. SONG FO AND CO.

Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this
Central, we wish to state as follows:
He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the
same condition, and the same to start after the completion of our grinding season. He requested if
possible to let you have molasses during January, February and March or in other words, while
we are grinding, and we agreed with him that we would to the best of our ability, altho we are
somewhat handicapped. But we believe we can let you have 25,000 gallons during each of the
milling months, altho it interfere with the shipping of our own and planters sugars to Iloilo. Mr.
Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we
stated we believe that this is possible and will do our best to let you have these extra 100,000
gallons during the next year the same to be taken by you before November 1st, 1923, along with
the 300,000, making 400,000 gallons in all.
Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay
us at the end of each month for molasses delivered to you.
Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain.
Yours very truly,
HAWAIIAN-PHILIPPINE COMPANY
BY R. C. PITCAIRN
Administrator.
Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on
December 16, 1922. This letter reads:
December 16th, 1922.
Messrs. HAWAIIAN-PHILIPPINE CO.,

Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all
their contents.
In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one
who visited your Central, but it was not for he was Mr. Song Heng, the representative and the
manager of Messrs. Song Fo & Co.
With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements
you have stated and in order to make the contract clear, we hereby quote below our old contract
as amended, as per our new arrangements.
(a) Price, at 2 cents per gallon delivered at the central.
(b) All handling charges and expenses at the central and at the dock at Mambaguid for our
account.
(c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for
the round trip dock to central and central to dock. This service to be restricted to one trip for the
six tanks.
Yours very truly,
SONG FO & COMPANY

By __________________________
Manager.
We agree with appellant that the above quoted correspondence is susceptible of but one interpretation.
The Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The
Hawaiian-Philippine Co. also believed it possible to accommodate Song Fo & Company by supplying the
latter company with an extra 100,000 gallons. But the language used with reference to the additional
100,000 gallons was not a definite promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider
itself obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter
written by the manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding
between the parties of a contract for P300,000 gallons of molasses.
We sustain appellant's point of view on the first question and rule that the contract between the parties
provided for the delivery by the Hawaiian-Philippine Co. to song Fo & Company of 300,000 gallons of
molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo &
Company? The trial judge answers No, the appellant Yes.
Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr.
Song Heng) gave us to understand that you would pay us at the end of each month for molasses delivered
to you." In Exhibit G, we find Song Fo & Company stating that they understand the contents of Exhibit F,
and that they confirm all the arrangements you have stated, and in order to make the contract clear, we
hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per
gallon delivered at the central." In connection with the portion of the contract having reference to the
payment for the molasses, the parties have agree on a table showing the date of delivery of the molasses,
the amount and date thereof, the date of receipt of account by plaintiff, and date of payment. The table
mentioned is as follows:
Date of receipt of
Date of delivery Account and date thereof account by Date of payment
plaintiff
1922 1923 1923
Dec. 18 P206.16 Dec. 26/22 Jan. 5 Feb. 20
Dec. 29 206.16 Jan. 3/23 do Do
1923
Jan. 5 206.16 Jan. 9/23 Mar. 7 or 8 Mar. 31
Feb. 12 206.16 Mar. 12/23 do Do
Feb. 27 206.16 do do Do
Mar. 5 206.16 do do Do
Mar. 16 206.16 Mar. 20/23 Apr. 2/23 Apr. 19
Mar. 24 206.16 Mar. 31/23 do Do
Mar. 29 206.16 do do Do
Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses
delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point.
Exhibit M, a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-
Philippine Co. to Song Fo & Company, mentions "payment on presentation of bills for each delivery."
Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated April 2, 1923, is of
a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to Song Fo &
Company on April 2, 1923, by which the Hawaiian-Philippine Co. gave notice of the termination of the
contract, gave as the reason for the rescission, the breach by Song Fo & Company of this condition: "You
will recall that under the arrangements made for taking our molasses, you were to meet our accounts
upon presentation and at each delivery." Not far removed from this statement, is the allegation of plaintiff
in its complaint that "plaintiff agreed to pay defendant, at the end of each month upon presentation
accounts."
Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction
is that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the
end of each month. Under this hypothesis, Song Fo & Company should have paid for the molasses
delivered in December, 1922, and for which accounts were received by it on January 5, 1923, not later
than January 31 of that year. Instead, payment was not made until February 20, 1923. All the rest of the
molasses was paid for either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the
contract should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions
which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the
contract because of the breach of Song Fo & Company. But actually, there is here present no outstanding
fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but
only for such breaches as are so substantial and fundamental as to defeat the object of the parties in
making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not
such a violation of an essential condition of the contract was warrants rescission for non-performance.
Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment
of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in
default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its letter of
April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song
Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding
of the trial judge in this respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently
breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as
agreed upon by the parties.
The first cause of action of the plaintiff is based on the greater expense to which it was put in being
compelled to secure molasses from other sources. Three hundred thousand gallons of molasses was the
total of the agreement, as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were
delivered by the defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses
undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the plaintiff
at page 25 of its brief, 100,000 gallons of molasses were secured from the Central North Negros Sugar
Co., Inc., at two centavos a gallon. As this is the same price specified in the contract between the plaintiff
and the defendant, the plaintiff accordingly suffered no material loss in having to make this purchase. So
244,994 gallons minus the 100,000 gallons just mentioned leaves as a result 144,994 gallons. As to this
amount, the plaintiff admits that it could have secured it and more from the Central Victorias Milling
Company, at three and one-half centavos per gallon. In other words, the plaintiff had to pay the Central
Victorias Milling company one and one-half centavos a gallon more for the molasses than it would have
had to pay the Hawaiian-Philippine Co. Translated into pesos and centavos, this meant a loss to the
plaintiff of approximately P2,174.91. As the conditions existing at the central of the Hawaiian-Philippine
Co. may have been different than those found at the Central North Negros Sugar Co., Inc., and the Central
Victorias Milling Company, and as not alone through the delay but through expenses of transportation
and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the
molasses in the open market, we would concede under the first cause of action in round figures P3,000.
The second cause of action relates to lost profits on account of the breach of the contract. The only
evidence in the record on this question is the stipulation of counsel to the effect that had Mr. Song Heng,
the manager of Song Fo & Company, been called as a witness, he would have testified that the plaintiff
would have realized a profit of P14,948.43, if the contract of December 13, 1922, had been fulfilled by the
defendant. Indisputably, this statement falls far short of presenting proof on which to make a finding as to
damages.
In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the
same line of thought as found in the decision of the trial court, which we have found to be unsustainable.
In the second place, had Mr. Song Heng taken the witness-stand and made the statement attributed to
him, it would have been insufficient proof of the allegations of the complaint, and the fact that it is a part
of the stipulation by counsel does not change this result. And lastly, the testimony of the witness Song
Heng, it we may dignify it as such, is a mere conclusion, not a proven fact. As to what items up the more
than P14,000 of alleged lost profits, whether loss of sales or loss of customers, or what not, we have no
means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the
first cause of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's
assignments of error are accordingly found to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and
recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment.
Without special finding as to costs in either instance, it is so ordered.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
Roberto C. Sicam, et al. vs. Lullu V. Jorge, et al.

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

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam)
and Agenciade R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision 1 of the Court of
Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu)
pawned several pieces of jewelry with Agenciade R. C. Sicam located at No. 17 Aguirre Ave., BF Homes
Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern
Police District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were inside the office, two (2) male
unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight
inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while
suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to
lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries
items mentioned above.
Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate
number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her
jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a
letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry
pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before
they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from
the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal
on November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against
petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned
jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was
docketed as Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known as Agenciade R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made
liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not
the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated
November 8, 1989.5
After trial on the merits, the RTC rendered its Decision 6 dated January 12, 1993, dismissing respondents’
complaint as well as petitioners’ counterclaim. The RTC held that petitioner Sicam could not be made
personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of
respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that
as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not
the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which
exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the
parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop
as a pledgee is not responsible for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed
the RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated
January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET
ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of
piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words "Agenciade R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to
secure and protect the pledged items and should take steps to insure itself against the loss of articles
which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed
to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the
criminality had not as yet reached the levels attained in the present day; that they are at least guilty of
contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-
ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally held liable to respondents for the
loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL,
WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN
THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR
BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL
BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF
WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID
ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF
UNREBUTTED EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam is
personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from
infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia
de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the
CA cannot rule against said conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the
trial court; and
(3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil
since a corporation has a personality distinct and separate from its individual stockholders or
members.
Anent the second error, petitioners point out that the CA finding on their negligence is likewise an
unedited reproduction of respondents’ brief which had the following defects:
(1) There were unrebutted evidence on record that petitioners had observed the diligence required
of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the
pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they
can only store the pawned articles in a vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the
pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance
companies refused to cover pawnshops and banks because of high probability of losses due to
robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of
robbery was exonerated from liability for the sum of money belonging to others and lost by him to
robbers.
Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently
submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments
raised in respondents’ (appellants’) brief filed with the CA, we find the same to be not fatally infirmed.
Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on
which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case
one way or another is broad enough to justify the adoption of the arguments put forth by one of the
parties, as long as these are legally tenable and supported by law and the facts on records. 11
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by
the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are
not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a
quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we find no justification to absolve petitioner Sicam
from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together
with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a
shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not
meant to promote unfair objectives or otherwise to shield them. 15
Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop
receipts issued to respondent Lulu in September 1987, all bear the words "Agenciade R. C. Sicam,"
notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after
such alleged incorporation were still in the name of "Agenciade R. C. Sicam," thus inevitably misleading,
or at the very least, creating the wrong impression to respondents and the public as well, that the
pawnshop was owned solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter 16 dated October 15, 1987 addressed to the
Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding
the alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had alleged in their Amended
Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide
the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in
the course of the proceedings in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable mistake or that no such admission was
made.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does not
require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made
through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter
exception allows one to contradict an admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court explained the second exception in this wise:
x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of
context," then the one making the "admission" may show that he made no "such" admission,
or that his admission was taken out of context.
x x x that the party can also show that he made no "such admission", i.e., not in the
sense in which the admission is made to appear.
That is the reason for the modifier "such" because if the rule simply states that the admission may
be contradicted by showing that "no admission was made," the rule would not really be providing
for a contradiction of the admission but just a denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence
commensurate with the business which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended Complaint,

insofar as petitioner Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the original complaint because the pawnshop
tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In
paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He
merely added "that defendant is not now the real party in interest in this case."
It was defendant Sicam's omission to correct the pawnshop tickets used in the subject
transactions in this case which was the cause of the instant action. He cannot now ask for the
dismissal of the complaint against him simply on the mere allegation that his pawnshop business
is now incorporated. It is a matter of defense, the merit of which can only be reached after
consideration of the evidence to be presented in due course. 19
Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of
context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued
to issue pawnshop receipts under his name and not under the corporation's name militates for the
piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate
fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-
interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and
known as Agenciade R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far as
he was concerned, the basic issue was whether he is the real party in interest against whom the complaint
should be directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him but was
not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the
reason that he cannot be made personally liable for a claim arising from a corporate transaction.
This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended
complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has
been held that " as a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt
or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is
personally liable is inextricably connected with the determination of the question whether the doctrine of
piercing the corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at
all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility
to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that constitutes the casofortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the
debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation
in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. 24 And, in
order for a fortuitous event to exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an
act of God in producing damage and injury to another; nonetheless, showing that the immediate or
proximate cause of the damage or injury was a fortuitous event would not exempt one from liability.
When the effect is found to be partly the result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules
applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery.
He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault
with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central
Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures
which petitioners had allegedly adopted show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect, contradicts
petitioners’ defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any negligence by which the loss of the
pawned jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and
forcefully taken from another's rightful possession, as in cases of carnapping, does
not automatically give rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking of another's property. It
must be proved and established that the event was an act of God or was done solely
by third parties and that neither the claimant nor the person alleged to be negligent
has any participation. In accordance with the Rules of Evidence, the burden of
proving that the loss was due to a fortuitous event rests on him who invokes it —
which in this case is the private respondent. However, other than the police report of the
alleged carnapping incident, no other evidence was presented by private respondent to the effect
that the incident was not due to its fault. A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there
was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-
trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or
negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on the
robbery committed based on the report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are
guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages. 29
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are
engaged in making loans secured by pledges, the special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take
care of the thing pledged with the diligence of a good father of a family. This means that petitioners must
take care of the pawns the way a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of
time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable
man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or
the doing of something which a prudent and reasonable man would not do. 31It is want of care required by
the circumstances.
A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that
an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence
in the operation of their pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter the premises when according to you there
was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.
Q. I am asking you how were the robbers able to enter despite the fact that there was a security
guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it
happened on a Saturday and everything was quiet in the area BF Homes Parañaque they
pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in
and it was only when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers
were able to get all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by petitioners in the operation of the pawnshop.
Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop
from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there
was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the
alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that
no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a
security guard, since it is quite impossible that he would not have noticed that the robbers were armed
with caliber .45 pistols each, which were allegedly poked at the employees. 33 Significantly, the alleged
security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners'
employees who were present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof
of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly
demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off.
Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the
area in BF Homes Parañaque at that time was quiet, there was more reason for petitioners to have
exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the
precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.
We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took
effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the
pawns pledged to it must be insured against fire and against burglary as well as for the
latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1,
1980, to wit:
Sec. 17 Insurance of Office Building and Pawns - The office building/premises and pawns of a
pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank
considered it not feasible to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is
no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the
CA to consider it as a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence
required of them under the Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies with the
nature of the situation in which he is placed and the importance of the act which he is to perform. 34 Thus,
the cases of Austria v. Court of Appeals,35Hernandez v. Chairman, Commission on Audit 36 and Cruz v.
Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from
liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on
commission basis, but which Abad failed to subsequently return because of a robbery committed upon her
in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an
action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set
up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the
Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA,
however, reversed the RTC decision holding that the fact of robbery was duly established and declared the
Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the
Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it
would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault
on the debtor’s part, and this can be done by preponderance of evidence; that to be free from liability for
reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or
contributory fault or negligence.38
We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in
1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and
protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry
of considerable value would have been negligence per se and would not exempt her from responsibility in
the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten
years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners
negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach
Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to
encash two checks covering the wages of the employees and the operating expenses of the project.
However for some reason, the processing of the check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the project employees would be waiting for their pay
the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main
office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and
arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night
there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one.
Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de
los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers
jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money
escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash
proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in
the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and
bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and
salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next
working day after July 1, would have caused discomfort to laborers who were dependent on their wages
for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the
comparative hazards in the trips to the two places, said decision seemed logical at that time. We further
held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy
highway and in the presence of other passengers could not be said to be a result of his imprudence and
negligence.
Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in
the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons
who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had
failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the
pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart
away the pawned articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the contents were stolen by an unidentified person.
Among those stolen were her wallet and the government-issued cellular phone. She then reported the
incident to the police authorities; however, the thief was not located, and the cellphone was not recovered.
She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from
accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked
the diligence required in the custody of government property and was ordered to pay the purchase value
in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief
from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as
a negligent act more so because Cruz’s mode of transit was influenced by time and money considerations;
that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent
and rational person under similar circumstance can reasonably be expected to do the same; that
possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering
that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her
relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab; she did
not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the
LRT; that the records did not show any specific act of negligence on her part and negligence can never be
presumed.
Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31,
2003 and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur.
Footnotes
1
CA rollo, pp. 63-73; Penned by Justice Bernardo P. Abesamis (ret.) and concurred in by Justices
Sergio L. Pestaño and Noel G. Tijam.
2
Id. at p. 114.
3
Id. at 121; Exhibit "1."
4
Id. at 107-108; Exhibit "I."
5
Id. at 63-65; Per Judge Salvador P. de Guzman, Jr.
6
Id. at 146-147; Penned by Judge Roberto C. Diokno of Branch 62 as the case was unloaded to
him.
7
148-A Phil. 462 (1971).
8
CA rollo, p. 72.
9
Rollo, pp. 5-6.
10
Rollo, p. 7.
11
Nuez v. National Labor Relations Commission, G.R. No. 107574, December 28, 1994, 239 SCRA
518, 526.
12
Litonjua v. Fernandez, G.R. No. 148116, April 14, 2004, 427 SCRA 478, 489 citing Roble v.
Arbasa, 414 Phil. 343 (2001).
13
Fuentes v. Court of Appeals, 335 Phil. 1163, 1168 (1997).
14
See Jacinto v. Court of Appeals, G.R. No. 80043, June 6, 1991, 198 SCRA 211, 216.
15
See Sibagat Timber Corporation v. Garcia, G.R. No. 98185, December 11, 1992, 216 SCRA 470,
474.
16
Id. at 124-125; Exhibit "4".
17
Atillo III v. Court of Appeals, 334 Phil. 546, 552 (1997).
18
Minutes of the meeting held on October 22, 1986, p. 9.
19
Records, p. 67.
20
Id. at 38.
21
Id. at 147.
22
Republic v. Luzon Stevedoring Corporation, 128 Phil. 313, 318 (1967).
23
Mindex Resources Development Corporation v. Morillo, 428 Phil. 934, 944 (2002).
24
Co v. Court of Appeals, 353 Phil. 305, 313 (1998).
25
Mindex Resources Development Corporation v. Morillo, supra citing Tolentino, Civil Code of
the Philippines, Vol. IV, 1991 ed., p. 126, citing Sian v. Inchausti & Co., 22 Phil. 152 (1912); Juan
F. Nakpil & Sons v. Court of Appeals, 228 Phil. 564, 578 (1986). Cf. Metal Forming Corporation
v. Office of the President, 317 Phil. 853, 859 (1995).
26
Id. citing Nakpil and Sons v. Court of Appeals, supra note 25, at 578.
27
Supra note 24.
28
Id. at 312-313.
29
Civil Code, Art. 1170.
30
443 Phil. 856, 863 (2003) citing McKee v. Intermediate Appellate Court, 211 SCRA 517 (1992).
31
Cruz v. Gangan, supra note 30, at 863.
32
TSN, January 21, 1992, pp.17-18.
33
Exhibit "1," Excerpt from the Police Blotter dated October 17, 1987 of the Parañaque Police
Station, p. 121.
34
Cruz v. Gangan, supra note 30, at 863 citing Sangco, Torts and Damages, Vol. 1, 1993 rev. ed. p.
5.
35
Supra note 7.
36
G.R. No. 71871, November 6, 1989, 179 SCRA 39.
37
Supra note 30.
38
Austria v. Court of Appeals, supra note 7, at 466-467.
Social Security System vs. Moonwalk Dev't. & Housing Corp., et al.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 73345. April 7, 1993.
SOCIAL SECURITY SYSTEM, petitioner,

vs.
MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U.
ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds
for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of Deeds for Metro Manila
District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE COURT, respondents.
The Solicitor General for petitioner.

K.V. Faylona & Associates for private respondents.
DECISION
CAMPOS, JR., J p:
Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate Court
affirming in toto the decision of the former Court of First Instance of Rizal, Seventh Judicial District,
Branch XXIX, Pasay City.
The facts as found by the Appellate Court are as follows:
"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First
Instance of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging
that the former had committed an error in failing to compute the 12% interest due on delayed payments
on the loan of Moonwalk — resulting in a chain of errors in the application of payments made by
Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of P7,053.77 and,
also in not reflecting in its statement or account an unpaid balance on the said penalties for delayed
payments in the amount of P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to ascertain the
truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference, the court issued an order giving both
parties thirty (30) days within which to submit a stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the submission by the parties on
September 19, 1980 of the following stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim loan in
the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing and
constructing a housing project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of P9,595,000.00
was released to defendant Moonwalk as of November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D' providing for
restructuring of the payment of the released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under
paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted Associated Construction
and Surveys Corporation, Philippine Model Homes Development Corporation, Mariano Z. Velarde and
Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made to
defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for TWELVE
MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00)
Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00
released to it. The last payment made by Moonwalk in the amount of P15,004,905.74 were based on the
Statement of Account, Annex "F" prepared by plaintiff SSS for defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the Release
of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9,
1979 and October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter dated
December 17, 1979, plaintiff alleged that it committed an honest mistake in releasing defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely paid its
obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O' inclusive, of the
Complaint and the letter dated December 21, 1979 of the defendant's counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the
obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS and by the
latter's act of cancelling the real estate mortgages executed in its favor by defendant Moonwalk. The
Motion for Reconsideration filed by SSS with the trial court was likewise dismissed by the latter.
These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the errors
assigned by the SSS into this issue: ". . . are defendants-appellees, namely, Moonwalk Development and
Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc. still liable for the unpaid
penalties as claimed by plaintiff-appellant or is their obligation extinguished?" 3 As We have stated
earlier, the respondent Court held that Moonwalk's obligation was extinguished and affirmed the trial
court.
Hence, this Petition wherein SSS raises the following grounds for review:
"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred," the
appellate court disregarded the basic tenet that waiver of a right must be express, made in a clear and
unequivocal manner. There is no evidence in the case at bar to show that SSS made a clear, positive
waiver of the penalties, made with full knowledge of the circumstances.
Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere trustee, cannot
perform acts affecting the same, including condonation of penalties, that would diminish property rights
of the owners and beneficiaries thereof. (United Christian Missionary Society v. Social Security
Commission, 30 SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.
Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact." 4
The same problem which confronted the respondent court is presented before Us: Is the penalty
demandable even after the extinguishment of the principal obligation?
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the negative. It
reasoned, thus:
"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief, what is
sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to pay
on time the amortization. What is sought to be enforced therefore is the penal clause of the contract
entered into between the parties.
Now, what is a penal clause. A penal clause has been defined as
"an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled"
(3 Castan 8th Ed. p. 118).
Now an accessory obligation has been defined as that attached to a principal obligation in order to
complete the same or take its place in the case of breach (4 Puig Peña Part 1 p. 76). Note therefore that an
accessory obligation is dependent for its existence on the existence of a principal obligation. A principal
obligation may exist without an accessory obligation but an accessory obligation cannot exist without a
principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the
performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but
a mortgage cannot exist without the indebtedness, which is the principal obligation. In the present case,
the principal obligation is the loan between the parties. The accessory obligation of a penal clause is to
enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist the
penalty being accessory cannot exist.
Now then when is the penalty demandable? A penalty is demandable in case of non performance or late
performance of the main obligation. In other words in order that the penalty may arise there must be a
breach of the obligation either by total or partial non fulfillment or there is non fulfillment in point of time
which is called mora or delay. The debtor therefore violates the obligation in point of time if there is mora
or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case
during all the period when the principal obligation was still subsisting, although there were late
amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the
penalty. Therefore up to the time of the letter of plaintiff-appellant there was no demand for the payment
of the penalty, hence the debtor was no in mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F) showing the
total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment from defendant-
appellee. Because of the demand for payment, Moonwalk made several payments on September 29,
October 9 and 19, 1979 respectively, all in all totalling P15,004,905.74 which was a complete payment of
its obligation as stated in Exhibit F. Because of this payment the obligation of Moonwalk was considered
extinguished, and pursuant to said extinguishment, the real estate mortgages given by Moonwalk were
released on October 9, 1979 and October 10, 1979 (Exhibits G and H). For all purposes therefore the
principal obligation of defendant-appellee was deemed extinguished as well as the accessory obligation of
real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages on October 9
and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation must also
be deemed extinguished considering that the principal obligation was considered extinguished, and the
penal clause being an accessory obligation. That being the case, the demand for payment of the penal
clause made by plaintiff-appellant in its demand letter dated November 28, 1979 and its follow up letter
dated December 17, 1979 (which parenthetically are the only demands for payment of the penalties) are
therefore ineffective as there was nothing to demand. It would be otherwise, if the demand for the
payment of the penalty was made prior to the extinguishment of the obligation because then the
obligation of Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the principal
obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in mora and
therefore liable for the penalty.
Let it be emphasized that at the time of the demand made in the letters of November 28, 1979 and
December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in default since
there was no mora prior to the demand. That being the case, therefore, the demand made after the
extinguishment of the principal obligation which carried with it the extinguishment of the penal clause
being merely an accessory obligation, was an exercise in futility.
3. At the time of the payment made of the full obligation on October 10, 1979 together with the 12%
interest by defendant-appellee Moonwalk, its obligation was extinguished. It being extinguished, there
was no more need for the penal clause. Now, it is to be noted that penalty at anytime can be modified by
the Court. Even substantial performance under Art. 1234 authorizes the Court to consider it as complete
performance minus damages. Now, Art, 1229 Civil Code of the Philippines provides:
"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable."
If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by
the debtor, which is nonetheless a breach of the obligation, with more reason the penal clause is not
demandable when full obligation has been complied with since in that case there is no breach of the
obligation. In the present case, there has been as yet no demand for payment of the penalty at the time of
the extinguishment of the obligation, hence there was likewise an extinguishment of the penalty.
Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor, that is,
the amount loaned together with the 12% interest has been fully paid by the appellee. That being so, there
is no basis for demanding the penal clause since the obligation has been extinguished. Here there has
been a waiver of the penal clause as it was not demanded before the full obligation was fully paid and
extinguished. Again, emphasis must be made on the fact that plaintiff-appellant has not lost anything
under the contract since in got back in full the amount loan (sic) as well as the interest thereof. The same
thing would have happened if the obligation was paid on time, for then the penal clause, under the terms
of the contract would not apply. Payment of the penalty does not mean gain or loss of plaintiff-appellant
since it is merely for the purpose of enforcing the performance of the main obligation has been fully
complied with and extinguished, the penal clause has lost its raison d' entre." 5
We find no reason to depart from the appellate court's decision. We, however, advance the following
reasons for the denial of this petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code."
(Emphasis Ours.)
A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double
function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation
by the threat of greater responsibility in the event of breach. 7 From the foregoing, it is clear that a penal
clause is intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if
there should be default, the penalty may be enforced. One commentator of the Civil Code wrote:
"Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We
must make a distinction between a positive and a negative obligation. With regard to obligations which
are positive (to give and to do), the penalty is demandable when the debtor is in mora; hence, the
necessity of demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance of the obligation.
"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation."
There are only three instances when demand is not necessary to render the obligor in default. These are
the following:
"(1) When the obligation or the law expressly so declares;
(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 the demand would be useless, as when the obligor has rendered it beyond his power to
perform." 9
This case does not fall within any of the established exceptions. Hence, despite the provision in the
promissory note that "(a)ll amortization payments shall be made every first five (5) days of the calendar
month until the principal and interest on the loan or any portion thereof actually released has been fully
paid," 10 petitioner is not excused from making a demand. It has been established that at the time of
payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its
monthly arrears and in paying the full amount of the loan itself as the obligation matured sometime in
January, 1977. But mere delinquency in payment does not necessarily mean delay in the legal concept. To
be in default ". . . is different from mere delay in the grammatical sense, because it involves the beginning
of a special condition or status which has its own peculiar effects or results." 11 In order that the debtor
may be in default it is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially and extrajudicially. 12 Default generally begins from the moment the
creditor demands the performance of the obligation. 13
Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly
amortizations. Neither did it show that petitioner demanded the payment of the stipulated penalty upon
the failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was that SSS
tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate mortgages
executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's
requests and promises to pay in full. The next demand for payment happened on October 1, 1979 when
SSS issued a Statement of Account to Moonwalk. And in accordance with said statement, Moonwalk paid
its loan in full. What is clear, therefore, is that Moonwalk was never in default because SSS never
compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon
the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for
payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no
occasion when the penalty became demandable and enforceable. Since there was no default in the
performance of the main obligation — payment of the loan — SSS was never entitled to recover any
penalty, not at the time it made the Statement of Account and certainly, not after the extinguishment of
the principal obligation because then, all the more that SSS had no reason to ask for the penalties. Thus,
there could never be any occasion for waiver or even mistake in the application for payment because there
was nothing for SSS to waive as its right to enforce the penalty did not arise.
SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it held were
trust funds and as trustee, the petitioner could not perform acts affecting the funds that would diminish
property rights of the owners and beneficiaries thereof. To support its claim, SSS cited the case of United
Christian Missionary Society v. Social Security Commission. 14
We looked into the case and found out that it is not applicable to the present case as it dealt not with the
right of the SSS to collect penalties which were provided for in contracts which it entered into but with its
right to collect premiums and its duty to collect the penalty for delayed payment or non-payment of
premiums. The Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent Commission in the enforcement of the law's mandate
that the employer who fails to comply with his legal obligation to remit the premiums to the System
within the prescribed period shall pay a penalty of three (3%) per month. The prescribed penalty is
evidently of a punitive character, provided by the legislature to assure that employers do not take lightly
the State's exercise of the police power in the implementation of the Republic's declared policy "to
develop, establish gradually and perfect a social security system which shall be suitable to the needs of the
people throughout the Philippines and (to) provide protection to employers against the hazards of
disability, sickness, old age and death . . ."
Thus, We agree with the decision of the respondent court on the matter which We quote, to wit:
"Note that the above case refers to the condonation of the penalty for the non remittance of the premium
which is provided for by Section 22(a) of the Social Security Act . . . In other words, what was sought to be
condoned was the penalty provided for by law for non remittance of premium for coverage under the
Social Security Act.
The case at bar does not refer to any penalty provided for by law nor does it refer to the non remittance of
premium. The case at bar refers to a contract of loan entered into between plaintiff and defendant
Moonwalk Development and Housing Corporation. Note, therefore, that no provision of law is involved in
this case, nor is there any penalty imposed by law nor a case about non-remittance of premium required
by law. The present case refers to a contract of loan payable in installments not provided for by law but by
agreement of the parties. Therefore, the ratio decidendi of the case of United Christian Missionary Society
vs. Social Security Commission which plaintiff-appellant relies is not applicable in this case; clearly, the
Social Security Commission, which is a creature of the Social Security Act cannot condone a mandatory
provision of law providing for the payment of premiums and for penalties for non remittance. The life of
the Social Security Act is in the premiums because these are the funds from which the Social Security Act
gets the money for its purposes and the non-remittance of the premiums is penalized not by the Social
Security Commission but by law.
xxx xxx xxx
It is admitted that when a government created corporation enters into a contract with private party
concerning a loan, it descends to the level of a private person. Hence, the rules on contract applicable to
private parties are applicable to it. The argument therefore that the Social Security Commission cannot
waive or condone the penalties which was applied in the United Christian Missionary Society cannot
apply in this case. First, because what was not paid were installments on a loan but premiums required by
law to be paid by the parties covered by the Social Security Act. Secondly, what is sought to be condoned
or waived are penalties not imposed by law for failure to remit premiums required by law, but a penalty
for non payment provided for by the agreement of the parties in the contract between them . . ." 15
WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent
court is AFFIRMED. LLpr
SO ORDERED.
Narvasa, C .J ., Padilla, Regalado and Nocon, JJ ., concur.
Footnotes
1. AC-G.R. CV No. 68692, "Social Security System vs. Moonwalk Development & Housing Corporation, et
al.", penned by Associate Justice Eduardo P. Caguioa, Associate Justices Abdulwahid A. Bidin and
Floreliana C. Bartolome, concurring with dissenting opinion of Presiding Justice Ramon G. Gaviola, Jr.,
and Associate Justice Ma. Rosario Quetulio-Losa, concurring.
2. Annex "A" of Petition, pp. 1-3; Rollo, pp. 44-46.
3. Decision, p. 13; Rollo, p. 56.
4. Petition, p. 12; Rollo, p. 27.
5. Rollo, pp. 62-66.
6. 4 TOLENTINO, CIVIL CODE OF THE PHILIPPINES 259 (1991 ed.).
7. Ibid.
8. 4 E.P. CAGUIOA, COMMENTS AND CASES ON CIVIL LAW 280 (1983 ed.).
9. CIVIL CODE, Art. 1169.

10. Annex "C" of the Petition, Record on Appeal, p. 10.
11. Supra, note 6.
12. Ibid.
13. Ibid.
14. 30 SCRA 982, 987 (1969).
15. Supra, note 3, pp. 17-18.
Bricktown Development Corp., et al. vs. Amor Tierra Development

Corporation, et al.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 112182 December 12, 1994
BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL REALTY

DEVELOPMENT CORPORATION) and MARIANO Z. VERALDE, petitioners,
vs.
AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF
APPEALS, respondents.
Tabaquero, Dela Torre, Simando & Associates for petitioners.
Robles, Ricafrente & Aguirre Law Firm for private respondent.
VITUG, J.:
A contract, once perfected, has the force of law between the parties with which they are bound to comply
in good faith and from which neither one may renege without the consent of the other. The autonomy of
contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may deem
appropriate provided only that they are not contrary to law, morals, good customs, public order or public
policy. The standard norm in the performance of their respective covenants in the contract, as well as in
the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that
juridical relation must act with justice, honesty and good faith.
These basic tenets, once again, take the lead in the instant controversy.
Private respondent reminds us that the factual findings of the trial court, sustained by the Court of
Appeals, should be considered binding on this Court in this petition. We concede to this reminder since,
indeed, there appears to be no valid justification in the case at bench for us to take an exception from the
rule. We shall, therefore, momentarily paraphrase these findings.
On 31 March 1981, Bricktown Development Corporation (herein petitioner corporation), represented by
its President and co-petitioner Mariano Z. Velarde, executed two Contracts to Sell (Exhs. "A" and "B") in
favor of Amor Tierra Development Corporation (herein private respondent), represented in these acts by
its Vice-President, Moises G. Petilla, covering a total of 96 residential lots, situated at the Multinational
Village Subdivision, La Huerta, Parañaque, Metro Manila, with an aggregate area of 82,888 square
meters. The total price of P21,639,875.00 was stipulated to be paid by private respondent in such
amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June
1981; P4,729,906.25 on 31 December 1981; and the balance of P11,500,000.00 to be paid by means of an
assumption by private respondent of petitioner corporation's mortgage liability to the Philippine Savings
Bank or, alternatively, to be made payable in cash. On even date, 31 March 1981, the parties executed a
Supplemental Agreement (Exh. "C"), providing that private respondent would additionally pay to
petitioner corporation the amounts of P55,364.68, or 21% interest on the balance of downpayment for the
period from 31 March to 30 June 1981, and of P390,369.37 representing interest paid by petitioner
corporation to the Philippine Savings Bank in updating the bank loan for the period from 01 February to
31 March 1981.
Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21 (Exhs. "A" to
"K"). In the meanwhile, however, the parties continued to negotiate for a possible modification of their
agreement, although nothing conclusive would appear to have ultimately been arrived at.
Finally, on 12 October 1981, petitioner corporation, through its legal counsel, sent private respondent a
"Notice of Cancellation of Contract" (Exh. "D") on account of the latter's continued failure to pay the
installment due 30 June 1981 and the interest on the unpaid balance of the stipulated initial payment.
Petitioner corporation advised private respondent, however, that it (private respondent) still had the right
to pay its arrearages within 30 days from receipt of the notice "otherwise the actual cancellation of the
contract (would) take place."
Several months later, or on 26 September 1983, private respondent, through counsel, demanded (Exh.
"E") the refund of private respondent's various payments to petitioner corporation, allegedly "amounting
to P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a cash payment,
to assign to private respondent an equivalent number of unencumbered lots at the same price fixed in the
contracts. The demand, not having been heeded, private respondent commenced, on 18 November 1983,
its action with the court a quo. 1
Following the reception of evidence, the trial court rendered its decision, the dispositive portion of which
read:
In view of all the foregoing, judgment is hereby rendered as follows:
1. Declaring the Contracts to Sell and the Supplemental Agreement (Exhibits "A", "B" and
"C") rescinded;
2. Ordering the [petitioner] corporation, Bricktown Development Corporation, also

known as Multinational Realty Development Corporation, to return to the [private
respondent] the amount of One Million Three Hundred Thirty Four Thousand Four
Hundred Forty-Three Pesos and Twenty-One Centavos (P1,334,443.21) with interest at
the rate of Twelve (12%) percent per annum, starting November 18, 1983, the date when
the complaint was filed, until the amount is fully paid;
3. Ordering the [petitioner] corporation to pay the [private respondent] the amount of
Twenty-five Thousand (P25,000.00) Pesos, representing attorney's fees;
4. Dismissing [petitioner's] counterclaim for lack of merit; and
5. With costs against the [petitioner] corporation.

SO ORDERED. 2
On appeal, the appellate court affirmed in toto the trial court's findings and judgment.
In their instant petition, petitioners contend that the Court of Appeals has erred in ruling that —
(1) By petitioners' acts, conduct and representation, they themselves delayed or prevented
the performance of the contracts to sell and the supplemental agreement and were thus
estopped from cancelling the same.
(2) Petitioners were no justified in resolving the contracts to sell and the supplemental
agreement.
(3) The cancellation of the contract required a positive act on the part of petitioners
giving private respondent the sixty (60) day grace period provided in the contracts to sell;
and
(4) In not holding that the forfeiture of the P1,378,197.48 was warranted under the
liquidated damages provisions of the contracts to sell and the supplemental agreement
and was not iniquitous nor unconscionable.
The core issues would really come down to (a) whether or not the contracts to sell were validly rescinded
or cancelled by petitioner corporation and, in the affirmative, (b) whether or not the amounts already
remitted by private respondent under said contracts were rightly forfeited by petitioner corporation.
Admittedly, the terms of payment agreed upon by the parties were not met by private respondent. Of a
total selling price of P21,639,875.00, private respondent was only able to remit the sum of P1,334,443.21
which was even short of the stipulated initial payment of P2,200,000.00. No additional payments, it
would seem, were made. A notice of cancellation was ultimately made months after the lapse of the
contracted grace period. Paragraph 15 of the Contracts to Sell provided thusly:
15. Should the PURCHASER fail to pay when due any of the installments mentioned in
stipulation No. 1 above, the OWNER shall grant the purchaser a sixty (60)-day grace
period within which to pay the amount/s due, and should the PURCHASER still fail to
pay the due amount/s within the 60-day grace period, the PURCHASER shall have the
right to ex-parte cancel or rescind this contract, provided, however, that the actual
cancellation or rescission shall take effect only after the lapse of thirty (30) days from the
date of receipt by the PURCHASER of the notice of cancellation of this contract or the
demand for its rescission by a notarial act, and thereafter, the OWNER shall have the
right to resell the lot/s subject hereof to another buyer and all payments made, together
with all improvements introduced on the aforementioned lot/s shall be forfeited in favor
of the OWNER as liquidated damages, and in this connection, the PURCHASER obligates
itself to peacefully vacate the aforesaid lot/s without necessity of notice or demand by the
OWNER. 3
A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, such as in this
case, the grace period is effective without further need of demand either calling for the payment of the
obligation or for honoring the right. The grace period must not be likened to an obligation, the non-
payment of which, under Article 1169 of the Civil Code, would generally still require judicial or
extrajudicial demand before "default" can be said to arise. 4
Verily, in the case at bench, the sixty-day grace period under the terms of the contracts to sell became ipso
facto operative from the moment the due payments were not met at their stated maturities. On this score,
the provisions of Article 1169 of the Civil Code would find no relevance whatsoever.
The cancellation of the contracts to sell by petitioner corporation accords with the contractual covenants
of the parties, and such cancellation must be respected. It may be noteworthy to add that in a contract to
sell, the
non-payment of the purchase price (which is normally the condition for the final sale) can prevent the
obligation to convey title from acquiring any obligatory force (Roque vs. Lapuz, 96 SCRA 741; Agustin vs.
Court of Appeals, 186 SCRA 375).
The forfeiture of the payments thus far remitted under the cancelled contracts in question, given the
factual findings of both the trial court and the appellate court, must be viewed differently. While clearly
insufficient to justify a foreclosure of the right of petitioner corporation to rescind or cancel its contracts
with private respondent, the series of events and circumstances described by said courts to have prevailed
in the interim between the parties, however, warrant some favorable consideration by this Court.
Petitioners do not deny the fact that there has indeed been a constant dialogue between the parties during
the period of their juridical relation. Concededly, the negotiations that they have pursued strictly did not
result in the novation, either extinctive or modificatory, of the contracts to sell; nevertheless, this Court is
unable to completely disregard the following findings of both the trial court and the appellate court. Said
the trial court:
It has been duly established through the testimony of plaintiff's witnesses Marcosa
Sanchez and Vicente Casas that there were negotiations to enter into another agreement
between the parties, after March 31, 1981. The first negotiation took place before June 30,
1981, when Moises Petilla and Renato Dragon, Vice-President and president, respectively,
of the plaintiff corporation, together with Marcosa Sanchez, went to the office of the
defendant corporation and made some proposals to the latter, thru its president, the
defendant Mariano Velarde. They told the defendant Velarde of the plaintiff's request for
the division of the lots to be purchased into smaller lots and the building of town houses
or smaller houses therein as these kinds of houses can be sold easily than big ones.
Velarde replied that subdivision owners would not consent to the building of small
houses. He, however, made two counter-proposals, to wit: that the defendant corporation
would assign to the plaintiff a number of lots corresponding to the amounts the latter had
already paid, or that the defendant corporation may sell the corporation itself, together
with the Multinational Village Subdivision, and its other properties, to the plaintiff and
the latter's sister companies engaged in the real estate business. The negotiations between
the parties went on for sometime but nothing definite was accomplished. 5
For its part, the Court of Appeals observed:
We agree with the court a quo that there is, therefore, reasonable ground to believe that
because of the negotiations between the parties, coupled with the fact that the plaintiff
never took actual possession of the properties and the defendants did not also dispose of
the same during the pendency of said negotiations, the plaintiff was led to believe that the
parties may ultimately enter into another agreement in place of the "contracts to sell."
There was, evidently, no malice or bad faith on the part of the plaintiff in suspending
payments. On the contrary, the defendants not only contributed, but had consented to the
delay or suspension of payments. They did not give the plaintiff a categorical answer that
their counter-proposals will not materialize. 6
In fine, while we must conclude that petitioner corporation still acted within its legal right to declare the
contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar circumstances found to be
extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable, in our view, to
likewise sanction the forfeiture by petitioner corporation of payments made to it by private respondent.
Indeed, in the opening statement of this ponencia, we have intimated that the relationship between
parties in any contract must always be characterized and punctuated by good faith and fair dealing.
Judging from what the courts below have said, petitioners did fall well behind that standard. We do not
find it equitable, however, to adjudge any interest payment by petitioners on the amount to be thus
refunded, computed from judicial demand, for, indeed, private respondent should not be allowed to
totally free itself from its own breach.
WHEREFORE, the appealed decision is AFFIRMED insofar as it declares valid the cancellation of the
contracts in question but MODIFIED by ordering the refund by petitioner corporation of P1,334,443.21
with 12% interest per annum to commence only, however, from the date of finality of this decision until
such refund is effected. No costs.
SO ORDERED.
Bidin, Romero and Melo, JJ., concur.
Feliciano, J., is on leave.
#Footnotes
1 Rollo, pp. 39-41.
2 Rollo, p. 41.
3 Rollo, p. 82.
4 Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins.
5 Rollo, pp. 43-44.
6 Rollo, p. 44.
Short Title
Bricktown Development Corp., et al. vs. Amor Tierra Development Corporation, et
al.
G.R. Number
G.R. No. 112182
Date of Promulgation
Estrella Palmares vs. Court of Appeals, et al.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126490 March 31, 1998
ESTRELLA PALMARES, petitioner,

vs.
COURT OF APPEALS and M.B. LENDING CORPORATION, respondents.
REGALADO, J.:
Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable
with the principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the
former deemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the
solvency of the debtor?
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation
extended a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares,
in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of
6% per annum to be computed every 30 days from the date thereof.1On four occasions after the execution
of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to
pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last
payment on September 26, 1991.2
Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent
corporation filed a complaint3 against petitioner Palmares as the lone party-defendant, to the exclusion of
the principal debtors, allegedly by reason of the insolvency of the latter.
In her Amended Answer with Counterclaim,4 petitioner alleged that sometime in August 1990,
immediately after the loan matured, she offered to settle the obligation with respondent corporation but
the latter informed her that they would try to collect from the spouses Azarraga and that she need not
worry about it; that there has already been a partial payment in the amount of P17,010.00; that the
interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3%
per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only
upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without
including the Azarragas when they were the only ones who benefited from the proceeds of the loan.
During the pre-trial conference, the parties submitted the following issues for the resolution of the trial
court: (1) what the rate of interest, penalty and damages should be; (2) whether the liability of the
defendant (herein petitioner) is primary or subsidiary; and (3) whether the defendant Estrella Palmares is
only a guarantor with a subsidiary liability and not a co-maker with primary liability.5
Thereafter, the parties agreed to submit the case for decision based on the pleadings filed and the
memoranda to be submitted by them. On November 26, 1992, the Regional Trial Court of Iloilo City,
Branch 23, rendered judgment dismissing the complaint without prejudice to the filing of a separate
action for a sum of money against the spouses Osmeña and Merlyn Azarraga who are primarily liable on
the instrument.6 This was based on the findings of the court a quo that the filing of the complaint against
herein petitioner Estrella Palmares, to the exclusion of the Azarraga spouses, amounted to a discharge of a
prior party; that the offer made by petitioner to pay the obligation is considered a valid tender of payment
sufficient to discharge a person's secondary liability on the instrument; as co-maker, is only secondarily
liable on the instrument; and that the promissory note is a contract of adhesion.
Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered judgment
declaring herein petitioner Palmares liable to pay respondent corporation:
1. The sum of P13,700.00 representing the outstanding balance still due and owing with interest
at six percent (6%) per month computed from the date the loan was contracted until fully paid;
2. The sum equivalent to the stipulated penalty of three percent (3%) per month, of the
outstanding balance;
3. Attorney's fees at 25% of the total amount due per stipulations;
4. Plus costs of suit.7
Contrary to the findings of the trial court, respondent appellate court declared that petitioner Palmares is
a surety since she bound herself to be jointly and severally or solidarily liable with the principal debtors,
the Azarraga spouses, when she signed as a co-maker. As such, petitioner is primarily liable on the note
and hence may be sued by the creditor corporation for the entire obligation. It also adverted to the fact
that petitioner admitted her liability in her Answer although she claims that the Azarraga spouses should
have been impleaded. Respondent court ordered the imposition of the stipulated 6% interest and 3%
penalty charges on the ground that the Usury Law is no longer enforceable pursuant to Central Bank
Circular No. 905. Finally, it rationalized that even if the promissory note were to be considered as a
contract of adhesion, the same is not entirely prohibited because the one who adheres to the contract is
free to reject it entirely; if he adheres, he gives his consent.
Hence this petition for review on certiorari wherein it is asserted that:
A. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily
liable to pay the promissory note.
1. The terms of the promissory note are vague. Its conflicting provisions do not establish
Palmares' solidary liability.
2. The promissory note contains provisions which establish the co-maker's liability as that of a
guarantor.
3. There is no sufficient basis for concluding that Palmares' liability is solidary.
4. The promissory note is a contract of adhesion and should be construed against M. B. Lending
Corporation.
5. Palmares cannot be compelled to pay the loan at this point.
B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in strictly imposing the
interests and penalty charges on the outstanding balance of the promissory note.
The foregoing contentions of petitioner are denied and contradicted in their material points by
respondent corporation. They are further refuted by accepted doctrines in the American jurisdiction after
which we patterned our statutory law on surety and guaranty. This case then affords us the opportunity to
make an extended exposition on the ramifications of these two specialized contracts, for such guidance as
may be taken therefrom in similar local controversies in the future.
The basis of petitioner Palmares' liability under the promissory note is expressed in this wise:
ATTENTION TO CO-MAKERS: PLEASE READ WELL
I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents
of this Promissory Note for Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above
principal maker of this note;
That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan
from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note subject to
the same conditions above-contained.8
Petitioner contends that the provisions of the second and third paragraph are conflicting in that while the
second paragraph seems to define her liability as that of a surety which is joint and solidary with the
principal maker, on the other hand, under the third paragraph her liability is actually that of a mere
guarantor because she bound herself to fulfill the obligation only in case the principal debtor should fail to
do so, which is the essence of a contract of guaranty. More simply stated, although the second paragraph
says that she is liable as a surety, the third paragraph defines the nature of her liability as that of a
guarantor. According to petitioner, these are two conflicting provisions in the promissory note and the
rule is that clauses in the contract should be interpreted in relation to one another and not by parts. In
other words, the second paragraph should not be taken in isolation, but should be read in relation to the
third paragraph.
In an attempt to reconcile the supposed conflict between the two provisions, petitioner avers that she
could be held liable only as a guarantor for several reasons. First, the words "jointly and severally or
solidarily liable" used in the second paragraph are technical and legal terms which are not fully
appreciated by an ordinary layman like herein petitioner, a 65-year old housewife who is likely to enter
into such transactions without fully realizing the nature and extent of her liability. On the contrary, the
wordings used in the third paragraph are easier to comprehend. Second, the law looks upon the contract
of suretyship with a jealous eye and the rule is that the obligation of the surety cannot be extended by
implication beyond specified limits, taking into consideration the peculiar nature of a surety agreement
which holds the surety liable despite the absence of any direct consideration received from either the
principal obligor or the creditor. Third, the promissory note is a contract of adhesion since it was
prepared by respondent M.B. Lending Corporation. The note was brought to petitioner partially filled up,
the contents thereof were never explained to her, and her only participation was to sign thereon. Thus,
any apparent ambiguity in the contract should be strictly construed against private respondent pursuant
to Art. 1377 of the Civil Code.9
Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third
paragraph of the promissory note to be that of a guarantor.
Moreover, petitioner submits that she cannot as yet be compelled to pay the loan because the principal
debtors cannot be considered in default in the absence of a judicial or extrajudicial demand. It is true that
the complaint alleges the fact of demand, but the purported demand letters were never attached to the
pleadings filed by private respondent before the trial court. And, while petitioner may have admitted in
her Amended Answer that she received a demand letter from respondent corporation sometime in 1990,
the same did not effectively put her or the principal debtors in default for the simple reason that the latter
subsequently made a partial payment on the loan in September, 1991, a fact which was never controverted
by herein private respondent.
Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of P2,745,483.39 in
favor of private respondent when, in truth and in fact, the outstanding balance of the loan is only
P13,700.00. Where the interest charged on the loan is exorbitant, iniquitous or unconscionable, and the
obligation has been partially complied with, the court may equitably reduce the penalty10 on grounds of
substantial justice. More importantly, respondent corporation never refuted petitioner's allegation that
immediately after the loan matured, she informed said respondent of her desire to settle the obligation.
The court should, therefore, mitigate the damages to be paid since petitioner has shown a sincere desire
for a compromise.11
After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the petition for
lack of merit, but to except therefrom the issue anent the propriety of the monetary award adjudged to
herein respondent corporation.
At the outset, let it here be stressed that even assuming arguendo that the promissory note executed
between the parties is a contract of adhesion, it has been the consistent holding of the Court that contracts
of adhesion are not invalid per se and that on numerous occasions the binding effects thereof have been
upheld. The peculiar nature of such contracts necessitate a close scrutiny of the factual milieu to which the
provisions are intended to apply. Hence, just as consistently and unhesitatingly, but without categorically
invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive
provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when
justified in light of the operative facts and surrounding circumstances.12 The factual scenario obtaining in
the case before us warrants a liberal application of the rule in favor of respondent corporation.
The Civil Code pertinently provides:
Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control.13In
the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's
liability is that of a surety.
Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph
of her contract are technical and legal terms which could not be easily understood by an ordinary layman
like her is diametrically opposed to her manifestation in the contract that she "fully understood the
contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal
maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard
to claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by
clear and convincing evidence, mere preponderance of evidence not even being adequate. Petitioner's
attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and,
expectedly, self-serving allegations.14
Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to
assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect
of the undertaking.15 The rule that ignorance of the contents of an instrument does not ordinarily affect
the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the
legal effect of her obligation is ordinarily no reason for relieving her of liability.16
Petitioner would like to make capital of the fact that although she obligated herself to be jointly and
severally liable with the principal maker, her liability is deemed restricted by the provisions of the third
paragraph of her contract wherein she agreed "that M.B. Lending Corporation may demand payment of
the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the
note," which makes her contract one of guaranty and not suretyship. The purported discordance is more
apparent than real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.17 A
suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall
pay.18Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a
guarantor agrees that the creditor, after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay.19 A surety binds himself to perform if the principal does not,
without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal
will pay, but simply that he is able to do so.20 In other words, a surety undertakes directly for the
payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to
pay if, by the use of due diligence, the debt cannot be made out of the principal debtor.21
Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically
remove it from the ambit of a contract of suretyship. The second and third paragraphs of the aforequoted
portion of the promissory note do not contain any other condition for the enforcement of respondent
corporation's right against petitioner. It has not been shown, either in the contract or the pleadings, that
respondent corporation agreed to proceed against herein petitioner only if and whenthe defaulting
principal has become insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by
joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with
him, and without reference to the solvency of the principal.22
In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule
on strictissimi juris, which holds that when the meaning of a contract of indemnity or guaranty has once
been judicially determined under the rule of reasonable construction applicable to all written contracts,
then the liability of the surety, under his contract, as thus interpreted and construed, is not to be extended
beyond its strict meaning.23The rule, however, will apply only after it has been definitely ascertained that
the contract is one of suretyship and not a contract of guaranty. It cannot be used as an aid in
determining whethera party's undertaking is that of a surety or a guarantor.
Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained in
the third paragraph of the controverted suretyship contract merely elucidated on and made more specific
the obligation of petitioner as generally defined in the second paragraph thereof. Resultantly, the theory
advanced by petitioner, that she is merely a guarantor because her liability attaches only upon default of
the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements
adverted to above.
It is a well-entrenched rule that in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall also be principally considered.24 Several attendant factors in
that genre lend support to our finding that petitioner is a surety. For one, when petitioner was informed
about the failure of the principal debtor to pay the loan, she immediately offered to settle the account with
respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon
default of her principal. For another, and this is most revealing, petitioner presented the receipts of the
payments already made, from the time of initial payment up to the last, which were all issued in her name
and of the Azarraga spouses.25This can only be construed to mean that the payments made by the
principal debtors were considered by respondent corporation as creditable directly upon the account and
inuring to the benefit of petitioner. The concomitant and simultaneous compliance of petitioner's
obligation with that of her principals only goes to show that, from the very start, petitioner considered
herself equally bound by the contract of the principal makers.
In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the
principal,26 and as such is deemed an original promisor and debtor from the beginning.27 This is
because in suretyship there is but one contract, and the surety is bound by the same agreement which
binds the principal.28 In essence, the contract of a surety starts with the agreement,29 which is precisely
the situation obtaining in this case before the Court.
It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and
conditions stipulated between respondent corporation, as creditor, and the principal obligors. A surety is
usually bound with his principal by the same instrument, executed at the same time and upon the same
consideration; he is an original debtor, and his liability is immediate and direct.30 Thus, it has been held
that where a written agreement on the same sheet of paper with and immediately following the principal
contract between the buyer and seller is executed simultaneously therewith, providing that the signers of
the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with
the buyer.31 A surety usually enters into the same obligation as that of his principal, and the signatures of
both usually appear upon the same instrument, and the same consideration usually supports the
obligation for both the principal and the surety.32
There is no merit in petitioner's contention that the complaint was prematurely filed because the principal
debtors cannot as yet be considered in default, there having been no judicial or extrajudicial demand
made by respondent corporation. Petitioner has agreed that respondent corporation may demand
payment of the loan from her in case the principal maker defaults, subject to the same conditions
expressed in the promissory note. Significantly, paragraph (G) of the note states that "should I fail to pay
in accordance with the above schedule of payment, I hereby waive my right to notice and demand."
Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself
already expressly so declares.33 As a surety, petitioner is equally bound by such waiver.
Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since
the commencement of the suit is a sufficient demand.34 On this point, it may be worth mentioning that a
surety is not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as
the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to
voluntarily give information to the surety of the default of the principal cannot have the effect of
discharging the surety. The surety is bound to take notice of the principal's default and to perform the
obligation. He cannot complain that the creditor has not notified
him in the absence of a special agreement to that effect in the contract of suretyship.35
The alleged failure of respondent corporation to prove the fact of demand on the principal debtors, by not
attaching copies thereof to its pleadings, is likewise immaterial. In the absence of a statutory or
contractual requirement, it is not necessary that payment or performance of his obligation be first
demanded of the principal, especially where demand would have been useless; nor is it a requisite, before
proceeding against the sureties, that the principal be called on to account.36The underlying principle
therefor is that a suretyship is a direct contract to pay the debt of another. A surety is liable as much as his
principal is liable, and absolutely liable as soon as default is made, without any demand upon the
principal whatsoever or any notice of default.37 As an original promisor and debtor from the beginning,
he is held ordinarily to know every default of his principal.38
Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the
principal debtors who allegedly were the only ones who benefited from the proceeds of the loan. What
petitioner is trying to imply is that the creditor, herein respondent corporation, should have proceeded
first against the principal before suing on her obligation as surety. We disagree.
A creditor's right to proceed against the surety exists independently of his right to proceed against the
principal.39Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and
several, the creditor has the right to proceed even against the surety alone.40 Since, generally, it is not
necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the
terms of the contract, the obligation of the surety is the same that of the principal, then soon as the
principal is in default, the surety is likewise in default, and may be sued immediately and before any
proceedings are had against the principal.41 Perforce, in accordance with the rule that, in the absence of
statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to
pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by
statute and in the absence of any agreement limiting the application of the security, require the creditor or
obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal,
particularly where both principal and surety are equally bound.42
We agree with respondent corporation that its mere failure to immediately sue petitioner on her
obligation does not release her from liability. Where a creditor refrains from proceeding against the
principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not
affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to sue
on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given
at the principal's request or without it, and whether it is yielded by the creditor through sympathy or from
an inclination to favor the principal, or is only the result of passiveness. The neglect of the creditor to sue
the principal at the time the debt falls due does not discharge the surety, even if such delay continues until
the principal becomes insolvent.43 And, in the absence of proof of resultant injury, a surety is not
discharged by the creditor's mere statement that the creditor will not look to the surety,44 or that he need
not trouble himself.45 The consequences of the delay, such as the subsequent insolvency of the
principal,46or the fact that the remedies against the principal may be lost by lapse of time, are
immaterial.47
The raison d'être for the rule is that there is nothing to prevent the creditor from proceeding against the
principal at any time.48At any rate, if the surety is dissatisfied with the degree of activity displayed by the
creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the
rights and remedies of the creditor.49
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor
without change in the time when the debt might be demanded, does not constitute an extension of the
time of payment, which would release the surety.50 In order to constitute an extension discharging the
surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement
between the principal and the creditor, and that it was made without the consent of the surety or with a
reservation of rights with respect to him. The contract must be one which precludes the creditor from, or
at least hinders him in, enforcing the principal contract within the period during which he could otherwise
have enforced it, and which precludes the surety from paying the debt.51
None of these elements are present in the instant case. Verily, the mere fact that respondent corporation
gave the principal debtors an extended period of time within which to comply with their obligation did not
effectively absolve here in petitioner from the consequences of her undertaking. Besides, the burden is on
the surety, herein petitioner, to show that she has been discharged by some act of the creditor, 52 herein
respondent corporation, failing in which we cannot grant the relief prayed for.
As a final issue, petitioner claims that assuming that her liability is solidary, the interests and penalty
charges on the outstanding balance of the loan cannot be imposed for being illegal and unconscionable.
Petitioner additionally theorizes that respondent corporation intentionally delayed the collection of the
loan in order that the interests and penalty charges would accumulate. The statement, likewise traversed
by said respondent, is misleading.
In an affidavit53 executed by petitioner, which was attached to her petition, she stated, among others,
that:
8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's loan has been
released and that she has not paid the same upon its maturity. I received a telephone call from
Mr. Augusto Banusing of MB Lending informing me of this fact and of my liability arising from
the promissory note which I signed.
9. I requested Mr. Banusing to try to collect first from Merlyn and Osmeña Azarraga. At the same
time, I offered to pay MB Lending the outstanding balance of the principal obligation should he
fail to collect from Merlyn and Osmeña Azarraga. Mr. Banusing advised me not to worry because
he will try to collect first from Merlyn and Osmeña Azarraga.
10. A year thereafter, I received a telephone call from the secretary of Mr. Banusing who reminded
that the loan of Merlyn and Osmeña Azarraga, together with interest and penalties thereon, has
not been paid. Since I had no available funds at that time, I offered to pay MB Lending by
delivering to them a parcel of land which I own. Mr. Banusing's secretary, however, refused my
offer for the reason that they are not interested in real estate.
11. In March 1992, I received a copy of the summons and of the complaint filed against me by MB
Lending before the RTC-Iloilo. After learning that a complaint was filed against me, I instructed
Sheila Gatia to go to MB Lending and reiterate my first offer to pay the outstanding balance of the
principal obligation of Merlyn Azarraga in the amount of P30,000.00.
12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty. Venus, counsel of
MB Lending.
13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer to pay the
outstanding balance of the principal obligation loan (sic) of Merlyn and Osmeña Azarraga is
acceptable. Later, Atty. Venus informed Ms. Gatia that my offer is not acceptable to Mr. Banusing.
The purported offer to pay made by petitioner can not be deemed sufficient and substantial in order to
effectively discharge her from liability. There are a number of circumstances which conjointly inveigh
against her aforesaid theory.
1. Respondent corporation cannot be faulted for not immediately demanding payment from petitioner. It
was petitioner who initially requested that the creditor try to collect from her principal first, and she
offered to pay only in case the creditor fails to collect. The delay, if any, was occasioned by the fact that
respondent corporation merely acquiesced to the request of petitioner. At any rate, there was here no
actual offer of payment to speak of but only a commitment to pay if the principal does not pay.
2. Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned.
Respondent corporation was acting well within its rights when it refused to accept the offer. The debtor of
a thing cannot compel the creditor to receive a different one, although the latter may be of the same value,
or more valuable than that which is due.54 The obligee is entitled to demand fulfillment of the obligation
or performance as stipulated. A change of the object of the obligation would constitute novation requiring
the express consent of the parties.55
3. After the complaint was filed against her, petitioner reiterated her offer to pay the outstanding balance
of the obligation in the amount of P30,000.00 but the same was likewise rejected. Again, respondent
corporation cannot be blamed for refusing the amount being offered because it fell way below the amount
it had computed, based on the stipulated interests and penalty charges, as owing and due from herein
petitioner. A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be.56 In other words, the
prestation must be fulfilled completely. A person entering into a contract has a right to insist on its
performance in all particulars.57
Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the
moment the latter accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, then the obligation shall be deemed fully complied with.58Precisely,
this is what respondent corporation wanted to avoid when it continually refused to settle with petitioner
at less than what was actually due under their contract.
This notwithstanding, however, we find and so hold that the penalty charge of 3% per month and
attorney's fees equivalent to 25% of the total amount due are highly inequitable and unreasonable.
It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00 had
already been paid even before the filing of the present case. Article 1229 of the Civil Code provides that the
court shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. And, even if there has been no performance, the penalty may also be reduced
if it is iniquitous or leonine.
In a case previously decided by this Court which likewise involved private respondent M.B. Lending
Corporation, and which is substantially on all fours with the one at bar, we decided to eliminate altogether
the penalty interest for being excessive and unwarranted under the following rationalization:
Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact
of the penalty interest of three percent (3 %) per month on total amount due but unpaid should be
equitably reduced. The purpose for which the penalty interest is intended — that is, to punish the
obligor — will have been sufficiently served by the effects of compounded interest. Under the
exceptional circumstances in the case at bar, e.g., the original amount loaned was only
P15,000.00; partial payment of P8,600.00 was made on due date; and the heavy (albeit still
lawful) regular compensatory interest, the penalty interest stipulated in the parties' promissory
note is iniquitous and unconscionable and may be equitably reduced further by eliminating such
penalty interest altogether.59
Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be
eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled that even with an
agreement thereon between the parties, the court may nevertheless reduce such attorney's fees fixed in
the contract when the amount thereof appears to be unconscionable or unreasonable.60 To that end, it is
not even necessary to show, as in other contracts, that it is contrary to morals or public policy. 61 The
grant of attorney's fees equivalent to 25% of the total amount due is, in our opinion, unreasonable and
immoderate, considering the minimal unpaid amount involved and the extent of the work involved in this
simple action for collection of a sum of money. We, therefore, hold that the amount of P10,000.00 as and
for attorney's fee would be sufficient in this case.62
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that
the penalty interest of 3% per month is hereby deleted and the award of attorney's fees is reduced to
P10,000.00.
SO ORDERED.
Melo, Puno, Mendoza and Martinez, JJ., concur.
Footnotes
1 Annex C, Petition; Rollo, 49.
2 Rollo, 38.
3 Annex D, id., ibid., 51.
4 Annex H, id., ibid., 69.
5 Rollo, 76.
6 Annex I, Petition; Rollo, 73; penned by Presiding Judge Tito G. Gustilo.
7 Annex A, id., ibid., 36; Associate Justice Jose C. de la Rama, ponente, with Associate Justices Emeterio
C. Cui and Eduardo G. Montenegro, concurring.
8 Rollo, 50.
9 Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
10 Article 1229, Civil Code.
11 Citing Article 2031, id.
12 Philippine Airlines, Inc. vs. Court of Appeals, et al., G.R. No. 119706, March 14, 1996, 255 SCRA 48.
13 Abella vs. Court of Appeals, et al., G.R. No. 107606, June 20, 1996, 257 SCRA 482.
14 Inciong, Jr., vs. Court of Appeals, et al., G.R. No. 96405, June 26, 1996, 257 SCRA 578.
15 72 CJS, Principal and Surety, § 83, 565.
16 Churchill vs. Bradley, 5 A. 189.
17 Northern State Bank of Grand Forks vs. Bellamy, 125 N.W. 888.
18 Shearer vs. R.S. Peele & Co., 36 N.E. 455.
19 W.T. Rawleigh Co. vs. Overstreet, et al., 32 S.E. 2d 574.
20 Manry vs. Waxelbaum Co., 33 S.E. 701.
21 40A Words and Phrases 429.
22 Erbelding vs. Noland, Co., Inc., 64 S.E. 2d 218.
23 Covey, et al. vs. Schiesswohl, 114 P. 292.
25 Rollo, 67-68.
26 18A Words and Phrases 657.
27 Hall, et al. vs. Weaver, 34 F. 104.
28 Howell vs. Commissioner of Internal Revenue, 69 F, 2d 447.
29 Shores-Mueller Co. vs. Palmer, et al., 216 S.W. 295.
30 Treweek vs. Howard, et al., 39 P. 20.
31 W.T. Rawleigh Co. vs. Overstreet, et al., 32 S.E. 2d 574.
32 Liquidating Midland Bank vs. Stecker, et al., 179 N.E. 504.
34 Rowe, et al. vs. Bank of New Brockton, 92 So. 643.

35 74 Am Jur 2d, Principal and Surety, § 35, 36.
36 Smith vs. US, 8 L Ed 130.
37 Rouse, et al. vs. Wooten, 53 S.E. 430.
38 Hall vs. Weaver, 34 F. 104.
39 Christenson vs. Diversified Builders, Inc., et al., 331 F. 2d 992.
40 74 Am Jur 2d, Principal and Surety, § 144, 103.
41 Standard Accident Insurance Co. vs. Standard Oil Co., 133 So. 2d 539; School District No. 65 of Lincoln
County vs. Universal Surety Co., 135 N.W. 2d 232; Depot Realty Syndicate vs. Enterprise Brewing Co., 171
P. 223.
42 72 CJS, Principal and Surety, § 287, 744-745.
43 74 Am Jur 2d, Principal and Surety, § 68, 53-54.
44 First National Bank of Huntington vs. Williams, et al., 26 N.E. 75.
45 National Bank of Commerce vs. Gilvin, 152 S.W. 652.
46 Kerby, et al. vs. State ex rel. Frohmiller, 157 P. 2d 698.
48 Scott vs. Gaulding, et al., 122 ALR 200.
49 74 Am Jur 2d, Principal and Surety, § 68 53.
50 Ibid., id., §59, 48-49.
52 Op. cit., § 270, 723.
53 Annex E, Petition; Rollo, 54.
55 Padilla, A., Civil Code Annotated, Vol. IV, 1987 ed., 434.
57 Tolentino, A., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. IV, 1986 ed.,
280.
59 Magallanes, et al. vs. Court of Appeals, et al., G.R. No. 112614, May 16, 1994, Third Division, Minute
Resolution.
60 Security Bank & Trust Co., et al. vs. Court of Appeals, et al., G.R. No. 117009, October 11, 1995, 249
SCRA 206.
61 Medco Industrial Corporation, et al. vs. The Hon. Court of Appeals, et al., G.R. No. 84610, November
24, 1988, 167 SCRA 838.
62 Supra, fn. 59.
Victorias Planters Association,Inc., et al. vs. Victorias Milling Co.,

Inc.
SUPREME COURT
Manila
EN BANC
G.R. No. L-6648 July 25, 1955
VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS ASSOCIATION,

INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on their own behalf
and on behalf of other sugar cane planters in Manapla, Cadiz and Victorias
Districts, petitioners-appellees,
vs.
VICTORIAS MILLING CO., INC., respondent-appellant.
Ross, Selph, Carrascoso and Janda for appellant.

Tañada, Pelaez and Teehankee for appellees.
PADILLA, J.:
This is an action for declaratory judgment under Rule 66. The relief prayed for calls for an interpretation
of contracts entered into by and between the sugar cane planters in the districts of Manapla, Cadiz and
Victorias, Occidental Negros, and the Victorias Milling Company, Inc. After issues had been joined the
parties submitted the case for judgment upon the testimony of Jesus Jose Ossorio and the following
stipulation of facts:
1. That petitioners Victorias Planters Association, Inc. and North Negros Planters Association,
Inc. are non-stock corporations duly established and existing under and by virtue of the laws of
the Philippines, with main offices at Victorias, Negros Occidental, and Manapla, Negros
Occidental, respectively, and were organized by, and are composed of, sugar cane planters in the
districts of Victorias, Manapla and Cadiz, respectively, having been established principally as the
representative entities of the numerous sugar cane planters in said districts whose sugar cane
productions are milled by the respondent corporation, with the main object of safeguarding their
interests and of taking up with the latter problems and questions which from time to time, may
come up between the said respondent corporation the said sugar cane planters; the other
petitioners are Filipinos, of legal age, and together with numerous other sugar cane planters who
own sugar cane producing properties at Victorias, Manapla, and Cadiz Districts, Negros
Occidental, are bona fide officials and members of either one of the two petitioner associations;
that petitioner Fernando Gonzaga is a resident of Victorias, Negros Occidental, petitioner Jose
Gaston is a resident of Victorias, Negros Occidental, and petitioner Cesar L. Lopez is a resident of
Bacolod City, Negros Occidental; and that said petitioners bring this action for the benefit and on
behalf of all their fellow sugar cane planters, owners of sugar cane producing lands in the said
districts of Victorias, Manapla, and Cadiz, whose sugar cane productions are milled by respondent
corporation, and who are so numerous that it would be impractical to include them all as parties
herein;
2. That respondent Victorias Milling Co., Inc. is a corporation likewise duly organized and
established under and by virtue of the laws of the Philippines, with main offices at Ayala Building
Manila, where it may be served with summons;
3. That at various dates, from the year 1917 to 1934, the sugar cane planters pertaining to the
districts of Manapla and Cadiz, Negros Occidental, executed identical milling contracts, setting
forth the terms and conditions under which the sugar central "North Negros Sugar Co. Inc."
would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts;
A copy of the standard form of said milling contracts with North Negros Sugar Co., Inc. is hereto
attached and made an integral part hereof as Annex "A.
As may be seen from the said standard form of milling contract, Annex "A," the sugar cane
planters of Manapla and Cadiz, Negros Occidental had executed on November 17, 1916 with
Miguel J. Ossorio, a contract entitled "Contrato de la Central Azucarrera de 300 Toneladas,"
whereby said Miguel J. Ossorio was given a period up to December 31, 1916 within which to make
a study of and decide whether he would construct a sugar central or mill with a capacity of milling
300 tons of sugar cane every 24 hours and setting forth the mutual obligations and undertakings
of such central and the planters and the terms and conditions under which the sugar cane
produced by said sugar can planters would be milled in the event of the construction of such sugar
central by said Miguel J. Ossorio. Such central was in fact constructed by said Miguel J. Ossorio in
Manapla, Negros Occidental, through the North Negros Sugar Co., Inc., where after the standard
form of milling contracts (Annex "A") were executed, as above stated.
The parties cannot stipulate as to the milling contracts executed by the planters by Victorias,
Negros Occidental, other than as follows; a number of them executed such milling contracts with
the North Negros Sugar Co., Inc., as per the standard forms hereto attached and made an integral
part as Annexes "B" and "B-1," while a number of them executed milling contracts with the
Victorias Milling Co., Inc., which was likewise organized by Miguel J. Ossorio and which had
constructed another Central at Victorias, Negros Occidental, as per the standard form hereto
attached and made an integral part hereof as Annex "C".
4. The North Negros Sugar Co., Inc. had its first molienda or milling during the 1918-1919 crop
year, and the Victorias Milling Co., had its first molienda or milling during the 1921-1922 crop
year.
Subsequent moliendas or millings took place every successive crop year thereafter, except the 6-
year period, comprising 4 years of the last World War II and 2 years of post-war reconstruction of
respondent's central at Victorias, Negros Occidental.
5. That after the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed
central at Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters
Association, Inc. that it had made arrangements with the respondent Victorias Milling Co., Inc.
for said respondent corporation to mill the sugar cane produced by the planters of Manapla and
Cadiz holding milling contracts with it. Thus, after the war, all the sugar cane produced by the
planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling
contracts, were milled in only one central, that of the respondent corporation at Victorias;
6. Beginning with the year 1948, and in the following years, when the planters-members of the
North Negros Planters Association, Inc. considered that the stipulated 30-year period of their
milling contracts executed in the year 1918 had already expired and terminated in the crop year
1947-1948, and the planters-members of the Victorias Planters Association, Inc. likewise
considered the stipulated 30-year period of their milling contracts, as having likewise expired and
terminated in the crop year 1948-1949, under the pertinent provisions of the standard milling
contract (Annex "A") on the duration thereof, which provided in Par. 21 thereof as follows:
(a) Que entregaran a la Central de la `North Negros Sugar Co., Inc.' o a la que se construya en
Victorias por Don Miguel J. Ossorio o sus cesionarios por espacio de treinta (30) años desde la
primera molienda, la caña que produzcan sus respectivas haciendas, obligandose ademas a
sembrar anualmente con cañadulce por lo menos en tres quintas partes de su extension total
apropiado para caña, incluyendo en esta denominacion tanto la siembra con puntas nuevas como
el cultivo del retoño o cala-anan y sujetando la siembra a las epocas convenientes designadas por
el comite de hacenderos a fin de poder proporcionar caña a la Central de conformidad con las
clausulas 17 y 18 de esta escritura.
xxx xxx xxx
(i) Los hacenderos' imponen sobre sus haciendas mencionadas y citadas en esta escritura
servidumbres voluntarias a favor de Don Miguel J. Ossorio de sembrar caña por lo menos en tres
quintas partes (3/5) de su extension superficial y entregar la caña que produzcan a Don Miguel J.
Ossorio, de acuerdo con este contrato, por espacio de treinta (30) años, a contar un (1) año desde
la fecha de la primera molienda. repeated representation were made with respondent corporation
for negotiations regarding the execution of new milling contracts which would take into
consideration the charged circumstances presently prevailing in the sugar industry as compared
with those prevailing over 30 years ago and would provide for an increased participation in the
milled sugar for the benefit of the planters and their workers.
7. That notwithstanding these repeated representations made by the herein petitioners with the
respondent corporation for the negotiation and execution of new milling contracts, the herein
respondent has refused and still refuses to accede to the same, contending that under the
provisions of the mining contract (Annex "A".) "It is the view of the majority of the stockholder-
investors, that our contracts with the planters call for 30 years of milling — not 30 years in time"
and that "as there was no milling during 4 years of the recent war and two years of reconstruction,
when these six years are added on to the earliest of our contracts in Manapla, the contracts by this
view terminate in the autumn of 1952," and the "the contracts for the Victorias Planters would
terminate in 1957, and still later for those in the Cadiz districts," and that "apart from the
contractual agreements, the Company believes these war and reconstruction years accrue to it in
equity.
The trial court rendered judgment the dispositive part of which is —
Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and
declares that the milling contracts executed between the sugar cane planters of Victorias,
Manapla and Cadiz, Negros Occidental, and the respondent corporation or its predecessors-in-
interest, the North Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein
stipulated 30-year period, and that respondent corporation is not entitled to claim any extension
of or addition to the said 30-year term or period of said milling contracts by virtue of an
equivalent to 6 years of the last war and reconstruction of its central, during which there was no
planting and/or milling.
From this judgment the respondent corporation has appealed.
The appellant contends that the term stipulated in the contracts is thirty milling years and not thirty
calendar years and postulates that the planters fulfill their obligation — the six installments of their
indebtedness--which they failed to perform during the six milling years from 1941-42 to 1946-47. The
reason the planters failed to deliver the sugar cane was the war or a fortuitious event. The appellant
ceased to run its mill due to the same cause.
Fortuitious event relieves the obligor from fulfilling a contractual obligation. 1 The fact that the contracts
make reference to "first milling" does not make the period of thirty years one of thirty milling years. The
term "first milling" used in the contracts under consideration was for the purpose of reckoning the thirty-
year period stipulated therein. Even if the thirty-year period provided for in the contracts be construed as
milling years, the deduction or extension of six years would not be justified. At most on the last year of the
thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a time
when all the amount of sugar cane raised and harvested should have been delivered to the appellant's mill
as agreed upon. The seventh paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B",
and "B-1"), quoted by the appellant in its brief, where the parties stipulated that in the event of flood,
typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc.,
the contract shall be deemed suspended during said period, does not mean that the happening of any of
those events stops the running of the period agreed upon. It only relieves the parties from the fulfillment
of their respective obligations during that time — the planters from delivering sugar cane and the central
from milling it. In order that the central, the herein appellant, may be entitled to demand from the other
parties the fulfillment of their part in the contracts, the latter must have been able to perform it but failed
or refused to do so and not when they were prevented by force majeure such as war. To require the
planters to deliver the sugar cane which they failed to deliver during the four years of the Japanese
occupation and the two years after liberation when the mill was being rebuilt is to demand from the
obligors the fulfillment of an obligation which was impossible of performance at the time it became
due. Nemo tenetur ad impossibilia. The obligee not being entitled to demand from the obligors the
performance of the latters' part of the contracts under those circumstances cannot later on demand its
fulfillment. The performance of what the law has written off cannot be demanded and required. The
prayer that the plaintiffs be compelled to deliver sugar cane to the appellant for six more years to make up
for what they failed to deliver during those trying years, the fulfillment of which was impossible, if
granted, would in effect be an extension of the term of the contracts entered into by and between the
parties.
In accord with the rule laid down in the case of Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337, where
despite the fact that the lease contract stipulated seven sugar crops and not seven crop years as the term
thereof, we held that such stipulation contemplated seven consecutive agricultural years and affirmed the
judgment which declared that the leasee was not entitled to an extension of the term of the lease for the
number of years the country was occupied by the Japanese Army during which no sugar cane was
planted2 we are of the opinion and so hold that the thirty-year period stipulated in the contracts expired
on the thirtieth agricultural year. The period of six years — four during the Japanese occupation when the
appellant did not operate its mill and the last two during which the appellant reconstructed its mill —
cannot be deducted from the thirty-year period stipulated in the contracts.
The judgment appealed from is affirmed, with costs against the appellant.
Bengzon, Acting C. J., Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and
Reyes, J. B. L., JJ., concur.
Footnotes
1
Article 1105, old Civil Code; article 1174, new Civil Code.
2
Cf. Lo Ching vs. Court of Appeals, 46 Off. Gaz., Supp. No. 1, p. 399, 81 Phil., 601 and American
Far Eastern School of Aviation vs. Ayala y Cia., 89 Phil., 292.

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Sagrada Orden de Predicadores de Filipinas vs.

G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-

5. Defendant's possession was in good faith.

6. Defendant's possession in the nature of usufruct.

Sps Elvira & Cesar Dumlao vs. Marlon Realty Corp..

SPOUSES ELVIRA AND CESAR DUMLAO, Petitioners,

The following facts are undisputed:

1. Petitioners shall pay respondent P218,000.00 as cost of the lot;

Hence, this petition.

Petitioners’ arguments are misplaced.

Costs against petitioners.

RENATO C. CORONA ADOLFO S. AZCUNA

Pedro Elcano vs. Reginald Hill

G.R. No. L-24803 May 26, 1977

PEDRO ELCANO and PATRICIA ELCANO, in their capacity as Ascendants of Agapito

Cruz & Avecilla for appellants.

Marvin R. Hill & Associates for appellees.

Actually, the motion to dismiss based on the following grounds:

(P. 23, Record [p. 4, Record on Appeal.])

WHEREFORE, the Order of this Court on December 8, 1964 is hereby reconsidered by

THE LOWER COURT ERRED IN DISMISSING THE CASE BY UPHOLDING THE

THE PRESENT ACTION IS NOT ONLY AGAINST BUT ALSO A VIOLATION OF

THE ACTION IS BARRED BY A PRIOR JUDGMENT WHICH IS NOW FINAL OR RES-

THE PRINCIPLES OF QUASI-DELICTS, ARTICLES 2176 TO 2194 OF THE CIVIL CODE,

Fernando (Chairman), Antonio, and Martin, JJ., concur.

Concepcion Jr., J, is on leave.

Martin, J, was designated to sit in the Second Division.

1 Referring to Sentence of the Supreme Court of Spain of February 14, 1919.

2 Referring to Manzanares vs. Moreta, 38 Phil. 821.

3 Referring to Bernal et al, vs. House et al., 54 Phil. 327.

4 Parenthetically, Manresa seemingly holds. the contrary view thus:

Marcelo Agcaoili vs. Gov't Service Insurance System

G.R. No. L-30056 August 30, 1988

MARCELO AGCAOILI, plaintiff-appellee

Artemio L. Agcaoili for plaintiff-appellee.

Office of the Government Corporate Counsel for defendant-appellant.

You are, therefore, advised to occupy the said house immediately.

While equitable jurisdiction is generally to be determined with reference to the situation

Cruz, Gancayco, Aquino and Medialdea, JJ., concur.

1 Dated June 24, 1964.

2 Dated October 5, 1965 (Exh. A ); Folder of Exhibits,p.1.

3 O.R. No. 186558, Oct. 10, 1966.

4 Exh. D, Folder of Exhibits, p. 4.

8 Parenthetical insertions Identifying the parties, supplied.

9 Appellant's brief, pp. 11-14.

10 Id., pp. 7-8.

11 Appellant's brief, pp. 8-10.

14 Lim v. de los Santos, 8 SCRA 798.

I5 Art. 1169, last paragraph, Civil Code.

16 Cristobal vs. Melchor, 101 SCRA 857, 865.

17 771 Am. Jur. 2d, 101.

19 27 Am Jur. 2d. 818.

21 71 Am. Jur. 2d, 120.

23 Record on Appeal, p. 5; Rollo, p. 13.

Song Fo & Company vs. Hawaiian Philippine Co.

SONG FO & COMPANY, plaintiff-appellee,

SILAY, OCC. NEGROS, P.I.

Messrs. SONG FO AND CO.

Yours very truly,

December 16th, 1922.

Messrs. HAWAIIAN-PHILIPPINE CO.,

(a) Price, at 2 cents per gallon delivered at the central.